Real Estate Portfolio Managers Seeing the Green

by | May 3, 2011

If there is a bright spot for the real estate sector since the rough times brought on by the economic crisis, then perhaps it is the realizations of financial rewards that stemmed from their sustainable initiatives. Pensions & Investments features the current green outlook of several multibillion-dollar real estate investment firms returning to green investments, after realizing an average $30-$40 million savings on earlier sustainable investments.

To take a look at some of the progress: TIAA-CREF Global Real Estate increased its energy reduction target from 10 percent to 15 percent for 2011 on its $8.1 billion office and $1.2 billion multifamily portfolios. Additionally, the group aims to reduce water usage by 10 percent. This is based on the success measured in 2010 – an annual energy savings of $12.5 million for those two portfolios, and reducing energy use by 11.5 percent in the office portfolio and 10.8 percent in the family portfolio.

Real estate investment manager Jones Lang LaSalle is seeing increased demand from high-profile institutional investors such as the $230.1 billion California Public Employees’ Retirement System (CalPERS) and the $152.9 billion California State Teachers’ Retirement System. They are now taking a closer look at sustainability projects, as well as the federal subsidies or other assistance that may accompany such projects to further increase returns.

For example CalPERS expects to finalize its broader environmental program for real estate and other asset classes in the coming months. The initiative is sparked by results of an earlier energy efficiency initiative which cut energy use in its core real estate portfolio by 20 percent as of last February.

Overall, Jones Lang LaSalle saved a total of $128 million in savings last year, and an estimated $30 million to $40 million so far this year. Pension Real Estate Association, holders of a $31 billion portfolio, is also in the game for green building both to cut costs and as an investment strategy.

Prudential Real Estate Investors, overseers of $44.6 billion in real estate, is undertaking a massive effort to survey the energy usage of its real estate holdings; this is based on earlier small successes. For example, a $20,000 lighting retrofit project to reduce energy use at a parking garage adjacent to an Arlington, Va., office building will pay for itself in two years and save the fund $11,664 per year.

Prudential executives are working with the Greenprint Foundation, an alliance of real estate investors, to evaluate energy consumption at 200 buildings this year.

Principal Real Estate Investors has targeted reductions of 10% over the next three to five years, the energy usage of a $36.4 billion portfolio of 673 properties. Last year, Principal reduced energy consumption by about 3%, amounting to a $1.2 million annual savings. Company officials predict a total savings of $12 million with “minimal capital expenditures,” by focusing on energy and water in the U.S. and on carbon emissions in Europe.

The initiative is bolstered by a LEED gold-certified Houston office complex that they developed with Trammell Crow. When the building sold to Wells Real Estate Funds, it generated a 19.4 percent return.

Image by Jleon.

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