November 30, 2006
The Growth of Green Building Funds
by Bill Baue
A new urban green real estate fund from Revival Fund Management exemplifies a budding trend toward
private funds capitalized by accredited investors.
Green building is all the rage, but investment in this area is still in its early stages. Gary
Pivo, professor of urban planning and
natural resources at the University of
Arizona and a leader of the socially responsible property investing (SRPI) movement, points to
a burgeoning number of private funds focusing on green building. One example is the $120 million
Hines CalPERS Green
Development Fund launched in September 2006 as part of the California Public Employees
Retirement System (CalPERS) Green Wave initiative. Another
is the $100 million Rose Smart
Growth Investment Equity Fund, which focuses on urban green building.
fund with an urban orientation is a very good thing, because it brings both environmental
and social benefits," Prof. Pivo told SocialFunds.com.
Boulder-based Revival Fund Management is ramping up to
launch a $150 million urban green real estate fund for accredited investors (namely high net worth
individuals or institutional investors with more than $1 million to plunk down) in January 2007.
"We see green building as the only viable way for real estate to continue into the
future and we very much want to be part of shifting the industry in that direction," said Charlie
Randall, a partner in Revival. "We want to start moving institutional investors into this space so
they can support it."
As with the established Jonathan Rose fund, the new Revival fund
brings both environmental and social benefits. On the environmental side, the fund embraces green
building practices such as energy efficiency and low- to no-toxicity materials.
may be opportunities sometimes to carry some of the energy load with renewable power such as solar
hot water, wind power, or in some cases photovoltaics," Mr. Randall told SocialFunds.com.
"However, there's no programmatic element that says everything we do will have solar electric or
wind power--we take a holistic approach, so it will depend on the project."
dollars are best spent nowadays are energy efficiencies," he added.
On the social side,
the fund prioritizes urban sites to help revitalize downtown communities and promote affordable
housing with appropriate properties. However, the social aspects of urban revitalization cut both
ways, according to Prof. Pivo.
"There's a desire to keep jobs and development in cities
so that people who are in lower-income parts of cities aren't cut off from opportunities that are
beyond access by transit," said Prof. Pivo. "On the other hand, people are very concerned about
involuntary displacement and gentrification that takes place with urban revitalization at the
expense of low-income residents."
The Revival fund seeks to bridge the environmental and
"We help developers who are social- and community-oriented learn to build
green, and likewise we help green developers integrate social and community concerns," said Revival
Partner Dennis Fleming. The fund also seeks to bridge human uses of the buildings to promote
environmental efficiencies. "We encourage mixed-usage of residential and commercial, because you
want 24/7 activity, and you also want a smart way of sharing energy load with residents above and
Another bridge between environmental and social aspects is locating
urban buildings within walking distance of public transit lines.
"Urban places are much
less auto dependent, which is an important element of their carbon footprint," said Prof. Pivo.
"Energy efficient green buildings that are not transit-oriented only address half the issue of
carbon footprints and energy conservation."
Professor Pivo points out that Leadership in
Energy and Environmental Design (LEED) certification, the yardstick
for green building from the US Green Building Council (USGBC), rewards transit-orientation in its rating. This fusion of
social and environmental returns contributes additional value to financial returns to create strong
triple bottom line returns, a foundation of socially responsible investing (SRI).
community has been dying for green real estate investments," Mr. Fleming told SocialFunds.com.
"Ultimately, the triple bottom line is what we're after to meet the demand from the SRI community."
The Revival urban green fund is more analogous to a private equity investment than it is
to the standard SRI vehicle of mutual funds. And it differs from the standard real estate vehicle,
the real estate investment trust (REIT).
"As with a mutual fund, a REIT is a publicly
traded vehicle that has liquidity because investors can sell their shares," Mr. Randall told
SocialFunds.com. "REITs typically don't get into development, whereas we'll be partnering with
developers to build joint projects."
Another distinguishing factor is the risk/reward
ratio, which is projected to be in the 13 to 18 percent range for the Revival fund, whereas REITs
tend to be in the 8 to 10 percent range, according to Mr. Fleming. And the time horizon of the
urban green fund of nine years or more (what Mr. Fleming calls "patient capital") would differ from
other private real estate funds, which typically turn over in the seven-year range.
Revival considers this first fund a stepping stone, establishing the urban green platform
through institutional investment before eventually offering an urban green REIT to the public.
"Offering a public fund would be the ultimate measure of our success," said Mr. Fleming. "If
you can make it democratic, you can really help green building grow."