CAIA Blog: Real Estate Debt And Sustainability March 14, 2021
March 2021 - Real Estate
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A new report from two executives at Aviva Investors, the global asset manager that is part of the UK-based Aviva Group, looks at real estate debt as a way to play the transition to a low-emissions or even a no-net-emissions world.
One key source of value here is that the market has thus far been inefficient. That is, as the authors say, “the impact of climate change is not always accurately reflected in real-estate values.”
Market participants, after all, cannot readily assess the likely impact of unimplemented climate regulations and then factor that impact into long-term risk-return assessments. Rather, participants (and by inference the market as such) deems assets “good,” as for example a building that scores well on environmental measures regarding its lighting, its HVAC systems, etc., will get points for its owners from their investors. The “sustainable” building will sell at a premium and another (“bad”) building will sell at a discount. But this is a very crude process, consistent with pricing anomalies.
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