UNITED STATES - Pension funds in the United States are looking to make their real estate portfolios ‘greener' so ING Clarion Partners has rolled out a sustainable growth initiative and its first investor is Los Angeles Fire and Police Pensions.
Both investors believe a green strategy will help the environment and make economic sense for their portfolios as it is felt ‘green-focused' assets can create value for an exit strategy.
Los Angeles Fire and Police has made two investments in green-focused commingled funds, with a $40m (€25.4m) allocation to Principal Green Property Fund I and Bond Companies Sustainability Fund.
These are the pension fund's first allocations to a green strategy but it is understood similar commitments could be considered in the future.
Green Property Fund I, managed by Principal Real Estate Investors, is currently seeking a total capital raising of around $350m and projected returns for investors in the fund are 15.5% net IRR.
Principal intends to have leverage on the fund of no more than 75% and the investment strategy is to develop ground up US commercial real estate properties in the office, industrial, retail and apartment markets.
Principal is already working on six new green development projects under constructions at a value of $560m.
Los Angeles Fire and Police officials is confident of Principal's decision-making as the real estate manager has a strong track record with development projects through some of its previous commingled funds.
Bond Sustainability, meanwhile, is a $350m commingled fund managed by the Bond Companies and the Abraham Group and anticipated to achieve net IRRs of 15.5%-19.5%.
The investment strategy for this commingled fund is to invest in US urban infill projects which use sustainable building technology and management practices.
The Bond Company specialises in developing and operating sustainable buildings and has a track record of generating a realized leveraged after-fee IRR of 24.1% since 1995. The Abraham Group is led by former US energy secretary Spencer Abraham.
ING Clarion will now be looking to sustainable investment practices for both acquisitions and developments in the near future, according to Victoria Kahn, manager director at the firm.
"We will now be looking at sustainability for all of our future transactions. This would include both acquisitions and new developments. Any local partners that we work with will need to be on the same page with us," she said.
Kahn believes in the long-term nature of sustainable assets, as she added: "Over a long period of time there should be some value in having sustainable real estate. At this point it's really hard to tell how much, because the data just isn't there at this time."
