Green REITs

I just read an article in Jetson Green where he talks about Wells Fargo’s recent investments in LEED certified buildings, and advocates more bank lending for green buildings.  This would be wonderful, but I don’t think banks are the best vehicle for pushing green building… their business tends to be too diffuse, and not concentrated enough in the real estate sector.

The companies who can really make a difference, and quickly, are Real Estate Investment Trusts(REITs), which allow individual investors to pool their money and invest in property under professional management. 

I don’t currently advocate investing in the real estate sector; I feel the real estate market is peaking or has peaked.  Better to wait a few years, and buy when property is cheap.  That said, here are some REITs I’ll be looking at when I feel it’s time to get back in to real estate:

Arden Realty, and Equity Office Properties, both of which have been singled out by Innovestas green REITs.  Trizec Properties, Inc., which is also becoming more vocalabout its green record.   According to Innovest, REITs which were active partners in DOE’s Energy Star program outperformed non-active partners and non-partners by 18% over the period from June 2000 to June 2002, so another good place to look would be an attempt to determine which REITs are corrently or are becoming active partners in Energy Star.

Related article about Trizec.

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3 Comments

  1. PK said

    Tom, thank you for reading and commenting to my posts. You make some interesting points. I’ve been working for a public real estate REIT and agree that they will be instrumental in moving towards more green buildings. Hines is another developer that really works hard to create top-notch, green buildings (with a couple starting on the west coast).

    One thing about REITs, is that they are required to leverage large amounts of debt to cover the properties that they own. Combine that with the fact that they have to set up a TRS, or some other work-around, if they have some connection to the management company–and as far as I can tell, the management company usually takes the hit on utilities. REITs, as owners purely taking on rents, have little incentive to build structures that are energy independent (especially if they don’t pay utilties). If I’m correct about this, then I’m thinking that the management companies will have more leverage to demand sustainable buildings (that REITs), or the deal economics get worse for the owner. In the end, you’re spot on, REITs and management companies will be able to work on this…

    But going back to the fact that REITs likely have some debt that they have to manage and service, banks with strong environmental agendas can push covenants on owners that require owners to diversify their energy sourcing for buildings. So, I wouldn’t underestimate the power of those debt covenants to lull REITs to action.

    And developers too…

    Anyway, love the blog, I look forward to reading more of your posts and comments.

  2. Katie said

    I think more REITs are taking an active role in acquiring properties that are green, and they are looking for green buildings because for a long term investment going green has many benefits. For instance Cole REIT has recently acquired three buildings that are all LEED Silver Certified; Cole even has at least one LEED Gold Certified property. REITs seem to be taking part in keeping LEED buildings filled with long term tenants, now developers need to just keep building green buildings.

    • Marie said

      It’s great to read about Cole REIT investing in green properties. I like knowing that actual REITs are buying green. The more LEED buildings there are the better, for both the environment and the REITs.

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