Ms Paroli, what is the importance of ESG for Wealthcap's real estate investment strategy in general?
Sustainability in its many dimensions is an important pillar in our investment strategy. Our strategic approach is "Future Invest". This means that as a long-term oriented asset and investment manager, we focus on capital investments that will still be competitive years and decades from now and can offer investors stable and predictable returns. From this perspective, sustainability must play a central role in real estate investments, because without taking relevant ESG criteria into account, it is already becoming increasingly difficult to attract those creditworthy tenants with long contract terms who can secure stable returns in the long term.
In addition, investors are increasingly insisting on the sustainability of their assets - both investors in the funds and potential buyers - should an exit be planned after a long holding period. And last but not least, we ourselves would like to contribute to a more sustainable economy, be it in environmental and climate protection or in a variety of social and governance issues. In order to meet this requirement at all levels - from our own processes and the products to the fund assets - we have appointed a ten-member ESG team this year.
What role does ESG play in the valuation of real estate?
Numerous factors flow into real estate valuation, from the location, the price level at the site and the building substance to rental contracts and vacancy risk. At the end of the day, however, it is the long-term and risk-adjusted returns that are the deciding factor. Since both the lettability and the quality of the leases increase for sustainable properties, ESG compliance does in fact indirectly exert an increasing influence on the valuation.
What data is taken into account, and are there standards that can be used as a guide?
There is no fixed procedure that could be used to define the percentage by which the valuation of a property changes if a certain sustainability certificate is available. The real estate asset class would be far too heterogeneous for that. In official valuation procedures, it is the appraiser's judgement that counts, and he or she also takes into account the income potential and lettability - and thus indirectly ESG criteria also flow into the valuation to varying degrees.
There are some sustainability certificates that have become established on the market, especially LEED, BREEAM or the DGNB. Some parameters can easily be measured quantitatively, for example energy consumption. At the portfolio or fund level, sustainability criteria are increasingly being included in the rating agencies' assessment, or there is a separate sustainability rating. However, this usually does not evaluate the individual assets, but the overall strategy. There is no binding industry standard.
What part does the projected lifespan of buildings play in their ecological footprint? Or to put it another way: aren't we often constructing buildings for far too short a time period?
Lifespan is a very important criterion that unfortunately often receives too little attention. For example, almost all relevant certifications pay attention to the use of sustainable building materials. But the ecological footprint is not served if the building has to be completely demolished after 35 years. Materials should therefore also be long-lasting, but above all the utilisation concept of a property should be as flexible as possible.
With a lot of creativity and a little patience, we have seen that it can be done differently, for example at the BayWa headquarters in Munich: The somewhat aging high-rise building from the 1960s was transformed into a gem and placed in a Wealthcap fund. I also notice that the real estate industry has learned and improved on this topic. Overall, we are on a good path.