Advocate Says REITs Can Be Leaders in Real Estate Sustainability

Cliff Majersik, executive director with the Institute for Market Transformation, joined REIT.com for a video interview at NAREIT’s 2015 Leader in the Light Working Forum in Reston, Va.

The Institute for Market Transformation is a non-profit organization that aims to encourage energy efficiency and green building. Majersik said the firm believes REITs can be market leaders in promoting sustainable real estate.

“Because REITs have a lot of buildings, we’re very interested in working with REITs,” he commented. “We want to empower REITs to use best practices to save energy in their own buildings to be an example to other players in the real estate industry and, hopefully, drive building energy performance.”

In discussing the market failures that inhibit investment in energy efficiency in the real estate sector, Majersik cited the “split incentives problem.” In other words, different people play roles in enhancing the efficiency of buildings, but they don’t necessarily have the same levels of motivation to do so. For example, if tenants pay their own energy bills, their landlords might have a diminished incentive to improve the sustainability of their buildings.

“The landlord, the tenant, the building operator, the construction of the building are all very important to how that building actually performs in operations,” he said. “Trying to align the incentives of all the players so that everybody comes out ahead when the building is more energy efficient is a big part of what we do.”

Majersik noted that “green leases” offer an example of a strategy to align the interests of tenants and landlords, in so far as both parties are rewarded for making a building more efficient.

Regarding regulatory changes that could spark more investment in sustainable building, Majersik said increased benchmarking and transparency requirements are helping to promote green building and technologies.

“The idea is that you can’t manage what you don’t measure,” Majersik explained. “The market needs information. Traditionally, the market hasn’t had information about energy efficiency of buildings, so it hasn’t been fully valued.”

The lack of information has led to under-investment in energy efficiency, according to Majersik.