ABC’s of ESG

Property owners establish environmental, social and governance programs to appeal to both tenants and investors.

By Kristin Harlow

RE Business Online and Heartland RE Business Online, February 2023

The adoption of Environmental, Social and Governance (ESG) practices has become increasingly prevalent across the commercial real estate industry. “Simply put, communities, investors and employees expect it,” states Lisa Merage, chief impact officer and managing partner of Revitate, an investment ­firm based in Newport Beach, California.

“The world has never been more complex and interdependent. Gone are the days where businesses can operate in silos unaware and untethered to the realities around them,” says Merage. “Corporate citizenship is an imperative of nearly every stakeholder group we engage with.”

 In its 2022 ESG report, the National Association of Real Estate Investment Trusts (NAREIT) found that 90 percent of REITs surveyed have oversight of ESG at the board level. Additionally, 61 percent disclosed short-term ESG goals of less than ­five years.

According to new research from Deloitte, 75 percent of global C-suite business leaders said that their organizations have increased their sustainability initiatives over the past year. The ­findings were released in Deloitte’s “2023 CxO Sustainability Report: Accelerating the Green Transition.” (CxO refers to C-level business leaders.)

Real estate’s tangible nature is advantageous for ESG monitoring, says Merage. “At a basic level, you can see and touch the impact — positive or negative — you are having in a community, which arguably makes it easier to articulate ESG goals, measure impact and showcase positive outcomes.”

For example, Revitate’s Opportunity Zone strategy, named Revitate Impact, intentionally prioritizes new investment in what the firm calls “underdog communities.” These historically overlooked and underestimated metros are in need of additional jobs, housing and economic development. To date, Revitate’s principals have invested in 14 projects totaling more than $1.3 billion in value across four funds.

“We focus primarily on multifamily, both because it’s a sound investment and because our country needs to build more housing,” says Merage. “To hold ourselves accountable, we’ve partnered with the Urban Land Institute to integrate tools that help us assess the impact of our investments across a number of social, economic and environmental dimensions.”

Revitate also has a workforce housing strategy called Revitate Cherry Tree, which focuses on preserving attainably priced housing opportunities for working Americans in the Midwest region. Today, there is an increasing population of Americans who earn too much to ­financially qualify for government-subsidized affordable housing but too little to either purchase a home or rent Class A apartments, states Merage.

“To meet these needs, we offer stable, professionally managed communities in neighborhoods where these people want to live in and at prices they can afford,” says Merage. “Along the way, investors enjoy steady and durable cash - flows in growing markets and at competitive returns.”

This example is one way that Revitate works to meet investor expectations while at the same time ­finding a way to “do well by doing good.” In January 2022, Revitate Cherry Tree purchased its ­first three properties, all located in the Kansas City market, for $51.5 million. The communities, built in the mid-to late 1980s, total 353 units.