This article is sponsored by Greystar. It appeared in the Sustainable Investing supplement alongside the October 2019 issue of PERE magazine.
Charleston-based Greystar, a global developer, investor and operator of rental housing including build-to-rent, student housing and senior housing, overseeing $35.8 billion of assets under management, emphasizes putting people and best-in-class living environments at the heart of its agenda. It is not surprising, then, that sustainability is also a core value for the firm.
Here, PERE’s Michelle Phillips talks to the firm’s head of sustainability, Lexie Goldberg, to find out how the firm has integrated sustainability into its global portfolio.
How do you define sustainable residential real estate investing?
It is really about the impact our organization, portfolio and even individual assets are having on our residents and communities. The conversation has now gone beyond just the basic operating metrics around environmental impact. We are starting to discuss issues such as resident health and wellbeing as well as climate risk and resiliency. As a firm, we must show how we are thinking about these issues and about the future of our portfolios, and not just what we are doing today.
Can you elaborate on what you mean by having an impact on communities, and why that is important to the success of a rental housing investment?
First, it is about what we are consuming on site, knowing a property will have an impact on the health of that community. But more importantly, we think it is critical to engage our residents directly on the topic of sustainability. That might involve participating in local fundraisers or educating residents about what is available to them. It is not just about the building itself, but ensuring our properties offer access to public transportation, green space, an ability to bike around and nearby stores. It is a holistic view of the community.
We see our community of residents engaging directly with sustainability. Some are even driving our sustainability efforts. According to a 2018 Shelton Group survey, 89 percent of residents are concerned about climate change, 80 percent think living in a green home is beneficial for their health, and 80 percent are already engaging in green behavior, like reducing energy and water usage.
To engage our residents, we provide a Green Living Guide, which gives simple tips on how to live more sustainably. The feedback on that guide has been very positive. Our residents also participate in ‘Sustainable September,’ a month-long coordinated effort to drive innovative sustainability ideas from local managers and residents. We really strive to include residents in the sustainability conversation, because without their engagement, it would be nearly impossible to measure our impact.
Have you seen institutional investors’ attitudes toward sustainability change over time?
It has become an area of focus with nearly all of our investors, but there has been an evolution of their approach and how they engage with us. Ten years ago, sustainability was a ‘check-the-box’ exercise. It was not something that was discussed in great depths if it was not going to add to the bottom line. But with an increased focus on transparency, investors these days want to know what organizations like Greystar are doing and how we are demonstrating progress.
The most common question we get from investors is how we are managing consumption. Some go a step further and ask how we can do more, whether through retrofitting buildings to have a lower carbon footprint or exploring carbon neutrality. Investors are also thinking about climate risk and resiliency and how to mitigate those long-term risks. So it is not just looking at what we are doing now or what we have done in the past, but how we are taking into account the future impacts of the decisions we make today.
At the end of the day, these are still investments, so how does sustainability intersect with profitability?
One of the biggest changes in the past few years is being able to collect environmental metrics and measure their impact on the bottom line. It has taken a long time to get that capacity. Our sustainability efforts are measured across energy, water and waste metrics. Water is the area where we most typically do retrofits for whole buildings: installing low-flow fixtures, adjusting water pressure, adding leak detection devices. We always make sure to have a starting point where we can measure consumption before our retrofits, and then measure it again afterwards. That way we can demonstrate where our efforts are successful and measure the impact.
We do the same for energy: LED retrofits are perhaps the most common, as they are low-hanging fruit. But we are also looking at HVAC (heating, ventilation and air conditioning) efficiencies, and some higher cost energy improvements that might not deliver a return within the year. For waste improvements, we are trying to increase recycling by creating robust programs that include access and education to residents.
These projects can be expensive, so we give investors a clear understanding of each project and the impacts we expect to see. Our investor base has certainly become more holistic in how they think about investments in these projects – the initial costs might seem high, but if you can generate returns within the same year, it is an easy win for both sides.
What have you found to be some of the greatest challenges in sustainability?
Hands down, it is data collection. A unique challenge in rental housing is that residents pay their energy bills directly to the energy providers, so we do not have insight into their consumption. We respect each resident’s privacy and often the law precludes us from getting resident data directly. We are starting to see some utility companies offer aggregate whole-building data, but that varies from place to place.
The discrepancy of where we can get data and where we cannot is a huge challenge, especially when trying to compare portfolios, not just in the US, but internationally. There are a million different ways utilities are managed and paid for, and we need to understand this in order to measure improvements.
Sometimes local governments require us to measure consumption by building to provide benchmarking reports. Sometimes utility companies are helpful in this endeavor, and other times we get a subset of residents to disclose their consumption and extrapolate from that to the building as whole.
We partner with our innovation team to determine solutions around how to collect the data reliably. We obviously want as much data as we can get, but it is important to know what we have access to and what our partners are able to provide.
Why is data that much harder to get in the field of sustainability?
A lack of standardization is a problem. In most cases sustainability comes down to consumption, but there are many different ways buildings are metered and billed. There are differences not just state-by-state, but county-by-county that undermine consistency.
There are still many new things that we are trying to understand as an industry. How do we define sustainability? What is the standard way to get insight into resident consumption habits? How do we deal with all these new measurements? How do we figure out what those standards are? How do we benchmark against ourselves and others?
To add to the complications, other countries do not have the same understanding, either. It can be difficult to collect data or report on sustainability if there is not a common language.
Greystar is a global firm, headquartered in the US, so what is your view on how the US real estate market compares with the rest of the world in terms of adopting sustainability?
In Europe, the sector and people generally have a much better understanding of sustainability – it is integrated into the overall culture and there is much less education needed around the subject. Expectations around sustainability in Europe have been there a long time, and they are pushing the boundaries of what it means to build and operate sustainably. We model a lot of what we do in the US on European standards.
Australia is also very advanced in their expectations and the standards placed around sustainable real estate. When we first looked at expanding to the Asia-Pacific region, it was surprising to see such a strong push toward holistic sustainability in the region as a whole, whether it is about combating climate change or reaching carbon neutral goals. In South America, we are trying to integrate global standards, but it is still a work in progress and we need to see how it will evolve.
I would say across the board, some form of reporting, like GRESB, is always required. As a residential firm, we are seeing standardization in the sector increase, with plans to show long-term sustainability improvements over time, too.
Case study: Greenford Quay, London
The development, a mixed-use neighborhood on the banks of the Grand Union Canal in London, will include 1,965 purpose-designed homes across seven multifamily buildings. Greystar built the development using modular and off-site construction methods. These methods not only cut construction time, but have enormous environmental benefits.
Heriot-Watt University recently completed research on the development’s environmental impact and the benefits of off-site and modular construction. The findings showed that compared with traditional construction methods, Greenford Quay’s construction saved an equivalent to 26,000 tons of CO2. These savings equate to 160,287 trees being planted or 7,030 vehicles taken off the road for an entire year. The development is expected to be completed in 2020.