Discover the Secret Weapon for Commercial Real Estate Investors: ESG Investing

Bison co-founder, David Repka, will be speaking at IMN’s ESG & Decarbonizing Real Estate Forum on July 10-11 in Dana Pt, CA. This conference is the essential gathering for ESG & sustainability professionals, investors, operators, property management firms, lenders, technology/service providers, and other esteemed industry professionals. David is participating in a panel discussing "Addressing the “S” in ESG". See the PS for more information on the conference and your discount code.

ESG stands for Environmental, Social, and Governance. It's a way of choosing where to invest your money based on how companies perform in these three areas. Let's break down each part and give some context to clarify this often misunderstood topic. 

The "E" in ESG stands for Environmental. This is the area that generates the most attention from investors. This involves looking at how a company and its assets impact the planet. In multifamily rental housing, this means evaluating buildings based on their energy efficiency, water usage, waste management, and overall carbon footprint. Investors focused on the “E” look for properties that use sustainable materials, have energy-efficient systems, and reduce environmental impact. Lender 

Example: A property that features energy-efficient appliances, geothermal HVAC to reduce energy consumption, smart thermostats, dual-flush toilets, greywater processing, energy-efficient windows, solar panels, a robust recycling program, and integrates green spaces to enhance residents' well-being.

The "S" in ESG stands for Social. This involves how a company manages relationships with tenants, employees, suppliers, and the communities where it operates. In a multifamily rental housing/senior housing context, this means ensuring buildings are safe, accessible, and beneficial to the residents and surrounding community. It also includes fostering good tenant relationships and promoting diversity and inclusion within the company and its properties.

Example: A multifamily housing company that provides affordable housing options and offers community-building activities for residents. Another example is a senior housing facility that prioritizes resident health and happiness by offering wellness programs, accessible design, and opportunities for social engagement.

The "G" in ESG stands for Governance. This involves how a company is run. In CRE this means having transparent and ethical management practices, strong oversight, and accountability. Investors look at the company's leadership, compliance with regulations, and how it handles tenant and community concerns.

Example: A multifamily housing company that maintains clear and honest communication with tenants and stakeholders, follows strict ethical guidelines, and has a diverse board of directors. A senior housing provider that adheres to rigorous safety standards, regularly audits its operations, and actively seeks feedback from residents and their families to improve services.

Combining ESG Factors
ESG investing means looking at all three factors together. Commercial real estate investors focus on properties and companies that excel in environmental sustainability, social responsibility, and good governance. They believe that these companies are likely to be more sustainable in the long term, facing fewer risks, attracting loyal tenants, and generating compelling returns on investment.

Bottom Line - Why ESG Matters

  1. Long-term Value: Properties with strong ESG practices often have better long-term prospects. They tend to attract more tenants, have lower vacancy rates, and face fewer regulatory issues.
  2. Ethical Considerations: Many investors prefer to put their money into properties that align with their values, supporting buildings and developments that contribute positively to society and the environment.
  3. Risk Management: ESG factors can help identify potential risks in real estate investments. For example, buildings that are not energy efficient may face higher operating costs and regulatory penalties in the future. 
  4. Financial Incentive: Fannie Mae’s Green Rewards loan product provides incentives for multifamily property owners to renovate and retrofit existing multifamily properties with capital investments in energy efficiency, water efficiency, and/or energy-generating solar technology and systems. The program is ideal for property owners interested in improving the property condition and cash flow of existing multifamily buildings.

Examples of ESG in CRE
Example: A living/learning community focused on adults with autism and intellectual disabilities. Creating a high-quality environment for an aging, at-risk population to live with dignity and purpose in a setting that encourages social integration and harmony. 

Example: A multifamily housing development that achieves LEED certification for its sustainable design, incorporating features like energy-efficient windows, green roofs, and water-saving fixtures.

Example: A senior housing facility that integrates sustainable landscaping, uses non-toxic building materials, and provides shuttle services to reduce residents' reliance on personal vehicles.

Example: A real estate company specializing in multifamily workforce housing that offers the children of working parents after-school care with a computer lab, homework assistance, and tutoring. 

ESG investing in commercial real estate is about making thoughtful choices with your money. It's like choosing properties that not only provide great living spaces but also care for the environment, treat people well, and are run fairly. By investing in properties that prioritize ESG factors, investors can support developments that contribute to a better, more sustainable future.

PS - Limited time 20% discount for *new registrations* with code “SP20” – see you there! @Information Management Network (IMN) #IMNEvents #IMNESG

Author: David Repka

About the Author:
David Repka is the Co-Founder of Bison Financial Group in St. Petersburg, FL.
Bison arranges debt and equity financing for commercial real estate investors and developers.
Bison has relationships with investors across the risk spectrum funding acquisitions, renovations, and new construction.

Click to learn more about:
Bison Financial Group