Over the next few weeks, I will release a series of blog entries summarizing the 30+ pages of notes I took at the conference.
Here is my first entry, summarizing the viewpoints shared in the first panel, titled Pension Funds Perspectives. The panel was moderated by Leanne Tobias, of Malachite LLC, based in suburban DC. Panelists included Liz Diamond from AFL-CIO Housing Investment Trust, Lyz Ferguson from the Bay Area Family of Funds, Preston Sargent from Kennedy Associates, and Cherie Santos-Wuest, from TIAA-CREF.
When asked if this was the time to be considering green building considering the economic environment, Santos-Wuest answered without hesitation that green building is even more relevant as a result of the downturn. In her view, there is no justification for constructing a new building that is anything less than LEED-Gold. She also mentioned that green strategies do well to prepare for the regulatory future, which is now in some jurisdictions already, including San Francisco, Boston, and the District of Columbia.
Sargent attributed the swing to pressure from their investors, such as CalPERS, the largest public pension fund in the world, and also one of the most progressive. According to Sargent, institutional players would not be demanding green buildings unless they see a bottom line benefit, as many now clearly do.
One challenge that real estate investment managers are facing is rebalancing, which occurs when pension funds whose mandates set limits on the real estate share of total assets suffer larger losses in other investments and therefore must dispose of some of their real estate assets in order to restore required ratios. This is also known as the denominator effect. An additional challenge relating to falling asset values is that it is difficult to value investments in today's maketplace because there are so few sales, especially of green buildings.
Diamond identified non-traditional investors, such as foundations and public-private partnerships (PPPs), and other mission-based investors as potential sources of capital in such a challenging environment. Sargent identified Kennedy's experience with PPPs, including the Port of Portland, one of the largest LEED-certified industrial buildings.
Panelists also mentioned the benefits they see in owning green buildings. This is nothing new to those of us who have been following the movement for some time, but it was good to hear those with skin in the game identify these factors as well. They include: tenants stay longer, and have a higher probability of renewal (underwritten to 85-90%), tenants come sooner (given the choice, tenants prefer green spaces first), and they do not want to build into obselecense.
