Survey: Real estate investment less impacted by climate change in downturn

Washington, D.C. A report released Monday by the Urban Land Institute has found that the ongoing downturn in the commercial real estate industry has temporarily lessened the importance of climate change and alternative energy sources as a factor in real estate investment decisions.

Interest, however, is expected to pick up when the market rallies, the survey of U.S. financial industry leaders also found.

ULI’s survey, conducted through ULI The Americas in May, drew responses from more than 200 executives of some of the leading financial institutions in the United States, including investment funds, institutional investors, real estate investment trusts and banks, as well as individual investors.

“For now, the global downturn has trumped emerging attempts to realize benefits from green development,” the report stated. “For investors, thinking green today refers to dollars. Environmental issues play a factor only when they produce an immediate return or mitigate an investment risk.”

The report noted that the federal government’s emphasis on greening America, reflected in the economic stimulus funds aimed at reducing the carbon footprint of both new and existing buildings, “hasn’t prompted many (investors) to leap on the bandwagon … They are waiting to see how they’ll be hit by regulation yet to come, on the federal, state and local levels.”

Still, while interest rates and job growth dominated investment concerns among the survey respondents, the majority said that issues related to climate change will be increasingly important in the years ahead. In the interim, “many are doing what they can on a few fronts, such as conducting energy-efficiency analyses and increasing their internal expertise … What investors do today, and what they anticipate having to do in the future are two separate matters,” the report said.

In summary, the survey found that 40% of respondents felt the economic downturn had somewhat weakened the business significance of climate change and energy issues; an additional 17% said it had significantly weakened the significance of those issues.

Nearly 80% said they have not yet altered their business models or approach to deal structures due to climate change and energy issues. Nearly half said climate change and energy issues would be at least somewhat important over both the next year and the next five years. About 15% rated climate change and energy issues as important over the next year; over the next five years, about 26%.

Nearly 50% said their companies have developed significant expertise in energy or energy-efficiency issues, and one-third have developed professional expertise in sustainable community development.

Eighty percent said their due diligence reviews include explicit energy-efficiency analyses, and nearly that many include transit accessibility and location efficiency in the reviews. Conversely, only about 10% factor in carbon footprints.

The fact that most respondents are waiting on the outcome of legislative and regulatory activity illustrates the paralyzing effect of unknowns in the real estate investment sector, pointed out ULI chairman Jeremy Newsum, executive trustee of The Grosvenor Estate, based in the United Kingdom.

“In the United States, with so much still unknown about the impact of government policies related to climate change, the cautious approach by the lending community is to be expected,” Newsum said. “However, the fact that investment decisions are not currently based on climate change does not mean that this will continue to be the case in the years ahead.  The pause necessitated by the downturn is offering an opportunity for real estate investors and developers to get smarter about what they need to do in an industry in which being green will mean being competitive.”

The report was supported by Cherokee, a national real estate investment firm based in Raleigh, N.C., and Akerman Senterfitt, a national law firm headquartered in Miami.