This presentation covers new metrics that are proposed for real estate investors, in order to assess sustainability during the acquisition and portfolio management of their properties. It was recently presented to the Responsible Property Investing and Sustainable Development Councils of the Urban Land Institute. The presenters have co-authored a study on this topic. Please contact Lisa Michelle Galley to receive a copy of that report.

1. Metrics for Responsible Property Investing:
Developing and Maintaining a High Performance Portfolio
2009 ULI Fall Council Forum
RPI Metrics Panel Webinar Presentation
October 28, 2009 (9:00 AM PST)
Jean Rogers, Arup
Lisa Michelle Galley, Galley Eco Capital
David Wood, Responsible Property Investing Center, Boston College

2. Agenda
• What is responsible property investing (RPI)
• Metrics imperative
• Background to the RPI Council project
• Metrics and structure
• Use cases
• Road test
• The Panel
• The Paper

3. The Big Picture for Real Estate
• National economic downturn
• Energy (in) security
• Weakened consumer fundamentals
• Climate response

4. Responsible Property Investing
Responsible Property Investing facilitates a more comprehensive
engagement between investors, their properties, and tenants by “taking
into account social, ethical, and environmental factors in the selection,
retention and realization of investment, and the responsible use of
rights (…) that are attached to such investments1.”
_________________________
1 Mansley, definition of Responsible Property Investing

5. Ten elements of responsible property investing
• Energy Conservation
• Environmental Protection
• Voluntary Certifications
• Public Transport Oriented Developments
• Urban Revitalization and Adaptability
• Health and Safety
• Worker Well-Being
• Corporate Citizenship
• Social Equity and Community Development
• Local Citizenship
Source: UNEP-FI Property Working Group

6. Context for Responsible Property
Investing
• State of the industry
• Need for
• Other metrics efforts and how this ties
in

7. Why RPI metrics?
Institutional Fund Acquisition Asset
Divestiture
investors managers Development management
What makes this What is the How are assets Is it time to capture
fund manager sustainability performing in terms value from
Commit to “green”? performance of this of sustainability? Is sustainable assets in
responsible investment? performance the marketplace?
property How is this fund
improving as a
investment manager seizing Does this investment Will value decline
whole?
opportunities and respond to risks and through increased
addressing opportunities? What opportunities regulation and other
challenges, while have been tapped? drivers in the
How can the Will this acquisition
meeting fiduciary market?
commitment be improve the What risks remain?
duty?
demonstrated? sustainability Will net zero
Which asset classes
performance of the buildings render
outperform on
portfolio as a whole, some assets
sustainability?
or require additional obsolete?
investment?
Can traditional financial metrics answer these questions?

8. Background to the RPI Council Metrics Project
• ULI Fall 2008 Meeting called for Metrics Research
– Define RPI in and of itself (How is a RPI portfolio different?)
– Provide tangible, real world examples of specific metrics
– Support investors practicing RPI
– Link to Value!
• Lisa, Jean and David spearheaded effort
• KPIs research – current reporting practices
• Spring 2009 – Tentative Proposed Metrics
• Road testing – case studies
• Presentation at ULI Fall 2009 Meeting
• Paper – Draft for Comment

9. Metrics in Practice
• Many property companies are implementing sustainability
initiatives on ad-hoc or rolling basis to existing building stock
• Few are tracking results at portfolio scale and fewer are
reporting back on this performance
• Focus for many is on promoting 1-2 showcase green buildings
• Investors and stakeholders are unable to identify:
– How green is the overall portfolio
– Is sustainability performance of the portfolio improving
over time?
– How does the portfolio’s green performance compare to
others (benchmarking)?
– What are the sustainability risks of this portfolio?

10. Defining new performance metrics
Key requirements for new RPI metrics: “There is no set of
• Must respond to 10 principles, covering broadly accepted
environmental and social aspects metrics for
evaluating the
• Be flexible, recognizing wide range of RPI projects commitment of real
• Enable analysis of a single acquisition or a whole estate investors to
portfolio principles of RPI.”
• Address risks and opportunities Pivo & McNamara,
• Focus on high impact, KEY performance indicators International Real Estate
Review, 2005
• Minimize burden of data collection and use proxies
for performance where applicable
• Facilitate tracking and benchmarking performance
over time, normalizing results where needed
• Be scalable, straightforward and simple

11. Structure of Metrics
• 2 types of KPIs: Acquisition & Portfolio
– One building vs. many
– Screening vs. monitoring
• Issues covered:
– Energy Conservation and Carbon Management
– Environmental Protection
– Urban Revitalization and Adaptability
– Smart Growth and Transit Oriented Development
– Health and Safety
– Worker and Tenant Well Being
– Social Equity and Community Development
– Local Citizenship
– Voluntary Certification
– Governance
• Characterization data: used to normalize results

12. Impact on investment return
Revenues Operating Expenditures Financing & Value
Increase or improvement in: Decrease in: Improvement in:
• Tenant retention/renewal rate • Utility expenditure • Market appeal
• Vacancy rate • Risk from price volatility • Sales premium
• Tenant satisfaction • Maintenance expenditure • Cap rate
• Market demand • Insurance costs • Ability to attract capital
• Favorable lease terms • Risk profile
• Rental premiums Reduction in:
• Asset obsolescence and
devaluation

13. From one showcase green building

14. …to a high performance portfolio of green buildings
Exceeding
Targets
Making
Progress

15. Road Test
• Study participants
Acquisition – BACFOF
Portfolio Management – TIAA-CREF
• Review metrics for relevance
• Attempt to use in the “real world”
• Focus on “doing” and insights: ease of use,
materiality, link to value, impact on investment
strategy & process
• “Must have”, “nice to have”, “don’t go there”
• Given 2 weeks and an excel spreadsheet with
over 50 metrics to start

16. What we learned about the metrics
• Less is more
• Social indicators static (critical during acquisition)
• Environmental indicators dynamic (improve over
time)
• Acquisition and management practices together
shape the quality of the RPI portfolio over time
• Links to value essential to offset burden of reporting
• Metrics help prioritize investments
• Help is available

17. Benefits of RPI metrics
Enables investors and property owners to:
• Demonstrate fiduciary responsibility
• Track performance trends over time
• Benchmark performance by asset type and region
• Identify outliers: weak performers and best practices
• Identify risk exposure at portfolio level
• Evaluate links between sustainable performance and financial
returns
• Assess impact of RPI initiatives at portfolio level and prioritize
investments
• Inform future acquisition decisions
• Improve transparency
• Demonstrate real estate-tailored commitment to social
responsibility

18. The RPI metrics panel - November 4, 2009
• David Wood, Director, Responsible Property
Investment Center, Boston College
• Lisa Michelle Galley, Managing Principal, Galley
Eco Capital
• Jean Rogers, Principal, Arup
• Nicholas Stolatis, Director, Strategic Initiatives,
TIAA-CREF
• Scott Zengel, Vice President, Bay Area Council
Family of Funds

19. The RPI Metrics Paper – Developing and
Maintaining a High Performance Portfolio
• Authors: David Wood, Lisa Galley, and Jean Rogers
• Draft for Comment available at ULI Fall Meeting on
November 4, 2009
• Volatile real estate investment environment
• Risks and opportunities
• Current practices in reporting
• New metrics for a new era – Proposed KPIs
• Portfolio characterization
• Acquisition, portfolio management, and reporting
• Implementation
• Case studies