The entire real estate industry is not known for its innovation. People in the industry often choose best practice rather than experimenting with new ideas. FORE Partnership, a UK and Western European real estate development company, prides itself on funding innovative, sustainable projects.
“Real estate is a pretty sleepy industry – people like to do things the way they did with the previous buildings because they are very risk averse,” says Basil Demeroutis, managing partner of FORE Partnership. “That is starting to change.”
The growth of targeted businesses – driven by market pressures, consumer and employee values, and increased corporate visibility – is in part due to this shift. FORE Partnership itself is a newly certified B Corporation, a company that meets certain social and environmental standards that have been endorsed by the non-profit B Lab.
Demeroutis warns, however: “We need a clear signal to the capital markets to say what is accepted as behavior and what is not. Because when it’s too complicated and when there are too many back doors and asterisks, everyone spends their time playing the system instead of innovating. “
As part of my research on companies with a social and environmental mission, I spoke to Demeroutis about the values that drive FORE Partnership’s investments, how the real estate industry is beginning to develop and innovate, and what it takes to make better use of real estate Environmental sustainability.
What is the current status of the real estate industry and where is it going?
Basil Demeroutis: Real estate is a pretty sleepy industry – people like to do things the way they did in the last building because they are very risk averse. For example, “Why should I try a new fancy air conditioner that might not work? I’ll be back for the next five years trying to fix the problem. “So they’d rather do the tried and true version of this than do something else. That is starting to change.
What is most interesting to me is that the market is actually beginning to differentiate and redefine the state of the art. What’s great today is no longer the tallest building with the most glass and the most glamorous reception. It’s the one that makes you feel best and that puts their arms around you and says, “Welcome home. Here I am and so I support any activity you do. “I think the market is much more sophisticated and nuanced now.
Our mission as a purpose-built real estate investment firm is to prove that promoting environmental sustainability and positive social outcomes is actually good for financial returns, for investors, and is right for society. I think this mission is based for me on spending time with Jeff Skoll, the first president of Ebay and founder of the Skoll Foundation, and people like him. The idea for FORE arose from his family office, in which I was a partner. When we think of climate change or water quality when we think of capital allocation, it can actually lead to some pretty interesting investment opportunities that you might not get with a regular lens from just a capitalist private equity man.
How does the corporate philosophy work in practice?
Demeroutis: A good example is Windmill Green, our recently completed office project in Manchester, the most sustainable new office in town. This building had been empty for seven years and people had been trying to build skyscrapers and all kinds of very ambitious, mostly new, buildings on the site. But none of them ever came about partly because of planning issues with them and it was difficult to get planning permission for such ambitious urban projects. It’s always difficult.
When we bought it there was planning permission for a new 17-story office, but we had a different strategy, which was to keep the frame of the existing building and then reuse, refurbish and bring it back to life – that’s it so much more economical. And the planners thought it was much more in line with what they saw for downtown. Cities try to keep a certain appearance. So we replaced the facade, went up two floors and made some fillings and made the building more efficient.
Windmill Green is a building on a street corner. We like buildings with long views. And corners that face prominent places. We believe that if we want to make a sustainability statement, there is no point in hiding it in an irrelevant and unimportant place. And ultimately, we have to tackle every building on every street, but why don’t we start with those who will be role models? And that’s how we did it.
What does it take to make the real estate industry really sustainable? Does the government have a role to play in developing policies that set environmental standards for industry?
Demeroutis: We need our plastic flow moment. People said, “Oh, plastic straws are bad, and I know they’re bad because there is a sign with a plastic straw in the mouth of a turtle or a dolphin snout.” And suddenly they are being replaced by sustainable alternatives. In real estate, understanding the environmental impact is too abstract. Energy intensity is measured in kilowatt hours per square meter, which is confusing to people. We have to break it down into something that is first and foremost easily relatable and, first of all, obviously, outrageously wrong, so there is no other option but to act. We didn’t find that thing.
In my younger years, I would certainly have said, “Let the free markets decide,” and I have probably softened that down a bit. I was a staunch free market capitalist. I think in order to be sustainable these initiatives must be pragmatic from a private sector standpoint, and as big as the governments are, ultimately the power of the private sector is second to none. And I think you have to let the private sector catalyze action; Otherwise, just throw buckets of water into the ocean.
So I think I would still stand by it. However, short, sharp, and targeted policy decisions can have powerful effects. For example, the UK government says they may stop allowing gas stoves after a certain date and that all stoves must be electric. I think this kind of approach is a clear sign. What we need are clear signals to the capital markets to say what is accepted as behavior and what is not. Because when it’s too complicated and when there are too many back doors and asterisks, everyone spends their time playing the system instead of innovating.
What do you think of the various certifications that exist and the B Corp certification in particular?
Certifications are not a result. They are proof of the results. I think people often say, “What is your goal? My goal is to have all of my buildings certified. ” “Really?” It’s a terribly strange goal. Improving people’s health and wellbeing and reducing the carbon footprint of your buildings is no better goal. As proof of this, you may be given a piece of paper stating that you have achieved it.
I think B Corp certification is – as a kind of process – better than most certifications because it is so holistic and there are no shortcuts. I know the UK BREEAM formula (a certification like LEED in the US) like the back of my hand. And I can tell you that if too many desks are more than seven meters from the window, you won’t get points. And if they’re all less than seven meters away, you get two points. These things are a bit arbitrary in many ways. However, the B Corp certification looks at the core essence of your business, as evidenced by so many different things, and gets you to the point of who you are in a much more real way.
At FORE we felt like a green real estate company, we’ve done all of these fantastic things already so we sure have to be well qualified to run a B Corp. to be. But in fact we found that while we were having a huge impact, in all fairness we probably didn’t document it and made it a strict policy and repeatable framework. I could tell you, chapter and verse, about the social programs we do and how we treat our co-workers and everything else. But if you had asked us for a copy of our Modern Slavery Policy nine months ago, it would probably be difficult to actually dig up, so we wrote one and codified our practices.
I think there is something profound in putting in your company’s legal charter the values that define who you are and that you work for people and the planet as well as your own shareholders for profit. It signals to employees and the broader team that this is what it’s about. We could put it in marketing materials and on websites and whatever we want, but we have now put it on our company statutes. And when you break the law – the statutes contain the word law – bad things happen. So we’re not going to break this law.