BLOG: Real Estate Impact Investing
In recent years, real estate has evolved beyond just a way to build wealth. Today, many investors are looking for ways to invest that not only generate strong returns but also contribute positively to society and the environment. This has led to the rise of real estate impact investments—a strategy that focuses on making a positive, measurable impact on society and the planet while still achieving financial gains.
But what exactly is real estate impact investing, and how can it help shape a better future for communities and the world at large?
What is Real Estate Impact Investing?
Real estate impact investing refers to investments made in real estate projects with the intention of generating a measurable, beneficial social or environmental impact alongside financial returns. These investments target projects or developments that not only promise a financial return but also aim to address issues such as affordable housing, sustainability, community development, and resilience to climate change.
While traditional real estate investments are typically driven by financial returns, impact investors are motivated by both profit and purpose. These investors seek out opportunities that have a positive influence, whether it’s in creating affordable homes for underserved populations or promoting sustainable building practices that reduce a property’s environmental footprint.
The Growing Popularity of Real Estate Impact Investments
Demand for Sustainability As the effects of climate change become more evident, there is growing demand for sustainable real estate developments. This includes projects that use eco-friendly materials, energy-efficient technologies, and sustainable building practices. Many cities are adopting regulations that encourage green buildings, further driving the demand for environmentally-conscious real estate investments. Impact investors are at the forefront of this change, funding projects that prioritize sustainability.
Focus on Affordable Housing In many urban areas, affordable housing has become a critical issue. Impact investors are turning their attention to the development of affordable housing projects that address the shortage of homes for low- and moderate-income families. These investments not only improve access to housing but can also uplift entire communities, creating opportunities for economic mobility and improved quality of life.
Social and Community Benefits Real estate investments with a focus on impact often go beyond just providing housing. They can also support local infrastructure, create jobs, and revitalize communities. Projects that prioritize community engagement and social benefits create stronger, more resilient neighborhoods, contributing to long-term social stability and growth.
Regulatory and Financial Incentives Governments worldwide are increasingly offering incentives to investors who prioritize social and environmental outcomes. These include tax breaks, grants, and access to low-cost financing for projects that meet specific criteria, such as energy efficiency or the development of affordable housing. Such incentives make impact investments more attractive, drawing capital into real estate sectors that would have been otherwise overlooked.
Examples of Real Estate Impact Investments
Green Building Developments One of the most common types of real estate impact investments involves green building projects. These properties are designed with energy-efficient technologies, renewable energy sources like solar panels, and water-saving systems. Such developments often have lower operational costs for tenants, are more environmentally friendly, and contribute to the overall reduction of the carbon footprint in the built environment.
Affordable Housing Projects Investing in affordable housing is a prime example of impact investing in real estate. By creating housing options for low-income families, investors can address a major societal need. Many impact funds focus on revitalizing neglected urban areas, transforming abandoned buildings into affordable apartments, or building new developments in high-demand neighborhoods.
Community-Oriented Real Estate Real estate projects that incorporate community spaces such as parks, schools, and local shops are another example of impact investing. These developments not only provide homes but also foster stronger community bonds by offering spaces where residents can interact and collaborate. Projects like mixed-use developments, where residential, retail, and office spaces are integrated, also support local economies and promote walkability.
Measuring Impact: How Do You Know if Real Estate Investments are Making a Difference?
One of the challenges in real estate impact investing is measuring the social and environmental impact. Investors must ensure that the projects they fund are genuinely delivering the desired benefits. Fortunately, there are several frameworks and metrics to track these impacts, such as:
The Global Impact Investing Network (GIIN) GIIN is a leading organization in the impact investing space, providing guidelines and tools for investors to measure the social, environmental, and financial outcomes of their investments.
LEED Certification (Leadership in Energy and Environmental Design) LEED is a globally recognized symbol of sustainability in building design and construction. Real estate projects with LEED certification are an excellent indicator of an investment’s environmental impact.
Social Return on Investment (SROI) This metric allows investors to assess the social impact of their investments in monetary terms, providing a clear picture of the value created by the investment in terms of improved well-being, job creation, and social cohesion.
The Financial Side: Risk and Return
While real estate impact investing focuses on positive social outcomes, it’s important to note that these investments can still provide competitive financial returns. Like all investments, impact real estate carries some level of risk. These risks can include market fluctuations, development delays, and regulatory changes. However, the long-term benefits—such as a stable income stream from tenants in green or affordable housing developments—often outweigh the risks, especially in markets where demand for sustainable or affordable properties is strong.
Moreover, real estate impact investments tend to have more resilience during economic downturns, as they often cater to essential needs, such as housing, which remains in demand even during tough times.
Conclusion: A Win-Win for Investors and Communities
Real estate impact investing is an exciting opportunity for investors looking to make a positive change in the world while also earning competitive returns. By funding projects that focus on sustainability, affordable housing, and community development, investors can help address some of the world’s most pressing issues—while simultaneously building a more sustainable and equitable future.
Whether you’re an experienced real estate investor or new to the space, considering the impact of your investments can open doors to a world of opportunities that go beyond just financial returns. It's a win-win for both investors and the communities they serve.
Neel Shetti, CIO, Russell Glen Company