The concept of sustainability is now deeply embedded in TIAA-CREF's real estate investment activities. Nick Stolatis tells Richard Lowe why it is essential to address the topic on multiple fronts
TIAA-CREF has set itself two hard targets - to reduce energy usage by 15% and cut water usage by 10% in its office and multi-family portfolios in the US. This will be no small feat as the institutional investor - one of the largest in the US - manages a global property portfolio worth in the region of $45bn (€31.1bn). Yet, these targets are only one aspect of a sustainability drive that is an integral part of TIAA-CREF's investment activity and strategic operations.
"We implemented a global real estate sustainability initiative a number of years ago to focus and coordinate our efforts in this space," says Nick Stolatis, director of global sustainability and enterprise initiatives at TIAA-CREF. "As an organisation, we have a very strong commitment to sustainability. We view it as the triple bottom line."
The triple bottom line equates to generating returns for TIAA-CREF's investor clients (individuals, public and private pension funds and institutions), operating as a successful landlord of property assets, and having a positive impact on the built environment as a major business entity. "We have multiple audiences," Stolatis says. "It has to be an all-encompassing approach and so our sustainability initiative is focused on more than just the setting of targets - although that's a key element for us."
TIAA-CREF uses the US Environmental Protection Agency's (EPA) Energy Star benchmarking tool to support its search for and evaluation of no-cost and low-cost means of hitting its energy and water usage reduction targets. "One of our guiding principles is that you can't manage that which you can't measure, so measurement is a main element for our efforts," Stolatis says. "Without a viable benchmark programme, one can't establish those kinds of goals."
Stolatis says TIAA-CREF uses Energy Star's software because it is a universally accepted standard, it enables investors to track performance on a monthly basis and is generated and supported by the EPA, which gives TIAA-CREF the assurance that the data and findings are unbiased and reliable.
TIAA-CREF is hoping to extend its sustainability targets to waste by reducing trash output and increasing recycling. "We are implementing initiatives on individual properties," Stolatis says. "There is, to my knowledge, no practical benchmarking tool that one can use to measure how well you're doing. So, we're a little more granular with that."
TIAA-CREF works closely with the third-party property management firms it employs to manage its direct portfolio in the US. "They all have implemented initiatives and programmes and have established teams within their corporate structures to facilitate sustainable practices," Stolatis says. "However, they are very large organisations with many thousands of employees and sustainability does not occur at the top. This is one of the earliest observations that we had when we implemented our sustainability initiative."
Stolatis collaborates closely with his counterparts at property management firms. "We manage the property managers, and provide guidance and direction at the management level, but we do rely on professional firms," he says. "It's important to engage all of the layers within those organisations, so I'll be interfacing with the property managers and with the building managers."
TIAA-CREF also employs a specialist sustainability consultant to work with property managers at the asset level. "So, we're maintaining multiple touch-points in the process to ensure that everybody understands, and we're all moving forward together efficiently," Stolatis says. "If you mandate something at the top, it may filter down, it may not."
This is why measurement is seen as so critical to TIAA-CREF's endeavours in this area. "By measuring, by benchmarking, one is able to see whether you have achieved your desired goal."
Most of TIAA-CREF's achievements in sustainability have been made within its domestic borders - EPA awarded TIAA-CREF its ‘sustained excellence award' for two years in a row. But there is a desire to extend this internationally to include the institution's real estate investments in Canada and Western Europe. It recently joined the Greenprint Foundation, a global alliance of real estate owners and investors that is seeking to develop a universal benchmark for sustainable performance.
"We are looking to see how we can bring a comparable programme for benchmarking to our international investments," Stolatis says. "From an educational standpoint, our approach is across the entire platform. We have certain practices that are successful in one market or one building, and we're bringing that information, that knowledge, to other properties and making them aware of what we've achieved and, where possible, attempted to implement those best practices at other properties."
TIAA-CREF recently obtained planning consent to redevelop One Angel Court, a London office tower built in the 1970s. The refurbishment will increase the lettable area of the building by almost 50%, but at the same time TIAA-CREF hopes to reduce its total energy consumption.
Stolatis explains TIAA-CREF's commitment to sustainability in its simplest sense as "an intelligent approach to real estate investing". He believes it will have a positive effect on TIAA-CREF's bottom line, including total returns. The institution participated in EPA's ‘Change a Light, Change the World,' campaign, which encouraged US residents to replace conventional bulbs in their homes with more energy efficient ones. "We changed all the bulbs in every residence in our multi-family communities," Stolatis says. "We distributed 255,000 compact fluorescents in that year's campaign. TIAA-CREF was identified as the third most productive participant by EPA in reducing carbon emissions in that year."
Stolatis admits it did not have a direct effect on TIAA-CREF's investment bottom line, but resulted in more satisfied tenants. "They appreciate a landlord who looks out for their interests as well and that would result in a slightly higher renewal ratio," he says. "Certainly, the research we've done has indicated that sustainability and pursuit of sustainability is relatively important to residents when they seek out their homes."
The dynamic between commercial tenants and landlords is perhaps more complicated, but Stolatis says TIAA-CREF's focus on sustainable performance will have a positive effect on investment performance through increasing competitiveness. "Tenants do want to have the best they can afford and if my building has an EPA Energy Star certification, I would expect that a tenant, looking at all factors, would favour my building over a competitive building that doesn't have such certification and perhaps has the same rental rate being charged," he says. "That preference is of value to me."