Schroders Capital is planning to implement its in-house benchmark to measure the success of its impact real estate funds slated for next year.
The new 10-point framework will allow the £17 billion ($22.5 billion; €20 billion) real estate investment arm of the London-based manager to monitor its success as it expands its impact investment thesis. The framework points include GDP per person in a specific area or proximity of people in the area to social infrastructure like care facilities or schools.
There is a lack of options of good ESG benchmarks, with most focusing on the ‘E,’ Sophie van Oosterom, Schroders’ global head of real estate, told PERE at the first PERE Connect event held at the offices of law firm Katten Muchin Rosenman in London.
Van Oosterom said the firm developed this social impact framework with BlueOrchard, its Zurich-based impact credit investing subsidiary. BlueOrchard, which has been operating in the impact space for the past 20 years, will also aid in measuring the funds’ ultimate impact and performance.
“We hear a lot of people discussing impact – people saying one thing and doing another,” van Oosterom said, adding that Schroders wants to focus on building an auditable framework to focus specifically on the ‘S’ of impact investing.
The criteria that Schroders wants to measure against are extremely granular. Deprivation measures for its new framework include the amount of leaf litter in the postcode, which is a useful indicator in measuring the amount of greenery and quality of air. Other factors are simpler, like proximity to motorways or other roads that could bring pollution to the areas where Schroders is invested or even salary and GDP levels per person for a particular postcode.
Schroders finished raising its UK Social Supported Housing Fund earlier this year, garnering £192 million in capital commitments. Van Oosterom said that the firm is launching a more diversified UK-focused impact fund early next year with a focus on properties ranging from essential high street retail like pharmacies to offices and residential properties. The plan is to expand the social impact strategy to continental Europe later next year.
The proposed open-ended fund is aligned with the UK government’s leveling up agenda of improving deprived communities and areas of the country. Investors, particularly local government public pension funds in the UK, van Oosterom noted, are also particularly interested in the impact strategy. From Schroders’ perspective, the regeneration of areas also enhances the profitability of the assets that the firm targets for its impact strategy.
“When you make improvements in a certain area, that also improves the relevance of that building in its environment. Performance is not only driven by income,” van Oosterom said. “There is a certain improvement on cap rates envisaged that can lead to a total return not much different from what you expect from a normal fund.”
Schroders will utilize its internal capabilities to manage its new series of investment vehicles. In addition to BlueOrchard, another differentiator for Schroder Real Estate’s impact strategy is its operational team, led by former SVP Global executive James McNamara, who joined in September as head of operational real estate strategies.
“We really value operational expertise in all sectors,” van Oosterom said. “The time to invest and sit back to collect the rent for five years is over.”
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