Real estate impact investing is remarkably important in the midst of the Los Angeles housing crisis. Coined in 2007, the term real estate impact investment refers to the strategy of wedding social responsibility with market-rate financial returns.
Real Estate Impact Investing: What to Know
When speaking of real estate impact investing, there are some important acronyms to pay attention to:
- ESG stands for Environmental, Social, and Governance.
- SRI stands for Socially Responsible Investing.
Both SRI and ESG are tools to strive toward measurable positive impact. Organizations are dedicated to changing the way the industry impacts communities by way of managing scale, effectiveness, and transparency.
Though many have been in the works for a long time, there are now more and more investors beginning to use the capital for this type of impact investing. Forms of real estate impact investing like affordable housing and community facilities are needed on a large scale, and the involvement of more investors is vital to addressing the challenges of the wealth gap, low wages, unemployment, and myriad other social ills in Los Angeles and across the country.
Real Estate Investments in Los Angeles
Identifying the needs of communities means gaining an understanding of what is missing from an area with the goal of providing access to it. and providing access to it. Looking at real estate investments in Los Angeles through a lens of public welfare can be beneficial to investors and communities alike – and serving the community is always a worthwhile investment.
The term real estate impact investing may have been coined over a decade ago, but the concept itself is still very new and in need of fleshing out. Progress has been made, of course. However, the industry continues to define and redefine benchmarks and language around the specific strategies. It is, to put it bluntly, a work in progress.
That being said, impact investors are reporting successful outcomes with performances that have met, or even exceeded their expectations. The true test of the success of impact investing comes within an economic downturn, so that remains to be seen. Still, real estate remains a fit and sought out option for impact investing as we have seen the outcomes and know that they generate market-rate financial returns.
Impact Real Estate Portfolio Defined
What technically defines an impact real estate portfolio is its composition solely of investments that are expected to have measurable social impact. Many other socially beneficial investments are included in traditional real estate portfolios as well, but those would not be defined as impact investments because the portfolio is not 100 percent made of impact investments.
Real estate impact investing can take many forms, and all of them strive to uphold or uplift the quality of life standards in a particular community. They aim to preserve or improve health by addressing social needs and human rights, and often by espousing environmental sustainability principles. Impact investments in affordable housing, specifically, can create or preserve the economic opportunity for the community. Communities that already have enough affordable housing need other types of impact investing that will create opportunities for jobs and upward socioeconomic mobility.
People Investing in Communities
Real estate investments in Los Angeles in the sector of impact investments have become essential to survival under the current administration. As social programs are defunded and ultimately decimated, communities feel the loss in a profound way. Housing, healthcare, family planning, funding for public schools and institutions, and social security are all in jeopardy in very real ways. Communities are struggling more than ever and in response to a failing system, social issues are being taken up by the people for the people. People are investing in communities, and yes, even find ways to make financial returns for their own benefit in the process.
Everyday investors are stepping up and making a tremendous impact while at the same time seeing a return in their investment dollars. The idea that you cannot help communities and grow your investments is a complete misnomer. Opportunities to make a difference can be explored in housing, microfinance, healthcare, energy, food, and agriculture in Los Angeles, across the country, and around the world.
Measuring Social and Environmental Impact
Financial returns are easily measured and easily quantified. However, measuring social and environmental impact has always been seen as a more longitudinal study. Perhaps even a less quantifiable or scientific measurement. What’s needed is better creative thinking and exploration of best practices for standardizing measurement indicators for social and environmental outcomes. This is contentious for good reason and is a topic to follow closely.
Recently a survey of investors showed that 89 percent of the participants surveyed had positive outcomes on their impact investments. Those surveyed reported that their investments met or exceeded their expectations and financial returns were comparable to those of traditional market-rate investments. Thus, you can make a market-rate return on impact investment. It is impactful news to share that investors do not need to sacrifice their own financial wellbeing to do right by local and global communities. They can absolutely gain financially by making impact investments.
Today, impact investing assets under management or AUM, is estimated to be at $80 billion and that is expected to grow substantially on an annual basis by as much as $15 billion or more. Investors are catching on and rushing into the sector to meet the high demand.
>> If you are considering exploring real estate impact investing, contact the CGI Strategies team to learn more.