What's New

Green Building Funds: New Investment Vehicles Continue to Launch

As reported in the New York Times, Malachite LLC has been in the forefront of assessing trends in the launch of new real estate investment vehicles. As we predicted, the first funds launched during 2006 and additional vehicles continued to come to market in 2007. A round-up of key developments, extending into 2008:

2006 green fund launches included the Rose Smart Growth Investment Fund and the Hines/CalPERs Green Development Fund. In 2007, Thomas Properties announced the creation of a green private equity fund with $100 million in start-up capital from CalSTRS, while JP Morgan announced a capital raise reported at $500 million for a new Green Urban Renaissance Fund expected to launch in 2008. In January 2008 Morgan Stanley announced the creation of a $200 million fund to invest in energy-efficient retrofits of real estate held by institutional owners. The retrofits would be performed by Recurrent Energy. Green retrofits are also the focus of the Green Realty Trust, a new venture created by tenant-in-common investor Rob Hannah. On the regional level, the Schuster Group has announced the 2008 launch of a Pacific Northwest green real estate fund.

In the related field of socially responsible investing, insurance giant TIAA-CREF has created a fund that focuses on properties that foster urban revitalization or the creation of affordable housing, many of them green.

The development of pooled investment vehicles for sustainable real estate would encourage the flow of capital to the green building asset class and assist interested developers in finding financing. As Malachite LLC predicted, recognized institutional players are entering the niche more rapidly than first-time sponsors and the first rounds of financing are centering on private equity funds, many of which are likely to go public as their portfolios stabilize.

Many believe that green constitutes the future of investment real estate. A November 2007 report from RREEF concludes: "Green building is fundamentally altering real estate market dynamics....The upshot will be a redefinition of what constitutes Class A properties and even institutional real estate."

Malachite LLC has spoken and written widely on green real estate fund trends and is one of the few firms to combine expertise in institutional real estate fund management and green real estate.

North American Study on Green Buildings Released

The Commission on Environmental Cooperation (CEC) has issued its comprehensive study aimed at mainstreaming green building in Mexico, Canada and the United States. The study, released in March 2008, evaluates green building market penetration scenarios for the three nations and recommends actions that can be taken by business and government to accelerate the use of green building practices.

CEC was created by NAFTA to facilitate common approaches to environmental issues by Canada, Mexico and the United States. The green building initiative was staffed by a team of experts drawn from all three nations. Malachite LLC prepared the CEC's briefing paper on the financing of commercial and residential buildings in the United States and developed recommendations to enhance financing for green buildings.

See CEC's green building profiles and other briefing papers.

February 2008 Conferences Highlight Green Real Estate Investment

Green real estate investment is growing up. The niche is now large enough to warrant its own conference venues, as a pair of February 2008 events showed. Infocast's Green Building Finance and Investment Forum, held in San Francisco, attracted some 150 investors, developers and financial advisors. The consensus: the green building asset class is increasingly sought after by such institutional investment powerhouses as AIG, JP Morgan, GE Real Estate and DeutscheBank/RREEF. Malachite LLC co-sponsored the conference with Miller Canfield and Galley Eco Capital. Link to Galley Eco Capital's conference summary here.

Responsible Property Investment (RPI) marries environmental and social objectives to property investing. To explore this growing field, the American Conference Institute's Responsible Property Investing Conference linked institutional real investment managers, including Cherokee, Jonathan Rose Companies, Kennedy Associates and TIAA-CREF, with social investment and non-profit organizations, including the Ashoka Institute, Calibre, Ceres, KLD Analytics, the U.S. Green Building Council and Volunteers of America. Malachite LLC presentations highlighted responsible property investment trends and the use of widely-used real estate investment metrics in evaluating green real estate. A key take-away: foundations and endowments might be able to use newly created investment vehicles-- L3Cs in the U.S. and CICs in the European Union-- to jumpstart initiatives to finance responsible property investments, including green and affordable ventures.

New Green Real Estate White Paper from Building Design and Construction

Building Design and Construction has unveiled its October 2007 "Green Buildings Research White Paper". The White Paper documents the growth of the green construction industry, reporting that 94% of respondents to a survey of 2,500 industry professionals believe that the green building industry is growing, and that two-thirds of the firms polled report experience in the sector. At the same time, 86% of survey respondents believe that green building is more costly than conventional and 31% report difficulty sourcing green materials. Malachite LLC has been an expert advisor to BD+C on green real estate investment. Click here for free registration to read the White Paper.

Local, State and Provincial Governments Pass Green Legislation Worldwide

State, local and provincial green building and energy efficiency initiatives have gone global, creating a new impetus for green building worldwide. Over 800 local governments around the globe have signed on to the Climate Protection Program of the International Council for Local Environmental Initiatives (ICLEI), under which cities commit to developing action plans to address climate change.

The growing list of municipalities in the U.S. that have enacted green building legislation includes Seattle, Portland, Salt Lake City, Boston, New York, Chicago and Washington, D.C. As of late 2007, 26 states have enacted green building legislation. States which require that state government buildings be built green include Pennsylvania, Oregon, Arizona, California, Colorado, Florida and Massachusetts. State tax incentives favoring green development have been enacted by Nevada, New Mexico, Oregon and New York, among others. See StateLine for a recent roundup.

Some states and localities are encouraging green construction by the private sector. 2007 legislation enacted in Connecticut incorporates green building requirements into the state code. Boston's zoning legislation now requires that private construction apply the Leadership in Energy and Environmental Design (LEED) checklist of the U.S. Green Building Council. Washington, D.C.'s law, which has been cited as among the most comprehensive in the U.S., requires that, starting in 2012, all new private sector buildings of 50,000 square feet or more be constructed to green standards.

Malachite LLC has been a member of the Washington, D.C. Task Force and advised the District of Columbia City Council in developing the city's green building legislation.

Recent Reports on Climate Change Economics and the Real Estate Link

During 2007, the UN's Nobel Prize winning Intergovernmental Panel on Climate Change (IPCC) released four studies on global warming. The most recent, a synthesis study issued in November 2007, concludes that global warming is manmade and will cause widespread adverse changes in climate and weather patterns unless addressed comprehensively.

The IPCC's mitigation study, released in May 2007, concluded that commercial and residential building offered the potential to cost-effectively reduce 29% of baseline greenhouse gas emissions by 2020, the highest-potential economic sector studied.

The four IPCC studies are the latest of a series of path-breaking reports addressing climate change economics. The October 2006 Stern Review, commissioned by the UK government and authored by British economist Nicholas Stern, calls for urgent action to reverse adverse climate change and identifies energy-efficient technologies and new emissions trading mechanisms as key areas of global economic opportunity.

Reversing adverse climate change could cost as little as 1% of global GDP, according to the Stern findings, while failing to address the issue could reduce global GDP by as much as 20%.

Buildings are the single largest source of the greenhouse gasses that produce adverse climate change, and green building technologies are considered the key way to reduce them. Insurance industry leader Swiss Re and the Center for Health and the Center for Health and the Global Environment at Harvard University Medical School endorse green building construction and other energy efficient technologies as ways to begin to reverse global warming and climate change. The study, available at ClimateChangeFutures.org, is a sobering look at the probable environmental, health and economic consequences of global warming.

UN Environment Programme Launches Property Working Group and Other Real Estate Initiatives

The UN Environment Programme and its Financial Institutions Initiative (UNEP-FI) have launched a Property Working Group to accelerate the global adoption of sustainable real estate. The Property Working Group, directed by Jean-Pierre Sicard of Caisse des Depots and Paul McNamara of Prudential, held its second meeting in New York in November 2007. Malachite LLC was among the real estate experts that submitted project recommendations to the Property Working Group. UNEP also conducts a Sustainable Building Construction Initiative to encourage green building construction practices.

New U.S. Accounting Standard Favors Environmentally Sound Facilities

The Financial Accounting Standards Board (FASB) has adopted FIN 47, which requires American companies to include on their balance sheets an estimate of the conditional costs associated with asset sales, including land and facilities. Under FIN 47 companies must add to their liabilities estimated environmental clean-up costs associated with the sale or closing of plants, facilities and other assets.

The new standard affects all American companies that issue audited financial statements consistent with Generally Accepted Accounting Principles (GAAP). Experts agree that FIN 47 compliance will make companies more eager to correct existing environmental problems and to construct new facilities in such a way as to minimize or prevent environmental liability. FIN 47 also may increase the perceived value of green or sustainable facilities.

Market Drivers for Green Housing

The results of RCLCO's in-depth survey of U.S. homeowners segments the market for green housing into several sectors. 'Forest Greens' are motivated by environmental concerns and tend to be highly educated, but comprise a relatively limited market segment. 'Greenback Greens' tend to be older homeowners who intend to remain in their residences for at least five years; these buyers are price-sensitive and motivated by energy-cost savings. 'Healthy Greens' are affluent, well-educated and motivated by health, lifestyle and fitness. 'Healthy Greens' are the key market driver for green features. Most of these buyers would pay extra for green amenities that promote wellness and 41 percent would do so even if they could not recoup their costs.

HBO's 'Too Hot Not to Handle'

'Too Hot Not to Handle', Home Box Office's special on global warming, is now available on DVD. The special, produced by Laurie David, the producer of 'An Inconvenient Truth', the Academy Award-winning Al Gore film, presents the case for global warming as laid out by leading academic and government experts.

Hybrid cars and green buildings are presented in the special as two ways to combat global warming, and Portland, Oregon is highlighted as a city that has pioneered programs to encourage green buildings and sustainable living. Green buildings in the Portland area that were financed and managed by Malachite LLC's Leanne Tobias, Brewery Block II and Norm Thompson Outfitters Headquarters, are featured in 'Too Hot Not to Handle'.

Sustainable Networking On Line

Meet others interested in sustainable real estate and energy efficiency, share industry developments and find out about upcoming conferences and seminars by going online.

The Sustainability Practice Network (SPN) is a Yahoo user group with a diverse membership and numerous announcements of interesting events. Visit www.yahoo.com to sign up for the SPN Network.

The Responsible Property Investing Listserv (RPI) has over 100 members in eight nations, and continues to grow. To join RPI, contact its moderator and founder, Gary Pivo, Professor of Urban Planning and Natural Resources at the University of Arizona. Members of RPI include investors, bankers, developers, real estate finance professionals, and others interested in sustainable real estate and related topics.

Malachite LLC is a founding sponsor of RPI.

Malachite LLC: Where We've Been Speaking and Upcoming Events...

January 2008: Harvard Business School, Boston, January 26, 2008

February 2008: Infocast, Green Building Finance and Investment Forum, San Francisco, February 20-22

February 2008: American Conference Institute, Responsible Property Investing, New York City, February 27-28

April 2008: University of Missouri, Emerging Issues & Trends in Real Estate, Columbia, Missouri, April 4, 2008

May 2008: High Stakes Asset Intelligence Conference, Toronto, May 14-15, 2008

June 2008: Real Estate Investment World Asia, Singapore, June 23-26, 2008

September 2008: Infocast: Green Building Finance and Investment Forum, New York, NY, September 8-10

September 2008, International Council of Shopping Centers, RetailGreen, Dallas, TX, September 15-16

Do you have a new development to share? Let us know. We look forward to keeping you current on developments on green and sustainable real estate.