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PIA ESG Principles

PIA Best Practice ESG Principles

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The Property Industry Alliance (PIA), the collective group of sector bodies representing more than £1.6tn of commercial property, has published a universal set of responsible investment and ownership principles for the industry.

The best-practice framework, which was co-authored by Miles Keeping of Hillbreak and Peter Cosmetatos, CEO of Commercial Real Estate Finance Europe, sets out seven key principles to advance the social, environmental and economic benefits of responsible business practices across the real estate sector. It is the result of more than 18 months of consultation between the PIA members, which includes the Association of Real Estate Funds, British Council of Offices, British Property Federation, Commercial Real Estate Finance Council, Investment Property Forum, Revo, RICS and Urban Land Institute.

Bill Hughes, chair of the Property Industry Alliance and head of real assets at Legal & General Investment Management, said: “Now more than ever, any business that does not recognise the crucial importance of behaving in a socially and environmentally responsible manner will not be sustainable over the long term.

“Those involved with the built environment have a huge collective responsibility and opportunity to drive real change. While many in our sector are making significant strides forward and having a really positive impact with their ESG policies, there remains a lot of debate and a lack of clear direction as to what best practice looks like, particularly for those who are less well resourced, which leads to fragmented efforts.”

He added: “We have a duty to our communities, our people and our shareholders to self-­reflect, to ask ourselves the tough questions and to behave in the right manner in recognition of the fundamental role that we play in society, as well as to ensure our future relevance.”

Miles Keeping, Director, Hillbreak.

Miles Keeping, Director, Hillbreak.

Miles Keeping, who co-authored the Principles and who chairs the Green Property Alliance, commented: “These principles are the result of extensive dialogue and self-reflection amongst the PIA members, and mark an important step forward for the industry. Now, for the first time, organisations representing all principal interests in the commercial property sector have taken a unified and collective stance on the centrality of ESG to its activities, which I hope will serve as a galvanising vision for a better future.

“Whilst environmental, social and corporate governance factors have risen in prominence massively in recent years, we must recognise that our sector remains a long way off where it needs to be in delivering positive outcomes for society, alongside financial returns for investors.”

He added: “Hillbreak is proud to have played a central role in bringing forward these principles, and we look forward to advocating them to our clients and the sector more broadly. We encourage consultants and service providers operating across the whole of the real estate value chain to do the same, and we look forward to supporting the PIA to review the impact of the guidance later this year.”

The PIA best practice ESG principles

PIA ESG Principles

(1) Climate change and the environment

At every phase of a building’s lifecycle, market participants should minimise both the use of natural resources and their impact on the environment.

a. How have you sought to reduce natural resource use through appropriate specification, reuse of previously used resources, and/or reduced wastage of materials?

b. How does the relevant building make a net positive contribution to the local and global environments, particularly the climate, over its life?

c. To what extent have you driven positive environmental action throughout the supply chain at each relevant phase of the life of the relevant building?

(2) Environmental and social impacts

At every phase of a building’s lifecycle, market participants should understand and take account of the environmental, socioeconomic and community impacts – both positive and negative – of their activities and decisions.

a. How have the environmental effects been assessed so that global and local implications are appropriately accounted for?

b. How have the views of the local community and other external stakeholders been sought and taken into consideration?

c. What are the likely negative and positive impacts on:

• the climate and wider environment

• the local community, local amenity and infrastructure

• those working in or otherwise using the relevant building?

d. How are negative impacts proposed to be mitigated so that the net impact is positive?

e. If any affected constituency is still unhappy, what steps have been taken to understand its concerns and either address them or explain why they could not be addressed?

(3) Balancing profit and wider impacts

At every phase of a building’s lifecycle, market participants should strike a fair and reasonable balance between the profits they seek to take out, on the one hand, and the lasting value they leave behind for those working in, using or otherwise affected by the relevant building, on the other.

a. How and to what extent are financial returns reinvested for the benefit of the environment, local community and those working in or using the relevant building in the interests of its longer-term success?

b. How do you encourage your investors, customers and suppliers to operate in a way which attaches value to environmental, socioeconomic and community considerations?

(4) Health and wellbeing

At every phase of a building’s lifecycle, market participants should measure and improve health and wellbeing within their own organisation and for those working in or using relevant buildings.

a. What information and key performance indicators (KPIs) are collected and used to monitor health and wellbeing and assess the effectiveness of improvement measures?

b. How is consideration given to improving the internal environmental qualities of relevant buildings?

c. What further knowledge or actions could lead to health and wellbeing improvements for those working in or using relevant buildings, including those with visible and/or hidden disabilities?

d. What are the principal barriers and interventions to adopting improvements in health and wellbeing and what steps are you taking to tackle them?

(5) Diversity and inclusion

Market participants should encourage diversity and inclusion, using the influence they can exert through their own people and over their investors, customers and suppliers in a way that balances those different, and sometimes competing, interests.

a. How do you ensure that your people suitably reflect the diversity of the communities in which you operate?

b. How do you promote an inclusive culture that allows everyone to feel that their voices are heard and needs recognised?

c. What steps do you take to ensure that relevant buildings are accessible and user-friendly for people with visible and/or hidden disabilities?

d. How do you encourage your whole supply chain to operate in a way which fosters diversity and inclusion?

(6) Accountability and transparency

Market participants should uphold high standards of governance and always seek to be accountable and transparent to the extent compatible with data protection and privacy rules and the reasonable requirements of commercial confidentiality.

a. How does the organisation ensure and demonstrate accountability for its actions?

b. How transparent are the organisation’s activities and how does the business subject itself to external, independent scrutiny?

c. How does the organisation ensure that potential conflicts of interest are avoided or appropriately managed?

(7) Data

Market participants should take responsibility for the data they collect and use, collecting and storing it appropriately and securely.

a. Does each building have a general data policy covering what is collected and why?

b. Is data collection proportionate to the benefit and expectations of the data subjects and associated stakeholders?

c. Are data security provisions built in to all data collection and use activities, such that confidentiality and privacy expectations can be met?

d. How does the organisation protect itself against the threat of cybercrime and ensure the security of stakeholders’ information?

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Are your investments climate proof?

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We are currently in the midst of a climate emergency. The latest intergovernmental report released by the IPCC (SR15) states that the world is on course for a disastrous 3 degrees temperature rise, based on the current level of government commitments. On the 15th of January, The World Economic Forum released their Global Risks report for 2020 and climate now tops the risk agenda – dominating the top 5 long term risks in terms of likelihood. This is because climate change is striking harder and more rapidly than anyone had expected. In 2019 we saw extreme flooding in Mozambique, a super typhoon rip through Japan during the Rugby World Cup and of course the fires that still rage today in Australia. Insurance companies estimate these increased climate related disasters have cost $150 billion USD, during 2019.

Long Term Risk Outlook Multistakeholders Likelihood

Long Term Risk Outlook Multistakeholders Impact

Risks to assets and business continuity

As the global population becomes more urbanized, there is an acute need for climate resilient buildings and infrastructure in order to ensure they (and we) are protected from the physical and transitional risks posed by the expected increase in extreme weather. Unsurprisingly, there is a developing concept, supported by academic research, that an asset which is climate resilient will also have an associated increased value, and a discount applied to those without – so if you haven’t got a climate resilient asset, it is probably going to become stranded in the future.

One of the key issues is that, even though many businesses have been considering the environmental, social and governance (ESG) impacts of their businesses or assets, until recently the vulnerability or resilience of a building or infrastructure to cope with or mitigate against the impacts of a changing climate have often have not been considered.

So, what needs to change in order for resilient assets and developments to be the new norm? In the UK, for example, perhaps local authorities will introduce climate adaptation conditions attached to planning consents, above and beyond the commonly applied requirement for a Flood Risk Assessment to be undertaken. Perhaps insurers and lenders will become more discerning and explicit about the future climate risk exposure of the assets they are underwriting and reflect that in their premiums, loan rates and covenants. And perhaps asset owners and managers will find it harder to transact without clear evidence of the resilience of assets and portfolios. Whilst there are signs that many of these things are beginning to happen, future climate risk remains an under-stated consideration in strategies and appraisals.

Unfortunately, there is currently a lack of appropriate methods or metrics available for measuring climate resilience at the building or asset level. The current practice of ESG reporting does not reflect how well a building or company is prepared for the risks posed by a changing climate, as the focus has been on mitigating their contribution to exacerbating climate change – greenhouse gas emission reporting / carbon foot-printing. The TCFD, chaired by Michael Bloomberg for the Financial Stability Board, has been an evident catalyst for change, with an increasing number of companies and funds beginning to assess and explain the resilience of their assets under a changing climate, with scenario analysis being undertaken by a small but growing number of real estate organisations. However, when it gets to the more ‘street level’ questions of “which of our assets are at risk to which climate perils and by what magnitude?”, “how might that impact on the returns they generate?” and “to what extent have the measures we’ve undertaken to improve resilience protected our portfolio from downside risk?”, TCFD does not provide such a framework.

Indeed, ask several climate risk modelling vendors to provide a quantified assessment of risk exposure at the individual asset and portfolio level, and you are likely to get several (sometimes very) different answers. This makes the ambition of the TCFD to encourage the issuance of comparable, decision-useful intelligence for investors and lenders across the market something of a stretch, and also means that individual companies and fund managers will need to be confident about the assumptions, data models and methodologies used for any assessments they commission.

Meanwhile, design codes and related modelling conventions are no longer fit-for-purpose, as they are based on historical weather patterns.  In addition, sustainable design standards such as BREEAM and LEED, do not make it mandatory to account for exposure to future changes to climate to achieving any certification level – meaning you could be investing in a BREEAM ‘Outstanding’ or LEED ‘Platinum’ building, but it may not be designed to cope with what the future may hold. This makes it very difficult for investors or developers to know that their asset will be fit-for-purpose, both immediately and in the future.

What is the solution?

At Hillbreak, we believe that the industry needs to develop, collaboratively, a unifying climate resilience framework for real assets, that can help to address the ‘street level’ challenges of climate risk – particularly from a physical risk perspective. This tool would enable a clear understanding of whether an office building, for example, has enough capacity to provide cooling in a hotter summer, or if it could be subjected to regular flooding due to more intense rainfall predicted, or if the wind loading is sufficient to withstand predicted future hurricane, typhoon and storm intensity.

In order to make it simpler for investors and developers alike, the logical solution would be to integrate it into existing sustainable assessment tools, making it a mandatory, pre-conditional element to secure any form of rating. However, if these existing tools are not able to change fast enough (history suggests that would be highly probable!), a standalone ‘climate resilience’ certification may have to be most transparent way to communicate and facilitate this, at least in the short-term, applicable to both new and existing assets.

We would be really interested to get your views on this, so please do comment or email us if you have any observations, questions or suggestions.

Spring 2020 APC Success Course dates released

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Following the success of our sell-out Autumn 2019 course we are pleased to announce that booking for the Spring 2020 APC Success course is now open.

Our increasingly popular three-day intensive course is suitable for APC candidates working in real estate organisations and surveying firms on the Commercial, Residential, Property Finance & Investment and Planning & Development pathways who are looking to sit their APC in Spring 2020.

At this time, two groups are available to join; they will run on different dates, but will cover the same content over three full days of highly-interactive sessions taking place in Marylebone, London. The syllabus will be delivered in two stages: APC Preparation & Revision Planning in November 2019, followed by two further APC Revision days in February and March 2020.

Each group will consist of up to 15 delegates whom we encourage to work together to benefit from collaborative working and mutual support. Additional, ongoing, out-of-session support will also be provided via private social media groups and email. Places are limited and available on a first-come, first-served basis. Our past courses have sold out, so candidates are urged to register sooner rather than later to avoid disappointment.

Training will be delivered by Miles Keeping MRICS, an APC Assessor as well as an experienced APC trainer, and new addition to the APC Success team Jon Wright MRICS. Jon  joins us with over 25 years’ experience and has been involved with the RICS APC process since 1995. He has delivered APC training since 2007 and regularly fulfils the role of APC Chair, Auditor and Appeal Panel member.

To book your place on this course, please select your preferred group of training dates from the options below; it is important that you stay within the same Group throughout the course in order to benefit from cohort and ongoing social media support.

Group A: 19 November, 10 February, 16 March
Group B: 20 November, 11 February, 17 March

If you would like to register your interest for future courses (Autumn 2020 sittings and onwards), please email Timia@apcsuccess.co.uk including your name, contact details and when you’re hoping to sit your APC.

For more information, download our prospectus by clicking the image below, or email enquiries@apcsuccess.co.uk.

Spring 2020 Cover

ASI Real Estate ESG Strategy

Dialling up ESG Integration with Aberdeen Standard Investments

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Hillbreak has advised Aberdeen Standard Investments (ASI) on the development of an enhanced global Real Estate ESG Strategy. This builds on the respective strengths of the approaches to responsible property investment of the ASI heritage organisations, Aberdeen Asset Management and Standard Life Investments, and addresses evolving client expectations and long-term trends that are likely to shape how business is done in the future.Dialling up our integration of ESG into real estate

Our analysis identified several opportunities for ASI to fulfil its ambition of cementing its position as an industry leader on ESG across the full spectrum of its real estate investment management platforms, covering direct, indirect, listed and debt funding activities.

With the visible leadership and strong support of the ASI RE Investment Management Committee (RE IMC) a constant feature of our engagement, the resulting Strategy presents a cogent vision and long-term approach to ESG matters that is firmly embedded within the fund development and execution process.  Outcomes and features of particular note include:

  • An investment-specific approach to materiality, underpinned by a consistent house-wide framework of global drivers of change, with topics ranging from urban air quality to Modern Slavery to affordability.
  • A sophisticated but practical approach to embedding material ESG factors into each stage of the investment process, including underwriting decisions, supported by a unique tool, the ESG Impact Dial. The ESG Impact Dial supports strategy, decision-making and client engagement by fund and portfolio managers to tune the approach to ESG for each product and asset, whilst enabling the business as a whole to set future minimum standards targets for all assets under management.
  • Appointing the Head of Real Estate ESG to the direct real estate Investment and Investment Strategy Committees, with voting rights, ensuring enhanced expertise is deployed to fund strategy and underwriting decisions.
  • Establishing clear responsibilities for the effective implementation of the new ESG Strategy across the business, with specific and coordinated central support roles defined for Investment & Product Strategy, Real Estate Research, Fixed Income, Marketing & Communications, the Real Estate ESG team and the central ASI ESG team.
  • In addition to instigating independent verification of ESG data, bringing the application of the ESG Impact Dial into the scope of the investment governance and oversight.

Our work involved extensive collaboration and engagement with the RE IMC, the Real Estate ESG team, key stakeholders across the wider investment management business, as well as an extensive group of ASI’s investor clients from all major capital markets geographies. Although client strategies and expectations on ESG vary considerably, the rise in appetite for impact investing solutions, outlined in this recent ASI article, coupled with a demand for more effective ways of measuring risk, performance and outcomes beyond the limitations of global benchmarking systems, has become a feature of client feedback.

Remarking upon our role, David Paine, global co-head of Real Estate, said: “Our drive to be an industry leader on ESG factors is central to our investment philosophy. It’s an ambition that requires clarity of foresight, investment discipline and constant innovation. We are grateful to Hillbreak for the insight they brought to our understanding of both clients expectations and best practice enabling us to further enhance our approach and embarking on a new and exciting phase of responsible and impactful property investing at ASI”.

Pertti Vanhanen, global co-head of Real Estate, added: “We selected Hillbreak to work with us because of their reputation as the leader in their field for providing constructive, strategic and commercially-attuned advice on ESG. They more than lived up to our expectations, with their collaborative and engaging approach a stand-out feature of their way of working”.

Jon Lovell, who led Hillbreak’s input, commented: “It has been a real pleasure to support ASI in further developing and expanding its strategic approach to ESG across its real estate platforms globally and to help unify the distinctive elements of its heritage approaches. We were delighted to have the opportunity to work so closely with its highly regarded Real Estate ESG team, as well as the extended leadership group, to guide things on to the next level”.

A new video outlining the approach has been launched on the ASI website here.

Global Forces

ESG Factors

 

 

 

 

 

About Hillbreak

Hillbreak provides training and strategic advisory services for organisations seeking purpose and competitive advantage in a changing urban world. Its mission is to expedite the transition to a sustainable policy, business and investment environment by bringing intelligence, challenge and inspiration to its clients and stakeholders.

About Aberdeen Standard Investments

ASI is the investment arm of Standard Life Aberdeen plc and manages £557.1bn* of assets, making it the largest active manager in the UK and one of the largest in Europe. A global portfolio of £44.0bn of property assets under management**makes it the second largest real estate investment manager in Europe.

* at 30 June 2018

** at 31 March 2018

Round Hill Capital

Integrity, Innovation, Impact – a new ESG Strategy for Round Hill Capital

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Integrity, Innovation, Impact – a new ESG Strategy for Round Hill Capital

  • Round Hill Capital launches new ESG Strategy, advised by Hillbreak
  • Underpinned by a refreshed statement of Core Values for the Company
  • Jon Lovell appointed to global ESG Committee to help support continued oversight

Since its foundation in 2002, Round Hill Capital has become a market leader in the real estate accommodation sector – offering a fully integrated investment, development and management approach alongside venture capital for early stage, high growth property technology companies.

Hillbreak was engaged by Round Hill Capital to develop an Environment, Social and Governance (ESG) Strategy to help to underpin its corporate and investment management activities. Working with Round Hill Capital’s Executive Committee and a Company-wide Steering Group, we undertook in depth analysis to identify opportunities for a compelling ESG strategy that aligns with the Company’s pioneering, macro-driven and nimble approach to business.

Extensive internal surveying and dialogue was a key part of our approach, to further engage collaboratively with employees and decision-makers in the process of determining the core areas of focus for the ESG Strategy. We found significant appetite for Round Hill Capital to formalise a comprehensive and proactive approach to responsible property investment that aligns with investor objectives and supports financial returns and which also, notably, embraces key ESG impact themes emerging within the market.

Examination of the Company’s current activity revealed several examples of strong ESG-related business practices, which presented a clear opportunity to build on the existing internal culture to more consistently integrate ESG considerations into the investment process and development and asset management practices.

The resulting ESG Strategy sets out clear ambitions targeting performance and positive change, supported by a refreshed statement of the Company’s Core Values, which clarify Round Hill Capital’s commitments as a Group and its expectations of the conduct of its employees and wider stakeholders. Features of note include:

  • A focus on Round Hill’s core strengths of innovation, flexibility and proactivity – the Strategy highlights positive ESG impact, first mover advantage and stakeholder engagement as key features within its overarching business objectives.
  • Highlighting integrity alongside innovation, ensuring an underpinning of consistent standards and a continual drive to take account of ESG impacts, risks and opportunities in all business activities.
  • A structure for embedding ESG more formally into the real estate investment process. A suite of decision-making tools and best practice resources are currently being developed.
  • Prioritisation of internal capacity building and reporting capability, including systematic internal training, the development of ESG requirements for operating partners, and extension of investor and external reporting to include ESG performance.

The ESG Strategy combines strong foundations with the flexibility for Round Hill to capitalise on its strengths and take a positive, opportunistic and responsible approach to ESG.

Implementation will be led by a newly established ESG Committee, to which Jon Lovell, co-founder of Hillbreak, has been appointed as an independent member.

Commenting on the new ESG Strategy, Lovell said, “Working with Round Hill Capital has been a unique and insightful experience for Hillbreak. The Company’s blend of fast-paced successful growth and investment agility in alternative sectors, together with its core values, has created a really interesting opportunity to present a distinctive approach centred on integrity, innovation and impact. We’re so pleased to have been retained to help support Round Hill Capital with the realisation of its ESG goals.”

Paul Bashir, President and COO, commented, “Our new ESG Strategy is the formal expression of our innovative approach to community, wellbeing, environment and risk.  Round Hill Capital is really enthused by the prospect of working with our investors and other stakeholders to drive positive social and environmental outcomes and change alongside the delivery of investment performance.”

He continued, “Hillbreak has been an excellent partner for us to work with in helping to bring forward our new ESG Strategy. They have been challenging, bold and ambitious, which sits perfectly with how we do things at Round Hill Capital. I’m delighted that Jon will continue to bring insight, ideas and objectivity by serving on our new ESG Committee.”

 

About Hillbreak

Hillbreak provides training and strategic advisory services for organisations seeking purpose and competitive advantage in a changing urban world. Its mission is to expedite the transition to a sustainable policy, business and investment environment by bringing intelligence, challenge and inspiration to its clients and stakeholders.

About Round Hill Capital

Round Hill Capital is a leading global real estate investment, development and asset management firm.  Since inception in 2002, Round Hill Capital has acquired and repositioned for long-term institutional ownership over 110,000 residential units and student housing beds. Round Hill is a responsible landlord of assets offering housing to a range of occupants, from students through to senior citizens.

Round Hill Capital has an established track record of generating high risk-adjusted returns and invests in and asset manages real estate on behalf of some of the world’s leading institutions and private investors.

Further information on Round Hill Capital is available at: www.roundhillcapital.com.

Brooklyn Grange Rooftop Farm At Brooklyn Navy Yard Small

Urban Innovation Study Tours

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Hillbreak is pleased to announce a new global service offering for clients wishing to experience, learn from and be inspired by international examples of innovation in the built environment.

Our immersive Urban Innovation Study Tours are individually curated to create a rich learning experience for leadership teams and decision-makers. They provide access to international exemplar projects, thought-leaders and organisations, in order to provide client organisations with the insight, inspiration and knowledge needed to drive innovation into their strategies and project delivery.

In order to remain competitive within the field of real estate, real-world knowledge and insight into the risks and opportunities associated with creative responses to global challenges becomes imperative. Through thoughtful planning and energetic execution, Hillbreak provides leadership teams with the opportunity to experience and learn from fascinating international case studies, including by hearing from those who have been instrumental in their realisation and continued success. Through these Urban Innovation Study Tours, the learning and experiential objectives are tailored specifically to the needs of individual client organisations. However, clients can expect to benefit from the following outcomes and benefits:

  • Deep insights gained for senior leadership teams by visiting international examples of best practice and innovation.
  • New inspiration found to help advance the strategic and operational approaches of the organisation.
  • Exclusive opportunities to hear and learn from those involved in the conception, development, financing, and management of exemplar projects and initiatives and with whom the transferability of lessons learnt can be explored.
  • New connections made with best-in-class organisations and individuals.
  • Greater productivity and impact gained from immersive and inspirational settings for reflection, debate, idea generation and foresight exercises.
  • Opportunities to spend quality time with colleagues away from the day-to- day distractions of the normal place of work.

Thoughtful and meticulous planning is required to ensure that each Urban Innovation Study Tour addresses the specific ambitions and challenges of the organisation and its portfolios, as well as the strategic issues of the time. Clients can therefore expect to be engaged fully from start-to-finish during the process of selecting and programming their bespoke Urban Innovation Study Tour. Whilst Hillbreak will develop ideas and do the heavy lifting to make them happen, we put the ownership of the programme in the hands of the client to ensure maximum buy-in internally. For more information, download our prospectus by clicking the image below, or email Lucy Matchett.  

Lucy has extensive experience of curating and facilitating international study tours, having taken groups of real estate leaders to global destinations ranging from Seattle to Tokyo to Copenhagen. She comes highly recommended!

COVER Urban Innovation Study Tour Hillbreak Prospectus
Download the Prospectus

 

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Towards the Circular Economy through Urban Innovation

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In an article featured by PLACETECH, Lucy Matchett, Senior Consultant at Hillbreak, shares lessons from Amsterdam on ways in which innovative design and technology are being deployed to advance the circular economy.

The Netherlands is renowned for innovation and creative responses to global megatrends. For example, and despite geographic constraints, The Netherlands has recently become the world’s second largest exporter of food by value, second only to the United States, which has 270 times its landmass’[i]. It has also been paving the way for high tech water management for a number of years, as much of the country sits below sea level[ii]. Now, its cities must respond anew to the opportunities and challenges posed by urbanisation and population growth, despite already being one of the most densely populated countries in the world[iii].

Is the circular economy the solution?

The circular economy offers The Netherlands a solution to these unprecedented challenges. Understanding that the current model of economic growth is unsustainable and detrimental to society, the circular economy is a restorative and regenerative alternative[iv]. Based on a system which decouples ‘economic activity from the consumption of finite resources’[v], the circular economy encourages value to be found in typical waste materials and products. The Netherlands see this approach as a viable alternative to economic growth and prosperity for its citizens. The growth in population and further urbanisation without this paradigm shift would otherwise lead to environmental degradation, pollution and, potentially, social unrest as people compete for limited space, food and commodities.

The Netherlands therefore have chosen to develop a circular economy by 2050[vi]. Within the geographic constraints of their cities, a circular economic model would help to ensure that growth is sustainable. For example, in Amsterdam and Utrecht alone, it is expected that population figures will be 150,000 greater in both cities by 2040 (growing to 950,000 and 450,000 respectively). Beyond the binary growth opportunities this will bring for the market, how this impacts the real estate sector will be realised in two key ways: first in the design of buildings and the products within them for re-use and longevity (otherwise known as cradle to cradle design[vii]); and secondly, in the shared use of space and amenities.

How is the Dutch real estate market responding?

The Edge Olympic[viii]and Bajes Kwartier[ix]in Amsterdam are two great examples of how the circular economy is being integrated as both projects are renovating and reactivating areas that are already part of the city fabric. The Edge Olympic is Edge Technologies’ 11,117 sq m Grade A office, whilst Bajes Kwartier is an exciting redevelopment of a 1970s prison into a mixed-use quarter. Both developments, although at different scales, have firstly considered the re-use of buildings already positioned within the city, and then additionally, the flexibility of that space once redeveloped.

The result is a modern ‘inspiring workplace’ at The Edge Olympic which has used a smart, digital infrastructure to allow occupiers of the building to optimally utilise the space in the building. This type of building management not only improves the accessibility of the space, but also leads to energy efficiencies too, with comfort control being demand-led, taking into consideration real-time occupational density and personal comfort preferences.

At Bajes Kwartier, the circular economic model is being advanced through a number of different approaches. One example of how flexibility will be achieved is through the planned shared amenities and sustainable mobility. Smart landscape planning, for example, will ensure adequate provisions of green space for all the occupants, despite limited private outdoor space. In addition, carefully curated transportation routes will ensure that shared vehicles and active alternatives (walking and cycling) are preferred.

Another example which has circular economy principles incorporated into the entire design, is The Circl, a novel gastronomic venture in Amsterdam[x]. Although a temporary use of space, this building shows what is possible when cradle to cradle principles are designed throughout a building. Built for future disassembly and re-use, this energy positive building worked with a number of suppliers to offer them long-term services rather than a one-off product which has enabled this building to use 60% fewer virgin materials. For example, Mitsubishi provided a lift service rather than a product which ensured they didn’t over specify the number of lifts in the building and have designed them to last with easily replaceable components.

The future of the circular economy within the real estate sector in particular will be enabled and will rely heavily on data. As this area evolves, the real estate sector will see exciting disruptions. MADASTER, based in Amsterdam, creates digital material passports[xi]which will allow manufacturers to give their materials an identity so that value can be recreated at the end of their current use. Applied successfully, this type of innovation could have implications from a regulatory perspective too, as authorities change from a system of taxing labour, to the taxation of materials to further reduce the use of virgin and non-renewable materials.

Is the circular economy the future?

The circular economy presents The Netherlands and other economies with a practical and desirable means of realising better growth and prosperity. What is already clear from the Dutch approach is that partnerships will form, and profitable business models will follow, once a compelling, overarching vision (to develop a circular economy by 2050) is in place.

These insights were gathered during a study tour of Amsterdam and Utrecht organised by the Urban Land Institute, a non-for-profit professional research body focused on creating leadership in the responsible use of land and in creating and sustaining thriving communities.

[i]https://www.nationalgeographic.com/magazine/2017/09/holland-agriculture-sustainable-farming/
[ii]https://www.nytimes.com/interactive/2017/06/15/world/europe/climate-change-rotterdam.html
[iii]https://www.holland.com/global/tourism/information/facts-and-figures.htm
[iv]https://www.ellenmacarthurfoundation.org/circular-economy/concept
[v]https://www.ellenmacarthurfoundation.org/circular-economy/concept
[vi]https://www.government.nl/documents/policy-notes/2016/09/14/a-circular-economy-in-the-netherlands-by-2050
[vii]https://www.epea.com/cradle-to-cradle/
[viii]https://www.edge-olympic.com/
[ix]http://oma.eu/projects/bajes-kwartier
[x]https://circl.nl/themakingof/en/
[xi]https://www.madaster.com/nl
Oslo Opera

Perfect Storm for Managing Agents

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Consultants Howard Morgan & Jon Lovell offer a six-point solution to the problems of the property industry’s managing agents.

Managing agents caught in the ever-increasing whirlwind of client demands and occupier expectations must embrace risk and innovation if they are to survive.

This is the view of two independent experts, operating in complementary spheres of the real estate industry, who are offering them a blueprint for survival.

Jon Lovell, whose Hillbreak business provides strategic advice and training on sustainability and responsible investment, and Howard Morgan, whose RealService consultancy operates in the world of customer experience, believe the role of the traditional managing agent is now in peril.

Lovell and Morgan see a perfect storm of challenges coming from two principal directions:

  • Increasing performance, compliance, cost efficiency and transparency demands from landlords, including on environmental, social, wellbeing and health and safety matters. These are testing managing agents who are going to need stronger leadership, more effective systems and new capabilities to keep ahead of the game
  • Meanwhile, those who occupy the buildings they manage are becoming fickle and savvy customers, expecting a more enriching experience, greater flexibility and reliability.

With rising expectations from occupiers and their landlord clients, managing agents are feeling the pressure.

Bill Hughes, boss at Legal and General Investment Management recently turned up the heat. Writing in Property Week, Hughes said managing agents are being asked to provide services “they are not equipped to offer” as their role moves from rent-collection and basic maintenance to provider of “customer service, facilities maintenance and engineering, sustainability and CSR strategic thinking”.

In response, property managers MJ Mapp blamed property owners for instigating a tendering process which has outsourced management to the lowest bidder. They said owners should select managers who share their values and not take management in-house, risking losing focus on their core business.

Lovell and Morgan have sympathy with both perspectives, which points to a collective market failure rather than a single source of blame.

According to Morgan, salvation for the property industry’s operational intermediaries lies in persuading owners and investors to join them in forming strategic partnerships which harness the talent of the client, the managing agent and an increasingly disparate supply chain. This would require a fundamental change in thinking from the current “hands-off” outsourcing model.

Their Six-Point Survival Blueprint focuses on:

  1. Better business alignment and planning
  2. Clearer agreements and outcome-based performance contracts
  3. Stronger leadership from senior management
  4. More effective and consistent deployment of capability and technology
  5. Greater harmony of message & transparency to customers
  6. Closer alignment between performance and remuneration

Morgan’s blueprint inspiration came from a visit to John Lewis’s state-of-the-art warehouse complex in Milton Keynes. Here he saw collaboration in action, in the form of the company’s partnership with Knapp, an Austrian firm, which enables the retailer to deliver more than 220,000 different product lines to its stores and online customers.

He says: “John Lewis’s reputation is based around customer service and it is putting that reputation into the hands of a third party. It has been able to do this because of the relationship it has with Knapp; it is a strategic partnership.

“Property companies put their reputations in the hands of managing agents, but their relationship is nothing like the one between John Lewis and Knapp. Why would managing agents embrace risk or invest in technology when there is no long-term partnership?

“Our blueprint is about taking best practice from outside the industry and working with our clients to apply it to the world of property,” says Lovell.

To collaborate successfully, Lovell points out that owners and managing agents must work together on a business plan which identifies a mutual vision and documents key areas of responsibility, risk and reward. Having clear, outcome-based objectives across the spectrum of financial performance, customer experience, environmental responsibility and community impact means each partner knows exactly what they bring to the relationship and how they are accountable.

Being on the same page enables the creation of benchmarks or indicators to monitor progress, while recognising strengths and weaknesses allows each partner to utilise their particular expertise and concentrate on their core competencies.

Any arrangement must have the complete commitment of the senior executives of both parties and be promoted consistently to customers as a partnership of equals. Financial rewards should be based on key performance indicators and provide incentives while, in terms of governance, the arrangement should be reviewed regularly, in a spirit of collaboration and improvement rather than conflict and an ever-poised stick of retendering risk.

Bear in mind too, that partnerships can take time to flourish and need nurturing.

Morgan points out that research suggests it is cultural differences, rather than financial or corporate considerations, which cause partnerships to break down, hence his enthusiasm for putting the customer at the heart of every property company’s business strategy.

Lovell says: “Dissatisfaction of landlords with the service provided by managing agents is one of the key motivations for increasing the frequency of re-tendering. They see it as a way of incentivising performance but actually it’s part of a downward spiral; a race to the bottom which actually disincentivises investment in innovation and skills.

“We need to find an inclusive approach to performance management and remuneration to incentivise performance. Investor expectations are strengthening and likewise the demands of the occupier market.

“Strategic partnerships are being trialled but currently only really in the area of energy savings and, in many cases, with the managing agent having been circumvented by the client searching for a more reliable and responsive solution.

Morgan and Lovell do not underestimate the challenge to create an upward spiral of quality and reward.

“Unfortunately, clients have, over a sustained period, driven the agenda, which has been focused on realising more outcome for less money. Margins are very, very low as a result.”

Morgan is also frustrated that customer engagement is not factored into the performance of investment managers despite evidence proving that high customer satisfaction can improve the bottom line by almost two per cent.

“You can typically get information on energy, waste and water consumption but you can’t get information on occupier engagement,” he says.

Morgan and Lovell believe that occupiers will become increasingly vocal and willing to up sticks if they can’t get the solution and quality they want from their landlords, having seen new levels of aspirational workspace entering the market through disruptors such as WeWork.

As Morgan says: “Our approach is fundamentally about creating an alignment of interests between the owner, manager and occupier.” As the strategic partnership of John Lewis and Knapp shows, it’s ultimately the customer who benefits and there lies the key source of sustainable, competitive advantage in business.”

This article was authored jointly by Jon Lovell, Co-Founder & Director of Hillbreak, and Howard Morgan, Managing Director of RealService.

Gender Balance

EVENT: Unconscious Gender Bias

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Hillbreak co-Founder, Jon Lovell, will appear at the forthcoming Flourish International event in Manchester on Unconscious Gender Bias: Changing Behaviours in the Workplace.

Flourish aims to help organisations deliver effective gender equality initiatives and has been looking into the role that unconscious gender bias plays in slowing progress. The event will feature talks on research findings, panel discussion and Q&A with the audience and is open to any individual interested in gender equality including directors, HR and other professionals from both public and private sector organisations.

Together with fellow co-Founder, Miles Keeping, Jon was recently appointed as a Senior Advocate Member of Real Estate Balance, an association focussed on addressing the gender imbalance in the sector. More information detailing Hillbreak’s endeavour to tackle under-representation, unconscious bias, gender-imbalance and lack of diversity within the property sector can be found in Jon’s recent article, Pushing for balance.

The panel will also feature Lorna Kerr – HR Director of Co-op’s Insurance, Natasha Crook –Talent Acquisition Team leader in North Europe for adidas, and Rishi Jain – Manchester United Football Club’s Equality & Inclusion Manager.

Flourish hopes the event will provide insights, opportunities for discussion, networking and an overall understanding that gender equality requires a fundamental shift in perspectives – and that there are steps that can be taken to achieve this.

The property sector is unfortunately known for falling short of where it should be on the issues of equality and inclusion. However, progress is being made; last week FreeholdLGBT won the Outstanding Contribution award at the EG Awards 2018, a clear indicator that efforts to diversify the workforce and challenge discrimination within the industry are not only being made, but applauded and rewarded. There is, however, still much work to be done.

Tickets for Unconscious Gender Bias: Changing Behaviours in the Workplace can be bought here.

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Pushing for balance

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Hillbreak may lack the scale of the real estate industry’s larger firms and companies, but we’ve never shied away from throwing our modest weight behind the issues that really matter.

Perhaps one of the most defining for our sector at this time is that relating to under-representation; few would deny – even today – that performance on equality and inclusion falls far short of where it should be.

Quite frankly, we’re often embarrassed by association. We can all point out the infamous occasion in which the shocking conduct at the President’s Club Dinner was exposed in the public eye, but there is an all-too insidious pattern of behaviour within our industry which comes to prominence at major events, such as MIPIM, and is often lurking beneath the surface in the day-to-day workplace.

There have been occasions when Miles or I have had to intervene when lines have been crossed in the business environment, but if we’re honest, we’ve not done enough to stand up to the weak attitudes and the poor behaviours that continue to dog our industry.

On paper, and recognising that this is in part a reaction to bad publicity and exposure, some progress has been made recently by organisations and industry bodies. Some of this is genuine and welcome; some is superficial and still needs to be challenged.

The continued lack of diversity in our sector is one of the most serious impediments to it achieving its full potential.  The persistence of conscious and unconscious bias in recruitment, opportunity, flexibility and reward, means that the real estate industry is missing out; it diminishes our ability to attract and retain some of the best talent, it means that decisions taken by leadership teams are suboptimal, and it prevents those in minorities from bringing their full selves to the table.

We have been particularly encouraged to see a number of organisations and initiatives spring up which attempt to tackle these issues. Several seek to promote the value that the LGBT+ community brings to property and the built environment – examples include Freehold, PlanningOut and Offsite. There are others which seek to raise awareness and an atmosphere of support for those battling mental health problems; the RICS charity, Lionheart, for instance has had a particular focus on this lately, complemented the John O’Halloran Initiative.

Although by no means the full equality and inclusion story, the question of gender balance – especially in real estate leadership roles – has received a great deal of public attention of late. Whilst sector-agnostic efforts such as those of the 30% Club, members of which are advocates of the Hampton-Alexander recommendations for female representation on FTSE350 Boards, are really significant, our industry also needs its own spotlights. Real Estate Balance has gained considerable support and membership from a reasonable number of organisations and firms (more are needed) and we were both humbled recently to be accepted as Senior Advocate Members for the network.

So, what are we doing?

  • We call out and challenge inappropriate behaviour when we see it and follow it up when required, including offering support to those affected.
  • We always seek to ensure that we work with, including through our network of associates, a balanced pool of diverse individuals.
  • We advocate consistently when attending and speaking at industry events, and we exercise and promote our policy of not appearing on panels or speaker platforms which do not feature women, and we push and provide active support to organisers to adopt a balanced approach to panel selection (including by referring them to the excellent WomenTalkRE resource).
  • As individuals, and as a firm, we are signatories of the Future of London Pledge on Diversity (#DiversityPledgeLDN)
  • We challenge, advise and support the Boards, Executive Committees and other leadership teams of client organisations on matters relating to diversity and inclusion, including in relation to formal corporate governance matters.
  • We use social media platforms to promote and support for diversity and inclusion matters and initiatives.
  • We take active steps to promote gender balance on the industry body leadership groups on which we sit.
  • We give our time and energy as Trustees and Board members of national and international disability charities.

Real Estate Balance

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