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The REIT industry has stepped up adoption of a range of sustainable building certifications in recent years. Factors including the adoption of ambitious environmental goals, new laws addressing carbon emissions and climate change, heightened awareness of how buildings affect health and wellness, tenant and investor requirements, and appreciation of the strategic advantage of owning sustainable properties all underscore the benefits of seeking external support and recognition.

One of the most well-known building certifications today is LEED. Since launching LEED (Leadership in Energy and Environmental Design) in 1998, the U.S. Green Building Council (USBGC) has certified more than 115,000 projects globally. There are an additional 91,000 projects currently in the pipeline for a first-time certification or recertification, according to USBGC.

The organization, which is introducing a new version of LEED to emphasize decarbonization, equity, resilience, and other imperatives, rates buildings across a host of variables, including building materials, waste strategies, air quality, and energy and water usage, to name a few.  

“The growth of our program has been fantastic, but our founding mission statement talked about having green buildings for all within a generation,” says Rhiannon Jacobsen, a USBGC managing director who oversees U.S. market transformation and development. “We have made considerable progress, but we still have a ton to do.”

REITs Step Up

In 2023, 76% of REITs by market cap reported having a LEED certification, according to Nareit’s REIT Industry Sustainability Report 2024. That was more than double the percentage in 2018.

Similarly, in 2023, 40% of REITs reported certifications under the ENERGY STAR program, which recognizes top-performing energy-efficient buildings, and 30% reported certification under BREEAM, which considers a number of science and data-based sustainability factors. Those, too, were sizable leaps over 2018.

Certifications aren’t confined to the four major property types. By Nareit’s calculations, multifamily, retail, health care, industrial, self-storage, lodging, office, and data center REITs together have certified assets in North America.

If energy and water savings primarily fueled the initial uptake of building sustainability programs, landlords today face a wider range of motivators.

Green Alpha Advisors, an asset management firm, is largely focused on innovative biotech, technology, and renewable energy investments—all of which have a role to play in a sustainable economy that can change the world’s present climate trajectory, says Jeremy Deems, a portfolio manager and executive with the firm. It also considers buildings, given their large carbon footprint, an important piece of that puzzle.

“For us, it’s clear that sustainable properties are providing a solution toward the Next

Economy, which is the whole point of how we deploy capital,” he says. “REITs that are truly practicing sustainability, and are doing it well, have a competitive advantage in their ability to lease space and the types of tenants they can attract.”

REITs that are truly practicing sustainability, and are doing it well, have a competitive advantage in their ability to lease space and the types of tenants they can attract.

Jeremy Deems

Finding the Fit

No single certification is right for every REIT. Fortunately, companies have a variety of options from which to choose. Because of its triple net lease structure at its shopping centers, for example, Kimco Realty Corp.’s (NYSE: KIM) sustainable activities are primarily focused on common areas and parking lots, says Tamara Chernomordik, vice president of ESG.

In 2023, the REIT chose to pursue the Institute of Real Estate Management’s (IREM) Certified Sustainable Property (CSP) volume program, which considers an asset’s operations and management practices across energy, water, health, recycling, and purchasing activities. As to retail specifically, CSP requires that properties be at least 25,000 square feet and 75% occupied to qualify, among other conditions. Kimco certified 19 of its 569 properties last year.

“CSP is a nice way to get a third-party stamp of approval to demonstrate our commitment to sustainability as well as efficiency,” Chernomordik says. “It’s cost-effective, comprehensive, and allows us to focus on what we control.”

REITs are also adopting initiatives oriented toward health and wellness that are being offered by organizations like Fitwel and the International WELL Building Institute.

In 2023, Sunrise Senior Living, a partner of healthcare and senior housing REIT Ventas, Inc. (NYSE: VTR), earned the WELL Health Safety Rating across its portfolio of 270 communities in North America. The rating recognizes leadership in health, well-being, and safety as demonstrated by cleaning and sanitation, emergency preparedness, health resources, and other categories.

Meanwhile, Healthpeak Properties, Inc. (NYSE: DOC), an owner and operator of over 50 million square feet of lab and outpatient medical buildings, as well as 7,088 continuing care retirement community units, recently earned a Fitwel certification at its 670,000-square-foot lab campus in Cambridge, Massachusetts. The REIT evaluates all of its new lab developments for Fitwel ratings.

Healthpeak began its first energy reduction initiatives in 2007, says Leann Mester, vice president of communications, marketing, and sustainability. As part of that strategy, Healthpeak targets LEED Gold or Silver ratings for its new developments and undertakes renewable energy projects and other green endeavors within its portfolio, she adds. As of Dec. 31, 2023, some 6 million square feet of its footprint had earned LEED certification.

“Aligning with sustainability frameworks and certifications can enhance building sustainability, reduce operational costs, and improve marketability,” Mester says.

Mitigating Risk

The growing focus on GHG emissions is changing the sustainability game for real estate landlords. Buildings are considered both contributors to climate change and potential victims of it. And while estimates vary among individual cities, buildings emit 42% of all global carbon emissions, according to architecture 2030, a non-profit focused on transforming the built environment. Meanwhile, potential threats from rising sea levels and extreme weather events such as hurricanes, wildfires, and floods pose financial threats to landlords, according to organizations like the United Nations.

Those risks also endanger humans, says Joanna Frank, president and CEO of the Center for Active Design, the operator of Fitwel. Therefore, the built environment needs to adapt to mitigate those threats in addition to limiting emissions, she adds, and Fitwel recently updated its standards to reflect that goal.

Fitwel examines 150 building characteristics, including location and proximity to green space, design, air quality, and roof material, and then leverages data from 7,000 peer-reviewed studies to gauge their impact on health and quality of life. In 2023, Fitwel experienced a 113% year-over-year increase in multifamily certification applications, which include senior housing and student housing. That’s the largest acceleration ever in that category, she adds.

“We see certification and benchmarking as tools to inform your asset roadmap and track continuous improvement based on both health outcomes and financial metrics. We can now substantiate the impact our buildings are having on people and the impact people are having on asset value,” Frank notes.

We see certification and benchmarking as tools to inform your asset roadmap and track continuous improvement based on both health outcomes and financial metrics.

Joanna Frank

Perfection Not Necessary

In the self-storage space, Public Storage (NYSE: PSA) is working on BREEAM certifications and earned a rating for 60 properties in 2022, according to the REIT’s 2023 sustainability report. The REIT selected BREEAM because it evaluates existing assets and operations without requiring prerequisite investments or enhancements, says Bernadette McDermott, vice president of architecture and design.

“The key difference between the health and wellness of an office or health care employee and self-storage is that there is no full-time worker in the space,” she adds. “So, it’s very different and more focused on operational costs and savings by going more sustainable.”

BREEAM, which was launched by the Building Research Establishment in the United Kingdom in 1990, entered the U.S. in 2016 and so far has certified buildings in 34 states, says Breana Wheeler, director of operations for BREEAM USA. While it has introduced a program for new development, its core mission remains improving existing buildings by emphasizing efficiency and energy sources as part of a decarbonization hierarchy, she explains.

She adds that while only about 1% of buildings globally can likely achieve BREEAM’s highest rating, 75% can earn some type of rating. The organization is experiencing its biggest growth in the industrial and logistics sectors.

“Our success has been to provide shades of green – it was never only about focusing only on the top end of the market,” Wheeler says. “We tell our clients that just because their building isn’t perfect, that doesn’t mean that there’s no progress to be made.”