Energy-Efficient Investments Boost Real Estate Portfolio Valuations

March 14, 2019

The quest to slash carbon emissions is continuing to spark energy-efficiency investments by real estate owners across North America. Real estate holdings are optimal places to seek greater efficiencies because, as widely reported, existing buildings account for 40% of North American energy use, and also account for at least 35% of total carbon emissions. Owners have discovered that smarter energy use is not just good for society and the planet, but for their own real estate portfolios’ bottom lines.

For a closer look at the phenomenon, I turned to Jake Fingert, general partner at Camber Creek, a Washington, D.C.-based venture capital firm that focuses entirely on investing in technologies for real estate.

All aboard

That real estate owners are increasingly onboard with energy efficiency is reflected in the CBRE National Green Building Adoption Index, Fingert says. The index measures LEED and Energy Star certification adoption across the largest 30 U.S. office markets. In 2005, 5% of buildings enjoyed certification. By last year, that number was 41%.

“As demand for sustainable buildings grows, the market starts to respond with new innovations,” Fingert says.

“We started with low-hanging fruit like LED lighting and solar panels, and as demand has increased, the market has also evolved in exciting new areas. For example, we are seeing novel sustainable building and construction technologies coming online like cross-laminated timber and glue-laminated timber for high-rise construction. Environmental impacts of wood are dramatically lower than concrete and steel.”

Another example is smart glass. Window glass can remain “open” to benefit from external heat on a cold but bright winter day. On a hot summer day under a blistering sun, the windows can be shaded to keep from having to dial AC up too high, he says.

Software is being written that deploys machine-learning algorithms to more efficiently manage in real time buildings’ energy and heat usage, slashing emissions and costs, Fingert says. The market is also welcoming intriguing new cluster solutions, as in New York City’s Hudson Yards. There, energy management is integrated across buildings, allowing air that’s too warm in one building to be sent to another that’s too cool.

Blog building picture

Creating a cachet

Real estate owners are finding energy efficiency isn’t just good business from a cost-reduction standpoint. It is sound fiscal policy from the perspective of tenant attraction.

“Building truly sustainable buildings has moved from a kind of symbolic statement by universities and major corporations to a competitive advantage in the marketplace,” Fingert says, adding two macroeconomic trends are underpinning this evolution.

First, many residents of apartment communities and tenants in commercial structures are willing to pay premiums to be in environmentally friendly buildings, due both to aesthetics and shifting consumer norms. For instance, AMLI Residential’s inaugural Sustainable Living Index survey found two-thirds of respondents said they would pay more to live in a green apartment community, Fingert says.

Second, from the standpoint of corporate governance, stockholders and investors are more and more focused on sustainability.

A large carbon footprint is now appropriately viewed as a long-term liability,” Fingert says. “If you own a large portfolio of buildings, you have to be prepared to report on the emissions profiles of those buildings. We’re incredibly proud of the work of our portfolio company Measurabl, which is the leading provider of software for measuring building emissions and environmental performance. Customers use their software to measure more than seven billion square feet of real estate. We’ve co-invested in Measurabl with companies like Salesforce Ventures and S&P Global, which tells you a lot about where the market is headed.”

The future

It’s been a very impressive metamorphosis thus far. What additional energy-efficient advancements should property owners and managers anticipate in coming years?

Among the most interesting developments are those revolving around improved energy metering and the IoT’s ability to impact energy management, Fingert says.

“For example, there is an interesting company called Logical Buildings that is providing a new solution related to metering,” he reports. “And there ia a range of sensor companies that let you know how many people are in a given office or on a given floor and can automatically adjust heating and cooling accordingly.”

This article was written by Jeffrey Steele and was originally published at forbes.com