ULI Leaders On Affordable Housing, ESG And The Future Of Class-C Buildings

The Urban Land Institute is a nonprofit research and education organization that is dedicated to responsible land use and creating thriving communities. Founded in 1936, today it has more than 40,000 members worldwide who are involved in every facet of real estate development, land use and public service. 

For the past 43 years, ULI has released a report on emerging trends in real estate, which examines the impact the past year has had on the industry and where it is headed in the coming months. On this week’s Walker Webcast, Walker & Dunlop CEO Willy Walker sat down with Ed Walter, global CEO of ULI, and Billy Grayson, executive director of the ULI Center for Sustainability and Economic Performance, to go over some key findings in that report, as well as their overall thoughts on the state of the real estate industry. 

Walter kicked things off by discussing what a remarkable year it has been and how surprising the current state of the market is considering the challenges of the last several months. 

“Industrial, multifamily and single-family housing are attracting record amounts of capital and are looking at incredibly low cap rates across the board,” Walter said. “We’re seeing very strong demand driven by some of the trends that had started pre-pandemic that the pandemic managed to accelerate.” 

He added that even asset classes that have struggled, like hospitality, have seen some major rebounds and currently, the revenue per available room rate for U.S. hotels is actually higher than it was in 2019. 

Grayson maintained Walter’s positive outlook when speaking about the state of environmental, social and corporate governance measures, which some feared would fall by the wayside as the real estate industry struggled to keep its head above water. According to Grayson, however, the industry is making serious headwinds when it comes to ESG. 

“Since 2020 we’ve seen a doubling in green bond issuance, with more than $100B being invested in real estate projects through these bonds,” Grayson said. “We’ve also seen several owners of real estate companies make bold commitments to get on a path to net-zero carbon emissions, with some even achieving it.” 

He added that ULI’s Green Print members report to the organization yearly on their energy and environmental performance. Each year, they usually report about 400 projects across 50 companies. This year, it was more than 1,400. 

Buildings and construction are responsible for 40% of all global carbon emissions, Walter pointed out, which is why it is so important for real estate companies to work toward reducing or eliminating that carbon footprint. He said that ULI has done some great work with D.C., helping them develop a carbon action plan that helps buildings reduce their emission through low-cost or no-cost strategies. 

“[Buidling owners] can follow a prescriptive pathway and work with a provider at the D.C. hub to help train them on how to achieve a 20% reduction through a specific set of things that they can do at the building,” Grayson said. “They have a green bank that they can tap into for below-market financing if they needed to hit their goals, or they can pay a fine.” 

Grayson mentioned that older buildings can tap into green funds to retrofit their HVAC systems and help make green improvements. This led Walker to bring up a surprising statistic from the ULI report, which found that currently in the U.S. there is 4B SF of Class-B and Class-C office space — space that has likely been around for decades, in desperate need of retrofitting and few people are interested in buying it. He asked what Grayson and Walter believe will happen to this space, especially as office usage habits are changing. 

Walter said that if current trends continue and people do not return to the office in pre-2020 numbers, then cities should encourage developers to turn those buildings into housing to draw people back to downtown areas. He added that they could be turned into industrial space for last-mile distribution. 

Walker said that for the past three years, the ULI report has identified affordability as the No. 1 issue related to housing. ULI, he said, has identified strategies for improving the affordable housing crisis, but many of them rely on the federal or local government to step in. He asked Walter and Grayson whether, given ULI’s influence on city planning and regulation and the way that government officials view this issue, they are optimistic or pessimistic that the country can come up with some real solutions to start to put a dent in this crisis of affordable housing in America.

Walter said it’s hard to be optimistic about communities coming together to find affordable housing solutions. He noted that some are taking it more seriously than others and making changes that will drive more housing, but there are too many policies and roadblocks across the country that either drive large lots, don’t encourage density in places where it should be encouraged or just make it more difficult for a developer that might have a plan to build something that could be viewed as affordable.

He said one positive is that the federal government is discussing increasing the amount of money they will give to the tax credit program, which has proven to be a generator of affordable housing. He added that concepts like accessory dwelling units and limiting zoning for single-family homes can create additional opportunities for more housing to be developed. 

Grayson and Walter said that after speaking with developers and investors, they have discovered that climate is their No. 1 concern. A year ago, most developers told them they would just rely on insurance to cover any climate-related issues that may arise. Now, that same group of developers is performing a climate review or resilience review of every asset they are buying. 

On Dec. 15, Walker will host Kara McShane and Kristy Fercho from Wells Fargo. Register here for the event. 

This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content.

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