2023 Winter Issue - 22

developments
Several panelists noted that
energy-inefficient property could
pose a major risk to property
owners-and the economy. " Clearly,
if there's a big regulatory change in
the market, then people are going
to be left with these assets. And
it's going to be a massive shock
to the system, " said Alan Belfield,
chairman of the Arup Group global
property development consultancy.
Even now, older properties
that have not been retrofitted are
becoming less saleable. " I would
say six months ago you could sell
on stranded assets, and some fool
would buy them, " Grainger said.
But that is changing: " We're seeing
real evidence of that not happening
now, particularly in Europe, "
he said.
But there also are reasons for
optimism.
Belfield said that in response to
research on materials and energy
efficiency, new buildings use 40
percent less operational carbon
than they once did.
Owners of existing stock also are
making progress: after 13 years,
members of ULI's Greenprint Center
for Building Performance-a global
alliance of owners, investors, and
strategic partners representing over
$1.5 trillion in real estate assets-
surpassed their collective goal of
50 percent reduction in greenhouse
gas emissions, with a 4.4 percent
year-over-year, like-for-like building
emissions reductions from 2020 to
2021. " They are now reducing their
output by 4 percent a year and
doing it in a cost-effective way that
is increasing their property's value, "
said Billy Grayson, executive vice
president, centers and initiatives,
for ULI.
Pricing Carbon
Panelists agreed that one of the
highest priorities now is finding a
20
URBAN LAND
way to fold the price of carbon into
property valuations.
" When people have got these
tools, they can understand they can
add value, they can avoid the risks,
and it should lead to action on
retrofits and upgrades, if we get
this right, " said Arup's Belfield.
Data are being collected, organized,
and standardized by such
groups as the Partnership for
Carbon Accounting Financials, but
panelists said it remains a work in
progress. " To get hold of this data
is difficult, it's fragmented. To
do these calculations is timeconsuming,
it's hard to find, and
there's no quick, universal way of
doing this, " Belfield said. " And
that's what we're trying to do:
we're trying to get something that
integrates the cost of decarbonization
and all the other risks into the
same bin so we can do property
valuations. "
Building Cooperation
But it is not just a matter of aligning
buyers and sellers over a
carbon price methodology. " We
need to include the underwriters,
the appraisers, and the brokers
to help them communicate that
effectively to each other, and to
use their frameworks to be able to
actively, clearly communicate that
value to those buyers and sellers, "
Grayson said.
" Everybody's pointing to a different
person, " said Aleksandra
Njagulj, managing director, global
head of real estate ESG, at DWS,
which manages nearly $80 billion
in global real estate assets. " Asset
managers are saying, 'Well, the
valuers need to tell us, what is the
value of this risk?' And the valuers
are saying, 'Well, actually, asset
owners need to tell us the market is
not pricing it in, " . . . and the asset
owners are saying, 'Well, no, it's
WINTER 2023
the asset managers who need to
do it.' So it's like going in circles. "
What is needed, she said, is " a
standard in the industry that we
can all agree on, and then that
market failure will get fixed. "
" I think that building that ecosystem
and making sure that
they're all talking the same language
and looking at transition
risks in the same way is going to
be very important. Then we need
owners and tenants to figure out
a way to collaborate more effectively, "
Grayson added.
" Tenants bear all the costs,
but they don't have the ability to
influence major decisions to decarbonize
the building once they've
signed the lease, " Grayson noted.
" And owners don't really have
a financial incentive to invest in
decarbonization once they have a
stabilized tenant who is controlling
that energy use and managing the
energy, so that's another important
partnership we need to foster. "
Growing Upside
For industry players that can navigate
this tangle, however, a lot of
opportunity lies ahead, according
to several panelists.
" The biggest problem I'm hearing
right now in green finance is, 'I
have a ton of capital, and I cannot
find the projects to finance, no
matter what sort of incentives I put
on my capital,' " Grayson said.
" We're seeing a real lack of
good-quality, grade A net zero
carbon buildings in every sector, "
said Grainger. " If you can produce
that now, the upside is huge. It's
way higher than we ever thought.
" If you're brave enough to take
that step, even in this market,
you will reap the rewards because
there is very little supply out there, "
he added.
" In nearly every market, there
are green buildings setting new
records. So the upside is huge.
But I don't deny that the downside
is also huge, " Grainger said. " The
cost of inaction is way bigger than
many investors are currently calibrating
in their own portfolios-and
I think in their debt portfolios as
well, by the way. "
BENNETT VOYLES is a freelance business writer
based in Berlin.
First Street Foundation
Debuts Climate-Risk
Analysis Tool Informed
by ULI Members
The risk of property damage
caused by natural disasters including
floods, wildfires, and heat is
rising dramatically as the climate
changes. By 2050, the monetary
risk associated with extreme
weather events and the long-term
impacts of climate change is estimated
to reach trillions of dollars
each year.
Climate-risk modeling and analysis
are crucial for the real estate
industry because they help protect
lives and property. Climate-risk
analysis tools enable real estate
managers to evaluate current and
future risk and integrate that into
investment decisions. However,
translation of climate-risk analytics
for the business of real estate can
be a challenge for both software
firms and real estate professionals.
To help resolve this issue, ULI
has been establishing dialogue
between real estate professionals
and climate-risk data analytics firms
that can help advance the interests
of both parties. Enhanced collaboration
and understanding between
these two sides should continue to
improve this evolving space, poten
2023 Winter Issue

Table of Contents for the Digital Edition of 2023 Winter Issue
