Why every real estate investor will become an impact investor

Philip Nell, Head of Real Return Assets in the UK at LaSalle Investment Management, writes on the convergence of real estate and impact investing.

Covid-19 will dramatically accelerate the intersection of real estate and impact investing, the practice of placing positive and measurable social and environmental results alongside financial returns as the primary goal for fund managers and their institutional allocators.

Impact strategies have attracted growing capital in recent years, reflecting an emerging consensus that investors can do well if they do good. As a physical, local and explicitly designed for communities asset class, real estate has always had an intrinsic impact dimension and has been at the forefront of impact investing’s journey from a specialty to a mainstream product.

But it may be the pandemic that will be the defining moment for this convergence – first and most visibly in the housing, healthcare and education sectors. In addition to its huge public health impact, Covid-19 has exposed a number of systemic problems in advanced economies. The experience will shock investors to rethink their roles and responsibilities beyond simply maximizing financial returns to grasp addressing structural societal challenges.

The sheer scale of certain problems – implying enormous demand for private financing solutions and thus potentially attractive financial incentives – should only facilitate this change in attitude.

While changes in behavior caused by pandemics will increase the supply of capital available for impact opportunities by institutions seeking stable, long-term returns, the underlying fundamentals of impact real estate investing have not changed materially in the past year. This applies to both the UK and continental European markets – and should be rated as positive.

There are many property types where valuations and future cash flows have been negatively impacted by Covid-19, such as: B. Retail and Offices. Conversely, the diverse mix of asset classes that together make up the impact investment real estate market continues to exhibit risk-return dynamics that would be extremely attractive in and of themselves, even if their potential for generating social benefits is neglected.

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