Insights from EVORA’s Value-Add Webinar

The webinar hosted by Ed Gabbitas, co-founder of EVORA, focused on how sustainability adds value to real estate investments, particularly in the value-add space. The discussion featured insights from Inger Ahaneku, Head of ESG at MARK Capital, Ryan Ray, leader of ESG Performance at TPG, and Sonny Masero, Managing Director for Global ESG at Hines.

Key Takeaways

1. Importance of Sustainability in Real Estate
   • Real estate investors are increasingly focused on sustainability and ESG factors. This focus is driven by both regulatory requirements and market demand for sustainable and resilient buildings.
   • Sustainability initiatives can drive value in real estate investments by reducing operational costs, increasing rental income, and enhancing asset desirability.
2. Current Market Environment
   • The real estate sector has faced challenges due to high interest rates, the COVID-19 pandemic, and changing market dynamics.
   • Investors are moving up the risk curve to achieve higher returns, making value-add strategies more attractive.
   • Despite high interest rates, sustainability remains a key factor for investors, influencing their decisions and strategies.
3. Investor Expectations and Strategies
   • Investors are asking more specific and technical questions about ESG strategies, such as the use of tools like CRREM and the integration of physical climate risk assessments.
   • There is a shift towards more process-based commitments and detailed ESG integration in business plans.
   • Firms are conducting enhanced ESG due diligence and integrating sustainability into their investment and asset management strategies.
4. Challenges and Opportunities in Decarbonization
   • Decarbonization is seen as crucial for future-proofing assets, including value-add where it is necessary to look beyond the short hold period to appeal to future buyers.
   • Innovative approaches and financing mechanisms, such as sustainable debt and C-PACE (Commercial Property Assessed Clean Energy) financing, are helping to overcome these challenges.
   • The focus is on creating clear decarbonization pathways and understanding baseline metrics to drive value in real estate assets.
5. Physical Climate Risk and Adaptation
   • Addressing physical climate risks is essential for maintaining asset desirability and protecting value.
   • The rising costs of insurance and the increasing frequency of extreme weather events are driving the need for climate resilience in real estate investments.
   • Adaptation measures are necessary to mitigate these risks and ensure the long-term viability of assets.
6. Social Value and Community Engagement
   • Creating thriving communities within and around buildings is crucial for tenant retention and asset value.
   • Social value strategies are tailored to local needs and involve active community engagement.
   • Metrics for measuring social impact are evolving, with a focus on tenant satisfaction and community well-being.
7. Future Outlook
   • Even if interest rates decrease, the emphasis on sustainability and ESG factors in real estate investment is expected to remain strong.
   • Investors and asset managers are encouraged to think beyond short-term ROI and consider long-term value creation through sustainability initiatives.
   • The importance of understanding and quantifying risks and opportunities related to ESG factors is paramount for successful real estate investments.

Conclusion

By integrating ESG factors into investment strategies, conducting thorough due diligence, and focusing on long-term value creation, investors can enhance asset desirability, manage risks, and achieve higher returns.

Speak to an EVORA expert today to discover how our comprehensive sustainability strategies can elevate your value-add fund’s performance and unlock new opportunities for growth.