Green Building Finance Consortium

News:

Source: Eichholtz, Kok, and Quigley

Financial Performance of Green Buildings: Commercial properties with LEED or Energy Star certification outperform conventional buildings, charging higher rent and selling for higher prices.

Novel investment pathways known as investable green property indices could open the floodgates to new sources of capital for millions of square feet of building stock, according to the U.S. Green Building Council (USGBC), which partnered with investment analyst FTSE and the National Association of Real Estate Investment Trusts to lay the groundwork. The new indices will allow real estate investment trusts (REITs) to target specific green property types, and the same metrics will help financial analysts compare and fund REITs based on objective sustainability rankings.

Source: Eichholtz, Kok, and Yönder

Green Buildings in Portfolios of U.S. REITs: Most real estate investment trusts include green buildings in their portfolios. The new indices will help rate these REITs according to how green their overall portfolios really are.

Some studies have suggested that green commercial buildings charge more rent, have higher occupancy rates, and sell for higher prices, potentially improving their long-term financial performance—but there are other reasons investors might be interested in green buildings as well, adds Chris Pyke, vice president for research at USGBC. “Investors will have the potential to prioritize, ” he explains. For example, “they can target the buildings that receive third-party certification, such as LEED or Energy Star, ” or “if you just want to invest in properties that use less energy, conserve water, or have other qualities of green buildings, you can target your real estate exposure to that.”

Mutual funds specializing in social responsibility might also use the new indices, diversifying their portfolios to include environmentally sustainable properties or potentially tying their investments to more specific metrics, such as carbon footprint. USGBC and its partners are touting investments in green real estate as a way to reduce financial risk as climate-change mitigation and adaptation gain increasing economic importance.

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Q&A

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What are the best financing options for building green in New York?

Most of the financial incentives available to homeowners are for improving energy efficiency.