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Impact Investing Passes Its COVID-19 Trial By Fire


Can you do well at the same time as doing good? When you invest, do you have to sacrifice returns in order to have a positive social impact? Those are the big questions at the heart of impact investing, ones that a crisis like the coronavirus pandemic, which has hit real estate hard, throw into stark relief.

Those involved in real estate impact investing say the pandemic has brought to the fore both the resilience and the importance of impact investing. 

“Broadly speaking, in times of economic pain, issues of people and planet can often take a back seat as people focus on balance sheets that are shrinking and distress,” Nuveen co-Head of Impact Investing Rekha Unnithan told Bisnow. “Things that might only seem nice to have go on the back burner. But this time, issues of people and planet have continued in importance. People have realised that climate change doesn’t stop, pollution doesn’t stop and crises like COVID-19 have a disproportionate impact on lower-income communities.”



A new report from the Urban Land Institute and PwC found that impact investing in real estate — property investments that look to make positive social impacts that can be clearly identified and measured — has not been derailed by the coronavirus pandemic, and in fact is on the rise. 

Achieving this positive social impact is not easy. It requires a different way of thinking than what real estate firms are used to, different types of staff and strategies, and a long-term outlook. But those that embrace impact investing can expect resilient returns as they tap into a growing consumer demand for assets that have a positive social impact. And real estate as a whole has a unique chance to play a role in building a better society in the wake of the pandemic. 

“2020 has also seen the real estate world begin to evaluate its wider role in society more seriously — from addressing diversity and inclusion in the workplace to a far greater emphasis on the environmental, social and governance agenda,” PwC UK Real Estate Director Gareth Lewis said.

“The social upheaval brought about by COVID-19 has the potential to accelerate the growth and prominence of impact investing in the built environment, with social impact increasingly being considered as part of an overall strategy rather than a specific investment strategy via specialist funds or products, although there is still a long way to go.”

Four-fifths of the nearly 1,000 survey respondents to this year’s Emerging Trends in Real Estate Europe report believed that demand for impact investments in real estate will increase over the next three to five years, highlighting the feeling that it is a growing area of opportunity. And participants are getting ready to address it now: 58% said bringing in social impact or social value contributions to their portfolios will increase in importance in 2021. 

Interviewees note that the coronavirus could spur capital coming into real estate impact investment. The pandemic has highlighted the need for greater investment in social infrastructure — a broad term that includes such assets as modern healthcare facilities, care homes and senior living, affordable housing for key workers and specialist housing for groups ranging from people with physical or mental disabilities to those suffering from domestic abuse. 

“The pandemic has shown that there are elements of our social infrastructure that fundamentally don’t work and need investment, health care being the most obvious,” one investment manager interviewed for the report said (interviewees remain anonymous). “There is not enough liquidity and quality in social infrastructure across Europe, and private capital needs to assist in getting that taken care of.” 

Government and local authority funding was already lacking in many of these areas before the pandemic, and the problem is even more acute now. Government funds have been drained by efforts to support jobs and economies, leaving even less to spend on services like elderly care or affordable housing. 

There are many different examples of real estate capital being needed to provide social infrastructure. In Italy, the Franklin Templeton Social Infrastructure Fund has invested in two hospitals in the Veneto region, an epicentre of the early coronavirus outbreak in Europe. The municipal authority is now in talks to extend one of the hospitals and is seeking a capital partner for the project. 

Domestic abuse rates have risen during the pandemic, with lockdown making it more difficult for women and children to escape their abusers. In the UK, Patron Capital is launching the Women in Safe Homes Fund, which will partner with charities and local authorities to provide housing for women who are experiencing homelessness, are ex-offenders or survivors of domestic abuse, or have other complex needs. 


Nuveen's Rekha Unnithan

Unnithan pointed out that COVID-19 disproportionately affects low-income groups, who often live in densely populated areas, do jobs that could not be undertaken from home and do not have access to the tools required to school children from home, like good WiFi and computers. High-quality affordable housing could meet some of these needs, she said. 

The No. 1 issue raised by survey respondents when asked what would attract more capital to impact investing is that question of returns, with 51% saying a better understanding of the risk/return profile would bring in more investors. A further 37% think more evidence that financial returns are not compromised is needed. 

Unnithan points to Nuveen’s affordable housing investment programme in the U.S., which she said has performed in line with pre-pandemic expectations throughout the crisis.

“We saw our investments remain resilient,” she said. “Some of that was bolstered by government support for low-income families, but what we found was that when people received their support checks, they prioritised housing. Yes, we had to provide rent relief to some of our customers, but overall, this asset class proved that it was resilient in a tough time.”

More broadly, interviewees for the Emerging Trends report said many of the asset classes that require capital from investors looking to make a social impact might have lower absolute returns, but usually have secure long-term income, often supported by governments, that pension funds favour in a low-interest-rate environment.

Figures on returns from real estate impact investing are sparse, but they do exist: Respondents to a report by the Global Impact Investment Network said the average internal rate of return on realised impact investments in real assets is 13%.

ULI/PwC’s report said, and Unnithan also reiterated, that while the business case for impact investing has been proved during the crisis, that doesn’t necessarily make raising capital for specific impact funds any easier — given the turmoil in financial markets and in the portfolios of institutional investors, raising capital for investment managers is difficult, full stop. But multiple managers including Savills Investment Management, CBRE Global Investors and Azimut are in the market looking to raise specific real estate impact investment funds. 

Even if the returns look good, impact investing is not easy, and 49% of the Emerging Trends report respondents said that better ability to measure the impact you have and a better definition of what constitutes impact investing would attract more capital to the sector. 

There is also an increase in operational intensity to take into account. One thing investors in the impact sector mention consistently is that to do it well is hard. 

Partly that comes from the increased reporting and difficulty of measurement that come with impact investing and the extra set of factors that need to be taken into account when making an investment decision. But impact investing also requires a set of skills and a corporate culture that are sometimes alien to the world of real estate. Impact investors are dealing with vulnerable people, and this takes additional skill and care. 

“A lot of investors are arrogant and can’t understand the nuances of neglected communities,” one impact investment manager said. “They don’t even know what risks they should be underwriting.” 


Impact investor Fore Partnership's office on Windmill Street in Manchester, which features space for the local community to hold free events.

One example is an investment in a U.S. community that involved housing and a grocery store. Members of the local community said the store needed to be open 24 hours a day because when it shut, local gangs used the parking lot to sell drugs and shootings increased. 

“Your team has to be diverse and empathetic. You need different skills; you can’t just have financial analysts,” a survey respondent said. 

But impact investing has big advantages, too, in terms of staff and capital.

“We think in the long run we will attract more talented people, and companies do better when they have a purpose,” one investment manager said. “You attract people who are not just motivated by the paycheck.” 

And ultimately there is another very important advantage: To appeal to consumers of real estate in future, investors and developers will need to demonstrate that their product — buildings — play a positive role in society. This is what is driving the growth of impact investing in real estate. 

Consumers are demanding more from the institutions to which they give money — pension funds and insurance companies — which in turn are demanding more from investment managers.

“Investors have been under pressure to deploy capital in strategies that are environmentally sustainable for some time now, and we are starting to see that same pressure to deploy in strategies that are socially impactful,” said the CEO of one U.S. developer that makes all its investments with that goal. 

Moreover, there is the influence held by that other major consumer of real estate — the industry’s customers, the occupiers. As big corporations increasingly draw attention to their ethos and values as a way of differentiating themselves in the eyes of staff and customers, they will align themselves with real estate providers that share and deliver on those social values, interviewees said. 

This wider societal trend, with consumers increasingly choosing brands they believe align with their values, has now also arrived in real estate. Of those surveyed, 73% believed that the reputation and brand of real estate owners will become more important in the next five years. 

“Our company’s brand and values are becoming more and more relevant as a result of the pandemic,” one longstanding real estate impact investor said. “When there is a recession, people think more broadly about what they are doing for the world. The public has realised that we need to take care of ourselves and each other — that the way we work and live has changed.” 

“People will remember who did the right thing,” another investor said. Added an adviser: “It is an opportunity for developers to re-establish the trust that has been lost. If they miss this opportunity, they might never get it back.”