Real Estate Portfolio Managers Find Millions of Reasons to Go Green

By Matthew Wheeland of GreenBiz.com

Although large-scale real estate managers were relatively late to the green game, they’re still finding plenty of dividends, according to a new profile of the industry.

The global real estate division of financial services firm TIAA-CREF, for example, cut the energy used in its holdings by more than 10 percent between 2007 and 2010, and saved $12.5 million per year as a result. And Jones Lang LaSalle last year cut its costs by $128 million, and is on pace to match or exceed that number this year.

Those are some of the top-level findings of a profile of the real estate management industry published this week in Pension & Investments magazine. The article, by Arleen Jacobius, finds — perhaps not surprisingly, given the outlet — that at least part of the growth in green in the real estate management industry comes from a push by institutional investors. She writes:

Real estate investment managers came late to the green game, said Peter Belisle, president of energy and sustainability services in the Los Angeles office of Jones Lang LaSalle. Demand — particularly from high-profile institutional investors such as the $230.1 billion California Public Employees’ Retirement System and the $152.9 billion California State Teachers’ Retirement System — pushed real estate managers into considering sustainability projects. 

CalPERS is setting up a new environmental program for real estate, with a proposal expected to come before the system’s investment committee later this year. The Sacramento-based system is also working on a plan to integrate environmental, social and governance strategies for all asset classes. That report will be going before the board in August, Clark McKinley, system spokesman, wrote in an e-mailed response to questions. An earlier energy efficiency initiative cut energy use in its core real estate portfolio by 20 percent as of last February, he stated.

Interest in energy reduction has “picked up a lot of speed” begun to grow among real estate investment managers, especially since one of the biggest operating expenses for properties is energy, Mr. Belisle said. Plus, reducing operating expense increases return, he said, and there could be federal subsidies or other assistance that could make turning portfolios green even more attractive.

TIAA-CREF’s Global Real Estate group had first set a goal of a 10 percent reduction in energy used across its portfolio in the two years from 2007 to 2009. Although the company fell a bit short of that goal, it has since passed it, and TIAA-CREF is now on its way toward a goal of 15 percent reductions by the end of the year. Its efforts to date earned the company an Energy Star Partner of the Year award.

Similarly, Jones Lang LaSalle is seeing significant bottom-line benefits to its efficiency efforts. In addition to saving $128 million in energy costs annually, JLL has been leading on a number of green building standards. In 2009, the company enrolled its entire portfolio in the Energy Star for Buildings program. And last summer JLL was one of the first supporters of the Green Lease Action Plan, which lays out three principles to help building owners and building operators work together on operating facilities in the most sustainable ways possible.

Another key driver of the green shift in real estate portfolio management comes from the U.S. Green Building Council. The group’s LEED Volume program, which was launched in pilot form in 2006, earlier this year certified more than 500 projects. Hotel chain InterContinental the first participant to be pre-certified under the program, a first step to getting some or all of its 4,500 hotels LEED certified.

Article originated at GreenBiz.com