Contributing to 40% of all CO2 emissions globally, real estate is notorious for its impact on the environment. That might be why many in the industry are looking to adopt the principles of impact investing in real estate.
Real estate impact investing refers to the practice of investing to create a positive impact on society and the environment while generating profits. It involves the allocation of funds and professional expertise to the development of sustainable real estate projects.
It integrates the core principles of impact investing into real estate decision-making. Contributing to social or environmental benefits, managing investments for maximum impact, and sharing insights to promote industry growth—these focus on intention followed by actions based on evidence.
In this guide, we give you a clear idea of everything that real estate impact investing entails, the challenges to its successful implementation, and more.
Impact Investing in Real Estate: A Global Perspective
An overview of recent global real estate developments has shown a considerable shift toward green and sustainable options.
To begin with, there’s the EU Solar Rooftops Initiative. It aims to accelerate the adoption of solar technologies while utilizing the rooftops of public, commercial, and residential buildings. The Waste Management Act (Abfallwirtschaftsgesetz 2002) outlines regulations for construction site waste, landfills, compulsory waste separation for new buildings, etc.
Another example is the Austrian Trade Act, which covers the health and safety of workers during the construction of commercial real estate projects. One such mandate is the Safety and Health Protection Plan (Sicherheits- und Gesundheitsschutzplan, SiGe-Plan). Many similar mandates are being introduced to explore the potential of impact investing in real estate.
While this is good news for society at large, investors have much to consider. If you’re looking to purchase a property or have a property for sale in Austria, working with an experienced real estate agency may be the best decision if you’re interested in real estate impact investing.
Eco-Friendly Features and Impact Investment Practices
Before you get on the real estate impact investment bandwagon, here are some fundamental principles to improve your understanding of the practice.
Approaches centered around energy efficiency can go many different ways. These can involve reducing energy consumption or increasing the use of renewable energy sources to power households.
These are some of the most widely adopted measures globally and can be seen in applications like LED lighting, solar energy, energy-efficient appliances, etc.
Green or Eco-Friendly Materials
Green or eco-friendly materials, such as timber, are suitable replacements for concrete or steel. They’ve proven to be more effective at reducing emissions in the manufacturing and construction stages. An excellent example is the LifeCycle Tower ONE in Dornbirn, Austria.
Responsible Land Use
Real estate impact investing also focuses on revitalizing underserved communities by ensuring responsible land use. This can mean looking for development opportunities that drive economic growth, improve access to healthcare for those who live in the area, etc.
Resilient buildings resist extreme weather conditions or disruptive situations like a global pandemic. Popular examples include the Miami Beach Convention Center, which stands up well against hurricanes, and the Louisiana Children’s Museum, which is built to mitigate damage from floods.
Net-Zero Homes: A Glimpse Into Impact-Driven Real Estate
Net-zero homes are the best examples of real estate impact investing. They’re commonly referred to as net-zero energy (NZE) buildings. These structures combine a range of eco-friendly features like those mentioned above.
Some of the most common design principles seen in NZE homes include:
- Systems using renewable energy sources
- Fuel-efficient appliances
- Energy recovery systems
- Smart lighting and metering systems
- Optimal building location and orientation
For starters, these measures drastically reduce the carbon footprint of buildings. Second, they maximize the use of renewable energy sources. They also support society by improving the health of the surrounding ecosystem and the community living there.
Challenges and Impact-Driven Solutions in Real Estate
Despite the potential of real estate impact investing to improve social and environmental health, there are many challenges along the way. Before there can be any broad-level application, investors and governments must tackle these problems.
Initial Costs and Financial Returns
The initial costs required for impact investing might be the same as traditional real estate endeavors. However, there is a significant gap in returns. Where traditional investments may guarantee profits, impact investments may not offer the same financial advantages in the long term.
However, one solution is lowering initial costs by working with municipalities to invest in deprived communities or other suitable dwellings. This reduces the initial cost of land. When combined with high, long-term leases along with public housing allowances, this could ensure stable returns.
Difficulty in Measuring Impact
The second biggest challenge in real estate impact investing is the lack of quantifiable metrics to measure its true impact. It boils down to the lack of data regarding these projects and standardization in reporting.
To resolve the issue, asset managers will need to look for the best indicators that can help them gauge the progress and performance of projects in accordance with their goals.
Risk and Volatility
Since many of these investments are currently in emerging markets, they come with higher risk in terms of currency, politics, and liquidity. This can prevent investors from funding projects in markets where they’re most needed.
The only way through this obstacle is thorough research into all project elements before putting down any money.
Lack of Standardization
Navigating green building standards can be a challenge because there’s no common definition of what impact investing entails. This can mean investors can get their returns but not the impact they were hoping for.
Again, the solution for this is taking a closer look at the current standards to consider whether they align with the real estate impact investing goals.
Affordability and Accessibility
One of the main ways real estate impact investing can create a positive change for society and the environment is by making real estate affordable and accessible for potential home buyers or renters.
Investing in affordable housing programs in underserved regions where the competition and costs are low can help address the issue. Another option is to invest in community development projects through intermediaries like Community Development Financial Institutions Fund (CDFIs).
Real estate impact investing can help solve many environmental and inequality issues in the industry. However, ensuring financial returns and positive impact can require some work.
We hope with this guide, you can better use the resources available to make well-informed decisions when buying, selling, or investing in real estate.
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