The ‘S’ in social impact real estate: a new science?

Effective tools for quantifying the social impact of real estate – the so-called ‘S’ in ESG – are proliferating across the industry, as regulatory bodies seek to define their frameworks around the topic. This evolution is also being driven by the droves of professional investors tackling the issue, which is in turn compelling more institutional-grade capital to create social strategies. 

Global real assets investment manager Patrizia raised equity commitments from 10 institutional investors around a year ago for Patrizia Sustainable Communities, targeting the creation of a €500m pan-European social and affordable-housing portfolio. According to Marleen Bekkers, Patrizia Sustainable Communities fund manager and Patrizia Global Partners head of European investments, social and environmental impact and investor returns are “must haves” for the strategy. 

“We have a dual return purpose. Financially, our target return for our investors is 12%, while we have seven social and environmental KPIs [key performance indicators]. We scrutinise every opportunity, and won’t invest unless all criteria are met,” she says.

Addressing social impact

The strategy began with two schemes in Dublin, Ireland targeting a mix of 35% social housing, with affordable stock making up the rest, but consultation with the government goals transformed that into 100% social housing by the project’s completion. “Sometimes you can’t fully underwrite these goals from day one, but you can be more ambitious as the project takes shape,” Bekkers notes. 

To further address social impact, Patrizia canvassed the community in Dublin and welcomed local authority input which resulted in the addition of a 1,500sqm library featuring educational and community spaces. “We received hundreds of responses from local residents to our questionnaires which enabled us to quantify their needs and improve the overall result,” she adds. 

While Bekkers concedes that measuring social impact has typically been seen as an elusive metric, the inclusion of social KPIs has proved a good starting point, even if “the KPIs have clear outputs, not necessarily clear outcomes”. She adds: “We saw a need with the strategy to create community space and facilities, but there weren’t any systems for measuring their impact. We also had specific goals, like reducing loneliness and getting people connected. The solution was investing in our own social value framework, guided by our board member who is an architect and expert in this field.” The framework helps Patrizia address what residents want – for example, through questionnaires – to see what is missing. The use of community managers, in turn, increases stakeholder input and helps with implementation and outcome analysis. 

After Ireland, the strategy targeted the creation of two affordable housing projects in the UK, with a third in the pipeline, plus social and affordable housing in Spain and Belgium, tailored to each territory. “In Spain, we are creating a portfolio of social housing under the country’s new social housing programme. 

“In Belgium, meanwhile, we are repurposing older and sometimes derelict offices into apartments. The country doesn’t have a straightforward social housing system, so we are mostly creating affordable homes for sale,” she says. With the fund now close to being fully committed and having already exited projects in Ireland and recycled that capital, the team is exploring how it might further develop this strategic initiative within Patrizia. 

Science-based metrics 

Ami Kotecha, president and co-founder of Amro Partners, argues that while “science-based metrics” are more readily suited to measuring environmental impact, they can sometimes be used to quantify social impact as a proxy. 

The firm, which is developing some of the most sustainable purpose-built student accommodation (PBSA) in Europe, is building its Amro Alicante project to Passivhaus design principles. “Whilst this in itself contributes to thermal performance gains for the ‘E’ [in ESG], it also allows for precise air-quality management that bears a positive impact on the health and wellbeing of residents and can be used as a proxy for ‘S’,” she explains.

“If you have outdoor green spaces or catering, it is possible to use metrics on how frequently and in what way they are being used in order to develop a proxy for positive social interactions that help avoid mental health issues amongst students.” Kotecha says. 

“Equally, we use gamification to bring down operational emissions. While emissions are an ‘E’ metric, measuring student engagement and contribution to that purpose is, arguably, an ‘S’ outcome,” she adds.

Making social progress starts from within the business, Kotecha says. “We have to look at socio-economic outcomes, human rights, labour standards and equal pay, at Amro and across our stakeholder groups.” She notes that “employee policies across supply chains, including wages, training, growth opportunities, are all trackable metrics”. 

Meanwhile, when the firm demolishes an owned asset, it looks at “its circular economy potential for helping the local community”. In Sutton in the UK, where it is transforming an office building into a build-to-rent scheme, Amro has developed a youth employment programme plus a partnership with local charity Sutton Women’s Centre to increase its local impact.

Improving accountability

One key factor behind the industry’s increasingly structured approach to the ‘S’ in ESG is the involvement of institutional capital, with its own accountability requirements.   

Samantha Kempe, co-founder of tech-backed residential developer and operator Immo, says the housing sector in particular is crying out for greater institutional involvement to improve resident wellbeing. Immo operates in the UK and Germany as a partner for institutional investors, deploying capital into large-scale residential portfolios. 

“In Europe, 95% of the residential market comprises smaller, non-institutional-grade stock,” she notes, where “amateur or accidental landlords” don’t always have the capex or the motivation to improve housing conditions. 

Kempe previously worked for Blackstone and was inspired to set up Immo after seeing Blackstone’s success stories in the granular residential sector in the US, where it built institutional-grade portfolios out of single-family housing stock. 

“We realised that through technology we could create granular housing portfolios in Europe which could be managed and tailored to suit institutional investors,” she says. In this case, “technology drives efficiency along value chains to make it practical to aggregate and manage these kinds of dispersed portfolios”, which in the UK are often single-family homes, while in Germany, they are usually multi-family assets.  

Kempe sees institutional involvement as a key social lever, citing a British government study that found 25% of privately rented stock to be sub-standard, and 12% of stock listed as a category 1 hazard, not fit for human habitation. 

The sector is still reeling from the death in 2020 of a two-year-old boy, Awaab Ishak, who died from as a result of mould inhalation at his Rochdale home. “So many of the issues in the private rented sector won’t be solved by retail investors,” Kempe notes, “from decarbonisation to health and wellbeing metrics”. 

She sees a “huge opportunity for the institutional sector to step in”, particularly with market forces prompting more and more amateur landlords to sell up. Technology, she adds, can also help with the “automation of routine tasks, such as tenant screening, lease management, and maintenance scheduling, and also improves landlord-tenant relationships by streamlining communication and enhancing satisfaction”. 

Occupant wellbeing

AI-powered automation specialist Askporter works with housing providers in the UK to improve the resident experience. Ben Yexley, the firm’s head of business development, says that local councils and building managers have been surprised by the effectiveness of tools such as chatbots. 

“One council told us that they didn’t want chatbots in their system as they felt they would lose contact with their customers,” Yexley says. “But when they used them, they found that almost 40% of complaints online were from silent residents who don’t open the door to council workers. Many of these residents don’t feel like they have an avenue to raise problems or are non-English speakers.” Chatbots can translate multiple languages, he points out, as well as provide a reporting short-cut that avoids the negative PR and financial liability of ending up in a formal complaints process. 

In terms of obtaining even more detailed feedback on resident wellbeing, Yexley notes that technology offers some sophisticated solutions. “We are starting to see voice-analysis tools which can identify call patterns and even tone,” he says, although commercial applications remain few and far between. He suggests a good degree of social impact monitoring can still come from environmental metrics, with Internet of things (IoT) devices in properties able to give early warning signals about factors like condensation, mould and even noise. 

Much of the attention around social impact has naturally centred on the living asset classes, but Ludovic Chambe, CBRE’s head of ESG and sustainability solutions for Continental Europe, highlights that the topic is ripe for exploration in real estate. “We receive many queries from the logistics sector about improving occupier wellbeing,” he says by way of example. “Those buildings are often in remote areas, offering an opportunity to provide transportation for employees or create connections with existing communities that may be lacking.” 

Equally, he notes that social considerations are gaining greater primacy in the office segment as the focus shifts to attracting tenants and retaining the workforce. “Strategies change asset by asset, but the social factor is now an industry-wide challenge,” he concludes.