A post-global financial crisis (GFC) framework for strategic planning, assessment and management decision making for US sustainable commercial real estate
| Pages | 589-618 |
| Date | 04 September 2017 |
| DOI | https://doi.org/10.1108/JPIF-11-2016-0085 |
| Published date | 04 September 2017 |
| Author | Pernille Hoy Christensen |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
A post-global financial crisis
(GFC) framework for strategic
planning, assessment and
management decision making
for US sustainable commercial
real estate
Pernille Hoy Christensen
School of the Built Environment, University of Technology Sydney,
Sydney, Australia
Abstract
Purpose –The purpose of this paper is to understand both the facts and the values associated with the
breadth of issues, and the principles related to sustainable real estate for institutional investors. Sustainable
real estate is a growing sector within the commercial real estate industry, and yet, the decision-making
practices of institutional investors related to sustainability are still not well understood. In an effort to fill that
gap, this research investigates the post-global financial crisis (GFC) motivations driving the implementation
of sustainability initiatives, the implementation strategies used, and the predominant eco-indicators and
measures used by institutional investors.
Design/methodology/approach –This paper presents the results of a three-round modified Delphi study
conducted in the USA in 2011-2012 investigating the nature of performance measurements and reporting
requirements in sustainable commercial real estate and their impact on the real estate decision-making
process used by institutional investors. Two rounds of in-depth interviews were conducted with 14 expert
panelists. An e-questionnaire was used in the third round to verify qualitative findings.
Findings –The key industry drivers and performance indicators influencing institutional investor decision
making were associated with risk management of assets and whether initiatives can improve competitive
market advantage. Industry leaders advocate for simple key performance indicators, which is in contrast to
the literature which argues for the need to adopt common criteria and metrics. Key barriers to the adoption of
sustainability initiatives are discussed and a decision framework is presented.
Practical implications –This research aims to help industry partners understand the drivers motivating
institutional investors to uptake sustainability initiatives with the aim of improving decision making,
assessment, and management of sustainable commercial office buildings.
Originality/value –Building on the four generations of the sustainability framework presented by
Simons et al. (2001), this research argues that the US real estate market has yet again adjusted its relationship
with sustainability and revises their framework to include a new, post-GFC generation for decision making,
assessment, and management of sustainable real estate.
Keywords Sustainability, Decision making, Office, Resilience, Delphi method, Institutional investment
Paper type Research paper
1. Introduction
Following the US housing-bubble burst, whichbegan in mid-2007, the US real estate industry
struggled through a major housing market correction and subprime mortgage crisis; these
events ultimately led to the “Great Recession,”which officially began in December 2009.
According to the US Department of Labor Bureau of Labor Statistics (2016), between
February 2008 and February 2010 there was a loss of roughly 8.7 million jobs, and
unemployment rose from 4.7 percent in November 2007 to peak at 10 percent in October
of 2009 (FRED EconomicData, 2016). Although theUS recession officially endedin the second
quarter of 2009,the US economy continued to be in an “economicmalaise”until well into 2011
Journal of Property Investment &
Finance
Vol. 35 No. 6, 2017
pp. 589-618
© Emerald PublishingLimited
1463-578X
DOI 10.1108/JPIF-11-2016-0085
Received 1 November 2016
Revised 18 February 2017
27 April 2017
Accepted 4 May 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
589
US sustainable
commercial
real estate
(Appelbaum, 2011), and the recovery has been described by economists as the weakest
recovery since the Great Depression and the Second World War (Morath, 2016).
The severity of the US recession also affected many major financial markets globally,
resulting in what is commonly referred to as the global financial economic crisis (GFC).
This has resulted in the emergence of a new era in which real estate industry stakeholders
simultaneously view sustainability with skepticism and apply a more holistic, systems
approach to managing sustainability issues. However, as this research demonstrates, the
economic challenges of the past few years have left their mark. Companies are no longer
adopting sustainability initiatives solely for reasons related to the “social good”; instead,
they must demonstrate to their stakeholders that that sustainability-related initiatives will
positively impact their financial bottom-line through sustainable property performance,
assessment, and management. Current market conditions have forced companies to address
market uncertainties, and industry leaders have begun using sustainability initiatives as a
means of managing risks and meeting the changing requirements of a market in transition.
Companies are increasingly judged not only by their corporate values, as reflected in their
corporate social responsibility (CSR) statements, but also by the actions through which
those values are actualized and how those actions affect their financial stability;
this expectation also extends to how companies make decisions about sustainability
initiatives for their real estate assets.
Market changes have resulted in new strategies for decision making, assessment, and
managementof specific sustainability initiatives and for sustainable real estatein its broadest
sense. Simons et al. (2001) noted “[M]ore complex and more integrated strategies will be
needed to dealwith the new societal challengesnow associated with sustainability”(pp. 55-56).
Since the 1970s, we have seen a significant change in the attitudes of society, governments,
and the business community toward sustainability-related measures and regulations
(a full discussion of the literature demonstrating this evolution, and how real estate was
integral to thatchange, can be found in Christensen, 2012, pp. 14-37).This research posits that
in the post-GFC environment the real estate industry has againrepositioned its priorities and
entered a new phase of strategic decision making, assessment, and management of
sustainable commercial real estate. A decade after the publication of Simons et al. (2001),
the industry is again facing a crossroads in how to consider and integrate sustainability
concerns into real estate decision making with different motivations driving incorporation of
sustainability initiatives, different strategies being used to integrate sustainability initiatives
into strategicplanning efforts, and differenteco-indicators and measuresbeing used to assess
progress towards sustainability goals and targets. This research investigates these
motivations, drivers, and implementation strategies, and identifies the most important
eco-indicators and measures used in institutional investors decision making.
Using a modified Delphi research design, comparative content analysis was conducted
on the transcripts of a series of interviews conducted in 2011-2012 with industry experts.
Participants in this study were selected using a purposeful stratified sample to include
representation of real estate investors (public and private funds), corporate owner occupiers,
building management companies, and developers. The Delphi panelists were qualified as
“experts”using the following criteria: they must have more than ten years of real estate
industry experience, five of which must include sustainability experience; they must hold an
executive-level position within their organization focused on sustainability; they must be
actively engaged in strategic decision making related to sustainability issue; they must have
a proven record of accomplishment in professional practice; they must bring to the table a
general knowledge of the issues and be able to represent a broad range of values and
priorities; and they must have been referred by at least one other member of the expert
panel. All panelists either currently worked or had previously worked in real estate
investment during their career.
590
JPIF
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