Protecting property in the world’s most vulnerable cities against the worst ravages of natural disasters and climate change is often how ‘resiliency’ is defined in the real estate context. But to see this increasingly important subset of sustainable investing through such a narrow lens is shortsighted. The 11th of the UN Sustainable Development Goals makes it clear the urgency with which the world must respond to the challenges of rapid urbanization through efficient urban planning by creating cities that are “inclusive, safe, resilient and sustainable.” Michèle Meier, vice-president of communications, corporate marketing, CSR and international affairs at global investment firm Ivanhoé Cambridge explains why the private real estate sector is in pole position to make a difference and drive this forward.
PERE: What is a ‘resilient city’?
Michèle Meier: Ensuring buildings are flood and earthquake safe is a core part of developing resilient cities, but for our cities to be truly resilient, a more holistic approach is required. Resiliency is not just about making sure cities survive; they must also thrive. This means making them attractive places for people to live, work and play in the long term. People want to be confident their homes won’t get damaged in a hurricane, but they also want to live in cities with green space, good transport links and many other amenities. These features make a city somewhere that people actively choose to live. This is how we define ‘resilient cities’ and we see a definite shift in the market to adopting this mindset.
PERE: Tell us more about Ivanhoé Cambridge’s approach to resiliency.
MM: Our approach is profoundly human-centric. We want to develop and invest in ambitious projects that enhance the comfort, quality and safety of occupants. That involves minimizing the environmental footprint across our portfolio, but we are also committed to making a positive impact on the wider community. Our ethos is that we have a responsibility beyond the walls of a building. It’s about how a particular property is helping to shape the neighborhood and landscape. To achieve that, it’s important to have a 360-degree view of the impact of our investments and how they score against ESG criteria. This involves reviewing risks relating to climate change. We look, for example, at the energy intensity of a development and the impact on our carbon reduction objectives. And social factors are equally important – health and safety, reputational and ethical issues.
PERE: Why is adopting this wider approach to creating resilient cities important for the private real estate sector?
MM: The value of our properties depends on the wider environment in which they are located. As investors, we have a responsibility to ensure we capitalize and build projects that meaningfully contribute to the wellbeing of their occupants. The onus is on the real estate sector to carefully select where we develop urban projects that will allow cities to survive and thrive in the future. Property owners that see resiliency in this light and appreciate how critical it is to keep the end-user happy will have a true competitive advantage. This is the key to long-term value creation; if occupants, whether it’s office workers, retailers or hotel guests, are satisfied with a building and its surrounding space, then they are going to want to stay there. That creates resilient properties and cities, and ultimately that is good for owners.
These initiatives are not all being driven from within the sector itself. Rather we are responding to what our stakeholders are demanding from us. Today’s occupiers have greater expectations than those of the past and are putting more pressure on the sector to meet their needs. Office tenants, for instance, expect ample and flexible space, clean air, good lighting and amenities. Many cycle to work, so they want safe areas to store their bicycles and they want access to showers; their needs go beyond a desk, chair and telephone. Catering to how people want to live, work and play is a more serious and complex business now. Every stakeholder group is interested in resiliency and as an industry we must listen and respond. To repeat my earlier point, it really is about adopting a more human-centric approach to real estate that goes beyond square meters and bricks and mortar.
PERE: Is the industry currently showing enough commitment to resiliency?
“As investors, we have a responsibility to ensure we capitalize and build projects that meaningfully contribute to the wellbeing of occupants”
MM: With more than 30 percent of greenhouse gas emissions coming from the built environment, our industry has no choice but to take action and put strategies in place to reduce its carbon footprint. Overall, the real estate sector has made, and continues to make, huge progress and many investment managers and investors, big and small, are fully committed to doing more. And thanks to initiatives like GRESB, we can expect further progress in the coming years. There are many ways we can help to maximize resilience: strive for higher standards, seek certifications, reduce energy consumption. But this really is the obvious stuff. There is more to do in terms of the industry as a whole acknowledging its responsibility to positively contribute to the communities in which we do business.
PERE: Are there specific obstacles that make it difficult to advance the wider definition of resilient cities?
MM: There’s evidence aplenty that sustainable investing and adherence to ESG criteria enhance long-term investment performance. But the challenge with sustainable initiatives and resilient city projects is that value is created over an extended period, yet our returns are measured yearly. Value is not necessarily visible in the short term. This can make it difficult to get these projects financed because time is required to gather performance data over several years to show a positive and direct correlation between resiliency and performance. We see this tension regularly in the market. Data is now a critical tool in empowering managers and investors to make a positive case for these projects and garnering support for them. So it’s a good sign that the industry is getting better and more efficient at gathering, analyzing and measuring data.
There are positive signs that lenders are beginning to embrace these projects too. Ivanhoé Cambridge itself was a recent beneficiary receiving Europe’s first green-labelled commercial real estate loan to finance the development of the DUO towers in Paris with our partners, Natixis Assurances.
Another challenge is that investing in resilient city projects often means engaging in some sort of innovation process and budgets for this can often be difficult to justify if stakeholders can’t see upfront the direct performance benefit to them. The question usually is; ‘how much does it cost’? The response should often be; ‘how much does it cost not to do it’? Overall, I’m optimistic the market is moving in the right direction in committing to the development of resilient cities.
Case study: Transforming downtown Toronto
In Spring 2017, the construction of Toronto’s CIBC SQUARE got underway. Billed as an iconic project that will alter the skyline of Canada’s biggest city, it is the result of 10 years of meticulous planning, dialogue and collaboration with the local community, and the embodiment of Ivanhoé Cambridge’s holistic approach to real estate development in major hub cities. “We hope it will set a new standard in office building quality and be a good example that it’s not just about the building itself, but how that building contributes positively to shaping a city’s future and fostering an environment that supports the wellbeing of occupants”, says Ivanhoé Cambridge’s Michèle Meier.
Location: Toronto, Canada
Concept developer: Ivanhoé Cambridge
Investors: Ivanhoé Cambridge and Hines
Size: 2.9 million square feet
Anchor tenant: CIBC
Key features: two elegant glass buildings; one-acre elevated green park; integrated transport links including a GO Bus Commuter Terminal and subway and rail corridor; cutting-edge office and collaborative spaces; more than 1,000 bicycle parking spaces and electric vehicle charging stations
Projected certification labels / designations: WiredScore Pre-Certified Platinum and pursuing both LEED® Platinum Core & Shell and Delos WELL Building Standard™
Completion date: stage 1 in 2020; stage 2 in 2023
This article was sponsored by Ivanhoé Cambridge. It appeared in the Sustainable Investing special supplement that accompanied the October 2018 issue of PERE magazine.