March 18, 2005
Wanted: Socially Responsible Real Estate Investments
by William Baue
An academician searches for socially responsible real estate investment trusts, finding few that
fit the definition, as well as disagreement over what criteria define SRI REITs.
When Gary Pivo, a professor in the urban planning and the natural resources departments at the University of Arizona, recently returned to the
faculty after serving for five years as dean of graduate studies, he asked himself what kind of
research he wanted to focus on. He was looking for a way to combine his interests in real estate
with his 25-year history of activism in urban planning.
Surveying the landscape, he
noticed many socially responsible investment (SRI) mutual funds, but he could not readily identify
socially responsible real estate investment trusts (REITs) or other socially responsible real
estate investment tools. (REITs are roughly the equivalent of mutual funds that hold real estate
investments, instead of securities.)
"Despite there being over 300 real estate investment
trusts, I have yet to identify a single one that makes social responsibility or sustainability an
explicit goal," writes Dr. Pivo in a November 2004 paper, A Call for the Creation of
Socially Responsible Real Estate Investment Products.
"There are some options, but you
have to dig for them," he told SocialFunds.com.
Experts recommend allocating 10 to 20
percent of an investment portfolio in real estate to enhance returns and diversify volatility and
risk. To gauge market potential, Dr. Pivo divided the $150 billion in SRI mutual funds in the US,
according to the 2003 Social Investment Forum (SIF) Trends
Report, by 10 to 20 percent to yield a $15 to $30 billion potential market for SRI REITs.
However, gauging what constitutes a socially responsible real estate investment proved more
"People seem to differentiate between the social responsibility of the management
company managing the property and the social responsibility of the underlying properties
themselves," Dr. Pivo said. "There's no certainty among investors what a socially responsible
property portfolio looks like."
For example, the Forward Funds Uniplan Real Estate Investment Fund (ticker:
potential investments according to SRI criteria. However, a quick glance at the funds' top holding
reveals an REIT that operates regional shopping malls, Simon Property Group (SPG).
"Most people in the
SRI community would say there's nothing socially responsible about shopping malls," Dr. Pivo said.
Malls typically displace acres of land with buildings and pavement to park the cars shoppers must
drive to get there, polluting the environment. "But it turns out Simon Malls has won some awards
for training inner city residents to get jobs in the retail industry and links them up with
employment opportunities in the malls."
On the other end of the spectrum, enhancing
properties' ecological efficiency could qualify as socially responsible. For example, the
Environmental Protection Agency (EPA) named Arden
Realty (ARI) the
ENERGY STAR Partner of the Year for three
years running, from 2000 through 2002. More than 100 Arden properties are certified by ENERGY
STAR, a voluntarily EPA program supporting companies' efforts to measure, benchmark, and improve
the energy efficiency of their facilities, contributing to $4.8 million in reduced annual energy
As it turns out, ENERGY STAR participation turns out to be a good proxy for strong
financial performance. An October 2002 study by SRI research firm Innovest Strategic Value Advisors- found
that active ENERGY STAR partners outperformed less active ENERGY STAR partners by 600 basis points
from June 2000 to June 2002. And active ENERGY STAR partners outperformed non-partners by twice as
much--1,200 basis points.
Some real estate investments that may qualify as socially
responsible don't market themselves as such. For example, the American Ventures Urban Initiatives
Fund supports Community Reinvestment Act (CRA) investments in commercial, industrial, and
multi-family properties in low- and moderate-income (LMI) neighborhoods, but does not call itself
"There's a need for real estate mutual funds and REITs to be established that are
explicitly built on principles of the triple bottom line," said Dr. Pivo, referring to economic,
social, and environmental performance indicators.
Dr. Pivo is working with a group of
sponsors and interested investors to rectify the lack of an SRI REIT. Investors looking for such
an option may hear more on this development at the SRI in the Rockies conference in September 2005. There,
Dr. Pivo will be speaking on a panel on socially responsible real estate investment that will also
include Forward Uniplan portfolio manager Richard Imperiale.