CALA Planning Professor Develops Indices for Sustainable and Socially Responsible Real Estate
Hundreds of billions of new investment dollars could potentially flow into sustainable and socially responsible real estate properties over time with a new set of financial tools developed by planners at the University of Arizona and Harvard University. The tools, called financial performance indices, are designed to track the performance of these properties in the same ways the New York Stock Exchange tracks for stocks and financial institutions track standard commercial real estate. .
The indices are now in development by the Responsible Property Investing Center (RPIC), a joint project of the University of Arizona College of Architecture and Landscape Architecture and the Initiative for Responsible Investment at Harvard University.
Gary Pivo, a planning professor in the College's School of Landscape Architecture and Planning, and co-executive director of the UA-based RPIC, leads the development of these new indices. Fueled with a 2009 Rockefeller Foundation grant, the RPIC set into motion a plan to produce the nation's only indices on the financial performance of responsible and sustainable real estate properties.
In the past, investors, financial institutions and brokerage houses have held reservations about investing in these markets. The lack of data has caused these organizations to question whether or not those investments would harm their returns.
Pivo says that by creating an index, these entities will be empowered to gain the confidence needed to invest and recommend investments.
"This is vitally important," said Pivo. "If you want Wall Street to invest in an asset class, more sustainable real estate for example, they need the financial tools to understand the performance of that asset." The lack of these tools, he said, causes uncertainty, something Wall Street abhors, but with the tools they can see the performance over time, and the tools convert the uncertainty of an unknown asset class into a known quantity with more predictable risks and returns.
If these financial tools show the performance doing as well or better than conventional properties, then they should allow investors to prefer sustainable and responsible properties.
What will be the impact over the long haul for sustainable and responsible properties? Greater amounts of capital will flow more readily into sustainable and responsible properties, dramatically increasing their percentage share of the market.
Pivo points to a historical basis for the RPIC projects. In the 1960's, the University of Chicago produced an index for equities. The index spurred investment in equities by institutional investors who had previously focused on bonds, and now equities make up a large portion of financial markets.
Pivo and RPIC project that the sustainable real estate indices will be just as important as green building standards in creating the fundamental infrastructure needed to transform the property market into a more sustainable industry. It will allow the market to talk about these properties and act on that information using the new tools.
"If you want large amounts of capital to flow, this is the important work to be done," he said. The indices will be publicly available within the next year.