LaSalle Investment Management Bucks Political Trends With $500M Green Fund

In late March, LaSalle Investment Management announced that it had raised $370M (£270M) of initial commitments for its inaugural LaSalle Property Planet Protection Fund to fuel a strategy of decarbonisation. And the strategy raised a few eyebrows.

The move comes as sustainability has been put under pressure as a priority, thanks to a change of political emphasis, against a backdrop of economic volatility. Yet Ryu Konishi, fund manager of Lp3F, as the fund is known, says the strategy transcends short-term political trends.

“This strategy is designed to be successful in varied political environments because it relies on value creation through efficiency and resilience,” he told Bisnow in an interview.

“We believe the strategy should garner accretive returns relative to the traditional way of doing things, irrespective of government spending commitments.”

The fund's strategy is to create value through building upgrades, targeting deep retrofits of vacant buildings, lighter retrofits for properties with active tenancy, and some ground-up development.

Funding commitments have come from the Development Bank of Japan, the California State Teachers’ Retirement System, wealth management firms, international pension plans, LaSalle and JLL. The fund will be executed by LaSalle's global real estate platform, which oversaw more than $86B in real estate globally in the third quarter.

With Lp3F’s first close confirmed, LaSalle is now in the process of analysing and doing diligence on a handful of initial investment opportunities that it has had its eyes on, and it will announce its inaugural investments shortly, Konishi said.

It is targeting a total fund size of $500M, though this may increase, subject to further demand.

The fund is looking to drive net operating income growth and net cash flow stabilisation while reducing operational energy consumption, with an energy use intensity reduction target of 30%.

“To be clear, this isn’t a politically-driven tactic,” Konishi said. “It’s a long-term approach to get ahead of the curve, taken with the conviction that sustainable properties will weather physical and transition risk-related climate risks far better than conventional properties.”

Konishi said that as an organisation, LaSalle remains comfortable managing through these risks because the company has been taking this approach on a property-by-property and deal-by-deal basis for years.

“The speed of change differs across markets,” he said. “The depth of analysis required is technical and needs to be globally consistent. We are now fortunately in a position where the cost of producing renewable energy is on par with fossil fuels in certain markets.”

As a result, he said decarbonisation’s investment thesis rests on a long-term view of how to deliver financial performance and sustainability performance thoughtfully.

“In short, you have to be a good investor in order to execute the investment thesis and the business plans involved,” Konishi said. “In light of the trajectory of where so many aspects of commercial real estate’s value chain reside, we find it prudent to know a thing or two about structuring renewables deals, structuring for embodied carbon, and figuring out what works and what doesn’t for a certain technology in certain markets when it comes to implementing energy-efficiency measures.”

Lp3F will target operational energy use intensity multiplied by grid emission factors — in other words, how much energy the building consumes per square foot and how carbon-intensive that energy is — to calculate operational carbon intensity. LaSalle believes this process should have integrity as an approach.

“EUI, grid emissions factors and carbon intensity are auditable, and we intend for Lp3F’s investments to withstand the test of a financial auditor like PwC, E&Y, Deloitte or KPMG and financial regulatory authorities around the world,” Konishi said.

To do that, there are certain types of properties, types of lease structures, types of energy markets, forms of capital structures and types of deal situations that enable decarbonisation deals to flourish or languish.

“Once you do a deal that has figured out one set of conditions that work, then our objective becomes to rinse and repeat and scale,” Konishi said.