Bouwfonds REIM - SustainabilitySustainability adds value to residential property investments in the US

Sustainable, Sound and ProfitableWell past the stage of being a craze or hype, sustai-nability is increasingly one of the determining factors in investment decisions. The challenges for real estate investment funds are, on the one hand, whether their policy is socially responsible, and on the other hand,whether they provide a return on investments. The resi-dential real estate funds managed by Bouwfonds REIM in the United States meet both criteria, thanks to their strategy and the excellent match with their US partner, Fairfield Residential Company.

High Quality RequirementsThe pillars of the Bouwfonds REIM sustainability policy are location, property, and residents, and they are brought together in the LOG model. This model for its investment funds is an expression of the Corporate Social Responsibility choices Bouwfonds REIM, as part of its parent company Rabo Real Estate Group, has made. The quality of these three aspects (including their technical sustainability quality) is a key factor in real estate acquisition and asset management, regardless of where the real estate may be. Another reason whyBouwfonds REIM focuses on sustainability, says Michiel van Zadel, Portfolio Manager of US Residential Funds:

“It increases the value of the portfolio and the return for investors. Reducing energy consumption, for instance, translates to lower operating costs and therefore more profit. Moreover, when the time comes, real estate that meets sustainability requirements is easier to sell.”

Both social and economic reasons underlie policy in this area. What makes the approach taken by Bouwfonds REIM so special is that it focuses not only on the real estate premises, but also on the location and the resi-dents. According to Van Zadel: “This LOG model is acomprehensive model in which the important aspects are placed side by side. In terms of investments in ren-ted apartments in the U.S., for example, this means that when considering location, we look at local demographic developments, employment, environment, accessibi-lity, and facilities such as shops and schools around an apartment home community. Such facilities are very important since, although most of the tenants are singleand may have roommates, families with young children also rent these properties. When we look at the pre-mises, we concentrate on their sustainable quality, but we don’t forget amenities such as a swimming pool, a fitness room, and parking facilities. A major concern is the tenants: who are they, what do they want, do they

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feel safe, and are we offering them enough convenience, comfort and service? If all these aspects are in balance, we can keep vacancy to a minimum and ensure maximum cash flow for a fund.”

Pay-Off TimeLOG model is not all that is needed. There are rating systems that assess the technical state of the property. The Bouwfonds US Residential Fund uses Green Globes®, an online tool that helps fund managers measure the sustainability calibre of the portfolio by conducting research in six categories: energy, water, materials, emissions, and the quality of the interior and of the property management. This produces a score. The initial overall score for the Bouwfonds US Residential Fund was 50%, putting it in rating 1 (35-54%).

The Green Globes tool covers six different environmental assessment

areas, with each area having an assigned number of points that are used

to quantify overall building performance and use of best practices. The

higher the score, the more sustainable the property performance.

Rating 1 stands for “Demonstrates movement beyond

awareness and commitment to sound energy and envi-ronmental design practices by demonstrating good progress in reducing environmental impacts.” A minor improvement would be enough to put it into rating 2 (55-69%). The highest score, rating 4, is for businesses that are “demonstrating leadership in sustainable perfor-mance.” (note that many American residential communi-ties do not even achieve rating 1). Green Globes® also makes recommendations for improvement. This is useful, since the bar is set high, says René Smeehuijzen, Direc-tor of Residential US Funds at Bouwfonds REIM: “We are aiming for a sustainability score above the average in the market. The real estate we acquired five years ago meets our minimum requirements, rating 1. We want to get it up to rating 2 by investing in sustainability.” According to Trey Stafford, Fairfield’s Portfolio Manager for Bouwfonds US Residential Fund, this improvement should not be very hard to achieve: “Fairfield has develo-ped its Living Green® program, which has much in com-mon with Bouwfonds REIM’s sustainability policy. The match is so good that together we will be able to take sustainability to a higher level. Our people ‘in the field’ are very enthusiastic and are keen to bring about impro-vements, however small. The Green Globes® recommen-dations and our own program give us a solid footing.”According to Van Zadel, to do so, Bouwfonds REIM has to weigh the various options, with the key factor being the pay-off time: “We will not neglect improvements we can introduce without incurring major costs, but some investments will require a cost-benefit analysis first.There are also some recommendations that cannot be achieved with the means at the fund’s disposal. We will not implement these. Generating as high a return as

The Green Globes® system provides higher levels of achievement based on the number of points a building acquires. A summary of rating levels is

presented in the table above.

85%-100%

Reserved for select building designs which serve as national or world leaders in energy environmental performance. The project introduces design practices that can be adopted and implemented by others.

70%-84%Demonstrates leadership in energy and environmental design practices and commitment to continuous improvement and industry leadership.

55%-69%Demonstrates excellent progress in achieving eco efficiency results through current best practices in energy and environ-mental design.

35%-54%Demonstrates movement beyond awareness and commitment to sound energy and environmental design practices by de-monstrating good progress in reducing environmental impacts.

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possible remains the primary objective of Bouwfonds REIM and Fairfield Residential Company. That is why we work with incentives: if the return falls below 5%, we will receive only half of the asset management fee; if we come out at over 10%, we will receive an additional per-formance fee. That keeps our focus fixed on the return, while staying true to our sustainability policy.”

Finding the BalanceThe sustainability policy is of course implemented in the United States, in and around the apartment complexes. Such implementation goes further than the use of envi-ronmentally friendly cleaning agents or paint, says Gin-ger Ashton, a regional manager at Fairfield who isresponsible for two of the complexes in the fund: “Living Green® is our recycling and energy-saving program. We did some research into our consumption of energy and water, into lighting and the reuse of materials. Together with the recommendations from the Green Globes study, this has led to adjustments in products and processes.”Nonetheless, a close eye is kept on costs at the property level, too. Sometimes hardly any investment is needed at all, such as when “good conduct” is being encouraged. Ashton: “We help tenants make full use of opportunities to save energy, reuse items, recycle, and reduce waste. The great thing is that we can reach and influence a lot of people and offer them information to help in making their lifestyle that much greener.”Chris Ruffolo, Asset Manager at Fairfield, confirms that these types of measures cost little, but produce a great deal: “The Green Globes studies have shown that we score well on energy savings and sustainability in gene-ral, but that we could still bring about improvements in many areas. Our aim is to give priority to such initiatives in our day-to-day work. That will bring not only operatio-nal benefits, but will also benefit our marketing efforts.Sustainability is an attractive selling point for potential

residents.” Ruffolo is responsible for the financial perfor-mance of the assets in his portfolio. Given the costs, is he wary of allowing sustainability to be encouraged too much? “The Green Globes survey enables us to judge what is and isn’t feasible. What we’ll do is implement the quick wins and suggestions for improvement that are economically feasible. But it won’t stop there.We’ll continue to look for affordable options for further improvement, because there’s always room for impro-vement. The trick is to find the right balance between investment and return.”

Financial StabilityAlthough the sustainability policy is fairly new in real estate investments, the partners in the Bouwfonds US Residential Fund have apparently mastered the art well. Investors applaud the initiatives of Bouwfonds REIM and Fairfield. Van Zadel: “Dutch investors are includingsustainability more often as a criterion in their investment choices. They are prepared to make amounts available for investment as long as economic benefits are likely.”Smeehuijzen emphasizes that Bouwfonds REIM main-tains a high level of transparency in all this and because the policy is new, it is wise to inform investors well: “Their willingness depends on the type of investor they are. Institutional investors see sustainability as animportant point, and many pension funds focus on it. But when it comes to private investors, such signals are few and far between.” Investors in the United States are also amenable to sustainability, says Stafford: The twoU.S. investors in this fund, California State Teachers’ Retirement System (CalSTRS) and Fannie Mae, attach great importance to sustainability policies. CalSTRS strongly encourages environmental initiatives from Fairfield as they are factored into their investment strate-gies. Fannie Mae focuses on improving the quality and affordability of their tenants through sustainability. “The

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goal of Fannie Mae’s Multifamily’s Green Initiative is to improve the energy and water efficiency, enhance the sustainability and extend the useful life of multifamily housing stock financed by Fannie Mae - which will make a direct contribution to enhanced affordability, redu-ced risk and increased tenant satisfaction. Through the Green Initiative, we have the opportunity to reduce property and loan risk while identifying opportunities for every entity we touch in the secondary mortgage market: from investors to lenders to property owners to third-party service providers and even to residents.”

Return Above Anything ElseBouwfonds REIM and Fairfield are trendsetters in implementing measures to improve the sustainability of existing assets when it comes to residential real estate in city suburbs in the United States. Smeehuijzen: “Few investors concern themselves with the sustainability oftheir existing residential real estate. We hope that our approach will encourage more parties to do this in the interests of society. At the same time, it is difficult to develop a policy that is truly sustainable without having a detrimental effect on the return. We have been able tomake it clear to our investors that by implementing our LOG model in combination with Green Globes®, the return will certainly be no worse and will often actually be better because we are able to limit vacancy to a mini-mum.” This vision is completely synchronous with the way in which Fairfield tackles the challenges it faces in this area. Stafford: “With more than 100,000 tenants and employees associated with Fairfield nationally, we have a unique opportunity to exercise substantial influence onour surroundings. Our aim is to generate maximum returns for our investors, but in such a way as to cause as little harm as possible to the world.We offer our tenants and employees the chance to live ‘green’.”

Blue Sky Group: sustainable as long as it is

cost-neutral

One of the investors in the Bouwfonds US Residen-tial Fund is the Blue Sky Group, the organization that specializes particularly in the financial manage-ment of Dutch pension funds. According to the Fund Manager for Global Real Estate, Marleen Bosma-Verhaegh, sustainability is an issue for many pen-sion funds: “In general, clients endorse the pursuit of improvements in real estate sustainability. An important criterion here is that the investment must be cost-neutral, or even better, it should increase the return. Within that basic principle, we prefer to see more rental income rather than a higher sel-ling price at the end, because that is uncertain. We want to see what an investment produces. In regard to encouraging sustainability in the Bouwfonds US Residential Fund, it has become clear to us that raising rents will ensure that a number of invest-ments can be recouped quickly. We are not quick to approve major investments, since the proceeds within the life of the fund are too uncertain. In other words, the Blue Sky Group is in agreement with the basic principles of Bouwfonds REIM’s sustaina-bility policy.”

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North Pointe Commons: “Green” residentsOne of the assets in the Bouwfonds US Residential Fund is North Pointe Commons, a multifamily apart-ment complex in Durham, North Carolina. Claire Michael is the onsite property manager. According to Michael, “We have been working on the implementa-tion of our Living Green program for some time and the Green Globes® project is an extension of this initiative. For the Green Globes® program the apart-ment complex is assessed on 150 points in various categories and this in turn offers us a structure and firm foundation to put our ideas for sound and envi-ronmentally friendly accommodations into practice. We intentionally discuss our Living Green® and Green Globes® programs with all potential residents from the first time they visit our community. We then continue to remind residents of the importance of sustainability throughout their lease term. Tenants Bryan Sleeper and Sarah Stacke know all about this: “In addition to our apartment – with a fireplace and balcony! – being in excellent condition, and the complex beingmaintained extremely well and having a magnificent swimming pool and a lovely fitness room, the staff regularly draws our attention to ways we can save energy. There is a focus on energy efficiency in the complex: the exterior lighting is fitted with low energy bulbs and, incidentally, we were given similar bulbs free of charge for the lights inside our apartment.The heating and cooling system works efficiently, and the lights at the swimming pool and tennis court are fitted with timers. All of this lets us demonstrate that we are ‘green residents,’ which is something we wholeheartedly subscribe to.” Promoting sustainabi-lity in a property such as North Pointe Commons is an ongoing process, says Claire Michael: “Residents are concerned about the environment and respond positively to the initiative. In addition, today’s renter

is focused on cost savings and they know that energy efficiency in an apartment can result for example, in a lower utility bill. To assist our residents meet their sustai-nable goals, and those of Bouwfonds REIM, we provide them with low-energy bulbs and reusable shopping bags. We promote online payments to limit the use of paper, a communication platform for car-sharing, and collection points for batteries and old cell phones.We plan to extend our sustainable facilities in the next few years, starting with an energy and waste audit to establish how we can continue to reduce our carbon foot-print. We are very proud of our current program and think that it sets us apart from other properties in theneighborhood. It is however, a continuously evolving initiative, as there is always more that can be done to increase sustainability in multifamily communities such as North Pointe Commons.”

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Disclaimer

While the utmost care is taken in preparation of this docu-

ment, certain information may be not accurate, become

obsolete, no longer apply or be incomplete. Bouwfonds Real

Estate Investment Management or any related company or

person therefore accepts no responsibility for the information

presented as regards timelines, accuracy or completeness

and will in no circumstances be liable for any damage, direct

or indirect, resulting from reliance on or trading based on

said information. For the extended version of the Disclaimer

we refer to our website www.bouwfondsreim.com.

More information

Bouwfonds REIM:

Michiel van Zadel

m.zadel@bouwfonds.nl

Phone: +31 33 750 4720

René Smeehuijzen

r.smeehuijzen@bouwfonds.nl

Phone: +31 33 750 47 85

Fairfield Residential Company LLC:

Rezlyn Palma

rpalma@ffres.com

Phone: +1(858) 431-7845

Trey Stafford

tstafford@ffres.com

Phone: +1 (858) 626-8303 Dec

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