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 nearly 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.
