News

As funds now have to give detailed assessments of their sustainability ranking, the days of paying lip service are over.

 

By Ami Kotecha, Co-Founder and President of Amro Partners

 

Few can argue against the urgent need for transparency and accountability when it comes to ESG-related claims. As of January 2023, regulations came into force under the EU’s SFDR (Sustainable Finance Disclosure Regulation) requiring financial market participants, including real estate funds, to file quarterly reports outlining their ESG performance against precise and transparent sustainability goals.

 

Funds must explain both how they will integrate sustainability risks into investment decisions – and the true impact of these decisions on the environment and on social outcomes. Instead of relying on vague sustainability reports that pay lip service while continuing ‘business as usual’, investors will be armed with the real information allowing them to confidently assess those funds that are genuinely aligned with their values.

 

The first reports are due on 30 June this year – a mere three months away. SFDR applies to any financial market participants marketing their products in the EU, so UK companies cannot look away. The UK is also responding with its own SDR (Sustainability Disclosure Requirements) Framework, currently under consultation.

Amro co-founder and group President Ami Kotecha has been appointed Chair of the UK PropTech Association (UKPA) following a unanimous vote by the Board.

 

Ami’s tenure begins during an inflationary economic environment that can provide interesting opportunities for Proptech start-ups. However, UK tech start-ups are also having to work harder to attract new venture capital investment, and while Biden’s Inflation Reduction Act has put tailwinds of $370 billion behind climate tech solutions, the UK must respond quickly and decisively to show its own commitment to green tech investment and to innovation as a whole by offering a speedy replacement to the planned reduction in R&D tax credits.

 

PropTech holds the key to solving the largest problems facing the real estate sector as it grapples with decarbonisation, dislocation and a growing need for data-enhanced decision making.

UKPA is already taking the lead in facilitating discussions, nurturing ideas and creating an open environment for the tech community to cross-germinate and collaborate with large and small real estate sector players.

 

We’re delighted to announce we have strengthened our senior leadership team with four key promotions.

 

Within the European student housing leadership team, Luis Lopez-Quinones Garcia and Pablo Garcia- Morales Osorio have each been promoted to Managing Director and appointed as Co-Heads of Iberia. They will work alongside recently appointed Senior Managing Director Rainer Nonnengässer, tasked with spearheading Amro’s drive into new student housing markets including Germany, the Netherlands and Austria.

 

Within the UK Build to Rent leadership team, Tom Donnachie has been promoted to Managing Director, UK Investment and Stephen Hole has been promoted to Managing Director, UK Development.

 

We are already in advanced discussions with long-term institutional investment partners as we begin a significant scale-up of our residential living investment platforms, targeting €2 billion gross portfolio value in our Europe student housing platform and £2 billion in our UK BTR vehicle within the next four years.

 

Director of Sustainability & ESG, Elisabetta Li Destri Nicosia, who joined the business in 2022, will work closely with both teams to implement sustainability strategies at asset, portfolio and corporate level as we double down on our NZC2025 target.

• €30M GDV project will deliver 221 new student beds close to five universities
• Facilities include rooftop terrace, green spaces, canteens, gym and study rooms
• Project will target maximum ESG credentials to be one of Europe’s most sustainable buildings
• Valencia has the greatest student housing supply/demand mismatch of any Spanish city

We have further strengthened our position in the Iberian student housing market with the acquisition of a new €30M GDV project in Valencia, on Spain’s south-eastern coast, alongside our partners IP Investment Management and Heed Capital.

 

The project will deliver 221 new student beds on a c. 2,000 sqm site just outside the city centre, in newly regenerated Avenida del Puerto, a major avenue within walking distance of five universities: European University of Valencia, University of Valencia, University Polytechnic of Valencia, University Catholic of Valencia and International University of Valencia.

 

Featuring extensive shared modern facilities including a swimming pool, gym, rooftop terrace, green spaces, canteen and study rooms, the development will target maximum ESG credentials including BREEAM Outstanding, Fitwel 3*, and WiredScore platinum certifications. In addition, following our NZC2025 pledge, the scheme will seek Passivhaus status making it one of the most sustainable new buildings in Spain, and indeed continental Europe, on completion in early 2026.

 

Valencia is a tier one market in Spain, being the country’s third most popular university destination with strong underlying market fundamentals. During the 2021/22 academic year, the total student population was over 103,000 students with international students accounting for approximately 12% of the total. In addition, Valencia recorded the highest YoY student enrolment growth of all provinces at 2.9%.

Highly energy-efficient buildings are at the top of the list for institutional investors when it comes to selecting opportunities, particularly pension funds who are acutely focused on future proofing portfolios, given their long-term hold play. The macro-economic energy crisis pushing up the price of utilities has served only to heighten capital focus on energy performance and the push for developers to bring forward those opportunities presenting the highest possible ESG credentials.

 

But designing and building a market-leading energy efficient building is one thing; operating it to its optimum performance is quite another. Its ultimate success requires the operator and residents to be fully educated and aligned in how to use the building effectively. This will rely on the use of technology, to minimise energy use and optimise performance. So how can we identify and rectify the inevitable gaps between stakeholders (capital, developers, contractors, professional team, operators, and residents) and successfully influence behaviour to not only create highly energy efficient buildings, but maximise their potential for in-use energy performance?

 

This was the topic I and my co-panellists, Polly Simpson (Head of Multifamily Development at Savills), Sam Winnard (BTR Operations Head at PIC) and Simon Bayliss (Managing Partner at HTA) tackled at the recent UKAA Conference. We agreed there has long been a perception that creating “green” buildings has a significant impact on the financial viability of a project, but if embedded within the strategy early and incorporated into design at the outset, then the cost impact can be limited. In fact, it will be financially accretive given the capital’s move towards a “green premium” / “brown discount” mentality.

 

By creating an air-tight building and incorporating passive measures, with highly efficient energy systems and maximum on-site renewable capacities for generation and storage, operational energy requirements are immediately reduced, making the challenge of operator and resident collaboration more manageable.

 

But from that point forward, it takes a combination of technology, clear information and education to drive meaningful long-term change in resident behaviour. Smart BMS systems and sensors that monitor in-use energy and provide KPIs to the operator and residents, must be used alongside resident education, providing clear, jargon-free information about personal energy usage patterns. Friendly competition can help, as can bonus systems to reward responsible energy usage, but the key is providing solid information that gives residents a simple overview of their carbon footprint and helpful recommendations for reducing it.

Embedding ESG into modelling financial returns is a no-brainer for residential investors who seek to deliver long term, sustainable rental growth. Not only are tenants increasingly motivated by decarbonisation and a healthy living environment, but the volume of capital that investors are currently seeking to deploy on assets that deliver on ESG and comply with Article 8 funds under SFDR, is already far greater than the volume of suitable available deals.

 

As the appetite for assets that meet ESG requirements has grown, so has the level of scrutiny. Through their own commitment to ESG, capital partners are increasingly examining the extent of impact generated in terms of environmental and social value. The process involves assessing carbon emissions and health and well-being metrics through the lifecycle of an asset – from the feasibility stage through to procurement and operational stages, including estimations of residual emissions liabilities.

 

In the residential sector there are significant benefits of embedding ESG principles from the outset –  right from securing planning permission at one end to meeting the growing demand from discerning tenants who desire to live in energy-efficient properties with quality outdoor spaces and connected communities. In the short term, we expect that assets that score highly on ESG criteria can deliver a ‘green premium’ in yields, but in the long term we hope that the residential sector as a whole works towards embedding ESG criteria into all projects – not only to avoid being caught out by asset-stranding risks, but to best serve our occupiers and avoid the existential climate crisis that we face.

 

By making environmental and social impact key project outcomes, we could enhance our sector’s capacity to assesss, specify, procure and deliver against relevant metrics. For example, improving carbon literacy across every department within our organisations and among stakeholders, customers and our wider networks, would help with obtaining the required buy-in to deliver on ESG criteria. The reality of reaching net zero presupposed a greater degree of alignment with funders who care about ESG outcomes. Equally, it also means being more selective with contractors and suppliers, declining to work with those who don’t comply, and making difficult decisions around procurement, finance and HR.

 

None of this will be easy, and it will only get more expensive if we don’t act today. As the climate emergency deepens we should, by now, be aware that not doing anything is going to cost us all much more over the long-term. The strategy for our flagship co-living project in Kingston, The Rex, pivoted in summer 2021 from a new build to a retrofit to ensure the project achieves the highest possible sustainability credentials due to low embodied carbon use, far surpassing RICS 2030 emissions targets. This meant going back to the drawing board and starting again. Design compromises have had to be made as we work through the challenges that inevitably arise when reusing an existing building. But a fundamental change in mindset is needed to reduce the volume of construction work undertaken in the built environment, meaning opportunities for refurbishment and reuse must always be exhausted before a new build is even considered. To truly transform from a ‘take, make, waste’ economy to a zero-waste economy, the focus must be on reusing resources we have already extracted, considering our cities as material banks, digitalising waste, and connecting companies with non-profits and businesses to redistribute and create circular economies.