Sustainability is now a driving force in business and commercial real estate
It seems not a day goes by without a reference to climate change and the push for more sustainable efforts. While the idea of sustainability isn’t new, it has often been seen as a vague concept that’s simply “the right thing to do.”
According to a recent study by ING, though, sustainability appears to have moved up in priorities for the corporate boardroom. More and more companies, for the first time ever, now view sustainability as a growth engine and even a necessity. And in order to remain competitive and viable, CRE needs to take notice.
Key findings of the sustainability study
For the purpose of its 2018 report, ING interviewed 210 US-based finance executives, representing a broad spectrum of industries. Among the key findings:
- Corporations with the most comprehensive sustainability framework saw increased revenue and better borrowing and credit-rating outcomes.
- Companies using a sustainability framework were often the most engaged in meeting the needs of the 21st-century consumer, thereby ensuring survival and growth.
- Despite these positives, more than half of the financial executives interviewed for the study reported difficulty in identifying sustainability-led business opportunities. Additionally, there is a definite need to better understand how sustainability can be applied to different types of businesses.
Translating the sustainability study to CRE
Although the ING study focused on sustainability and the corporate business model, many of the findings can easily be applied to CRE. In fact, all players in the CRE equation—from borrowers and lenders to owners and tenants—can benefit from adopting sustainable strategies for commercial, multi-family, and industrial properties.
- The decision to have a property go green appears to have a positive impact on revenue, as well as a potential reduction in operating costs—and this translates into higher property values.
- After the collateral property becomes LEED-certified or Energy Star labeled, CMBS (commercial mortgage-backed securities) loans can have a more than 30% reduction in default risk, as well as better loan terms.
- Building characteristics and operational practices that impact the intensity of the property’s energy usage can also impact the risk of default. In other words, energy efficiency may start to play a more important role in the risk assessment process for new mortgages. This is similar to green tagging, a practice that is taking its place in European banks.
- A changing demographic also means a changing attitude among potential tenants, many of whom place sustainable options at the top of their priority list. These generally fall into four categories: space design and integration (think co-work spaces and flexible design), wellness (natural lighting, proper ventilation, and environmentally safe products), resilience (a property’s ability to bounce back after a disaster), and solar energy.
Building a sustainable framework
The goal of sustainability is all about growth and longevity. That’s why there is an ever-increasing pool of green consultants to help bring businesses of all sizes. It only makes sense, then, that those sustainable goals—growth and longevity—can also be applied to CRE.
The professionals at Morris Southeast Group understand the importance of sustainability. As a staple of the South Florida community for 30 years, we have witnessed and experienced environmental changes, and stay abreast of those the future holds. We recognize the critical importance for owners and tenants to successfully prepare for and meet eco-challenges. To learn more about sustainability options, property management services, investment opportunities, and/or other services, call Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
Tags: Translating the sustainability study to CRE
