Multi-Housing News (MHN) held a session in their Snap Sessions Series on ESG Best Practices: Increasing Value Through Technology. As ESG becomes the differentiator when positioning properties for acquisition, “high scores for environmental, social, and governance strategies not only indicate solid performance, but also help fulfill investors’ newly focused capital allocations” says Suzann Silverman, Editorial Director of Multi-Housing News.
As moderator, Suzann welcomed Mitch Karren, Chief Product Officer from SmartRent, to the discussion. As a known advocate for ESG, we were eager to sit in on this session and wanted to share a summary of talking points and some key takeaways from the webinar. Hope you find it as insightful as we did!
Property/Ownership Groups & ESG
Suzann asked the first question: “What are you hearing from clients regarding their ESG concerns and how has that changed?”
Mitch talked about 2020 being a “watershed year” with everything going on in the world, citing climate change to social inequality.
“Everybody is really looking at ESG to change their behavior when it comes to Environmental, Social, and Governance.” Mitch said.
He also compared the efforts and importance of ESG reporting becoming similar to the way businesses review (and report) quarterly/yearly financials and how several companies have produced early [ESG] reports in 2021 (ex. KraftHeinz, REIT).
Key takeaway: As with everything, it looks like ESG is becoming a topic of discussion in property group year-end reviews/goal setting/fundraising processes. We believe that realistic goals set for enhancing ESG initiatives can only benefit all vested parties, owners, and investors alike.
Lenders & ESG
Suzann then asked: “How much weight are they [lenders] putting into ESG scores when they’re evaluating deals?”
Mitch replied by talking about [ESG] being a big turning point for lenders as well.
He mentioned a lot of loans being processed and earmarked as sustainability loans or even “ESG loans” have much better terms than normal loans.
He even went on to say that some investors, when they catch wind of a property management or ownership group applying for an ESG loan, jump at the bit and want to be involved in some way or shape to help build their own financial and ESG portfolio.
Key takeaway: With such a big interest in ESG, investors are looking to align with property groups that are certified and have high ESG scores/ambitions. Property managers and ownership groups should be placing a big focus of their efforts and campaigning on their ESG initiatives if they are interested in investments and acquisitions.
The Impact of ESG on Property Value
Suzann asked: “How much impact is strong ESG having on property values from what you’ve seen?”
Mitch went on to talk about the levels of LEED Certifications available for properties.
He stated that the higher the level of LEED Certification, the higher the return on investment.
He also brought up the savings found when properties decrease costs and help their bottom line such as energy management and consumption, water consumption, and so on, making them that much more attractive and positioned well in property value.
Key takeaway: We’ve discovered that ESG is a win-win topic. Not only are you doing the environment good and supporting social equality and the American Dream, but you’ll also find decreased total cost of ownership (TCO) for your property management and ownership group. Our Revenue Calculator allows property owners to quantify the ancillary revenue (including the increased property value) tied to meaningful, Social value for residents.
The Role of ESG in Acquisition
Suzann asked: “When an investor is looking at a property, what is the role of ESG now in acquisition due diligence and what is being looked at the most?”
Mitch stated that anything a property can quantify, such as energy data or water/gas consumption, can and should be used to prove adherence to ESG considerations.
And that is a report investors/companies looking to acquire properties are looking for.
Key takeaway: It’s becoming ever clearer that ESG needs to be as tangible as year-end financials. Properties that focus on implementing and quantifying ESG initiatives are better positioned when investors are looking to grow their portfolios or to just hold a greater value in their own portfolio.
The Data That Matters
Suzann asked: “Are there any other specific data points that you would point to as being the priorities that are being looked at in due diligence?”
Mitch referred to the data mentioned in the previous question, but also proving any components put in place to not only ensure the property is adhering to ESG guidelines, but also processes that help improve on those scores.
He recalls the importance of pulling tight datapoints today, but also to prove the strategy’s significance in the long-haul (2 – 5 years down the road).
Key takeaway: ESG is not just a today issue. It’s growing and becoming an even bigger topic of discussion. Our prediction says ESG is here to stay.
Suzann then asked: “Which certifications matter the most?”
Mitch replied with LEED Certification again.
He stated that the certification process begins at the development stage, impacting the construction process and materials that go into the building.
Mitch also referred to GRESB, who “looks at all these certifications and [properties] can submit certifications to the GRESB portal.” “GRESB is the ESG benchmark for Real Estate and a global framework.” says Mitch.
Mitch broke certifications into two trenches: development based on LEED Certifications and your dream certifications, like an ongoing and [property] performance perspective. Topics like indoor air quality, water consumption, energy management.
Key takeaway: Certifications prove it all. Once a property meets and maintains the stringent requirements of these certifications, it becomes that much more apparent their dedication to what ESG is all about – doing good by the people of your community.
Cost-Savings Associated with ESG
Suzann then asked: “What kinds of cost savings have you seen achieved because of the data you can collect?”
Mitch pointed to one data point (HVAC controls through smart thermostats and leak detection sensors) being most widely seen in the industry today.
He also talked about controlling entire lighting systems in common areas with control schedules, making a substantial impact on energy consumption.
Mitch referred to the smart thermostats and how each apartment unit can now be centrally controlled, so when a unit is vacant, it can get on an energy management schedule.
Add all those factors, plus the countless ancillary revenue opportunities available through monetized amenity packages, properties could be looking at a 10-20% cost-savings.
Owner/Operators and Technology
Suzann asked: “How would you recommend that owner/operators work more effectively with their technology providers to improve their ESG results?”
Mitch laid it out in terms of first steps.
He recommended property professionals observing their roles in the real estate industry and to then visualize how they picture ESG operating within their specific role at their specific company.
Key takeaway: We recommend that companies implement tangible initiatives with measurable impact for each aspect of the E, the S, and the G.
Suzann asked: “What are some really innovative approaches that you’ve taken?”
Mitch responded by sharing his team’s nationwide ability for thermostats to be opted into demand response programs.
“Historically, you’ve had buildings operate on fairly antiquated scheduling systems and it’s only really been in common areas, which is not the majority of the buildings.” Mitch stated.
Suzann asked: “What kinds of questions should owner/operators be considering and asking their suppliers to move their ESG initiatives forward to make sure that it’s progressing?”
Mitch suggested the owner/operators do their due diligence.
Vet a supplier and determine whether they are just a supplier of components/software or are they thinking about ESG and how they can continue developing their software to help focus and impact on ESG.
Key takeaway: Owner/operators should also be looking to their suppliers to provide reporting surrounding their ESG Impact. Companies like Goby partner with commercial real estate and fund management industries and help quantify their ESG initiatives.
Technology In the Future
Suzann asked: “How are opportunities evolving and where do you see technology headed?”
Mitch responded with two opportunities in particular… waste management and being able to track how much actuarial waste residents/buildings are producing and indoor air quality.
Mitch stated that Europe has put a focus on overall energy efficiency, sustainable building health and wellness you’re starting to see some of these regulations coming down.
We really loved this panel and were thankful for the opportunity to listen in.
For questions about how Rent Dynamics’ RentPlus® can help quantify a strong Social initiative while generating ancillary income across their portfolio, reach out to firstname.lastname@example.org or schedule a demo to talk with an expert!