? Many real estate companies are not green enough to survive for the long term, according to the head of listed real estate at PGGM, which manages investments for Dutch pension funds.
? The firm is "future-proofing" its portfolio for long-term challenges such as energy efficiency and other environmental concerns, the executive said.
? A long-term strategy and the ability to invest during potential downturns put the firm in a position to influence real estate investment trusts' strategic decisions, he added.
Hans Op 't Veld, head of listed real estate
Hans Op 't Veld is head of listed real estate at PGGM, which managed roughly €206 billion of investments on behalf of Dutch pension funds as of June 30. The firm has roughly $26 billion of real estate assets in its global portfolio, including roughly $6 billion in U.S. REIT investments. Op 't Veld spoke with S&P Global Market Intelligence after a panel discussion on environmental sustainability at the National Association of Real Estate Investment Trusts' REITWorld 2017 conference.
The following is an edited transcript of the conversation.
S&P Global Market Intelligence: How do you assess real estate companies for sustainability?
Hans Op 't Veld:
To us what is really important is that I can see that this company is managing this transition to a much more efficient and green structure. And if companies are not already working on that, I'm quite concerned about them getting there in time. I have to see who's greener than the other guy because not enough of the companies are green enough to survive in the long term, as far as I'm concerned.
How much do you factor in the location of properties?
It's real estate, so location is the most important thing. But the data quality has gone up tremendously, so we can now map our portfolio against flood risk, severe weather events, storms.
I heard some rumors, I don't know if they're true, about a couple of institutions that said, "I'm not interested in having Florida exposure anymore because of recent events." I think that's a bit awkward that they look at it that way, because you do not actually achieve anything other than saying, "OK, I'm safe here."
What I'd much rather do is engage with these companies and say, "How are we going to improve on this?" knowing that it's not a viable option to say, "We're going to vacate Florida and forget about it." Come on, that's not realistic.
In the investor community, do you think you're an outlier in your concern for environmental issues?
I think it's becoming more mainstream. I think we're lucky, in the sense that the people we work for, our clients, have a very long-term horizon and they allow us to spend time on it. In many cases, that's not the case. Let's be brutally honest: If I were with a BlackRock or a Vanguard or a Fidelity, then it would be slightly different because my clients would not put the same type of emphasis on it.
What has changed for me in the last decade is that at first I thought, "OK, we'll do this, and I see the benefit, but I don't really feel that it's top of the list." And it's changed to, "Jeez, we really need to act fast, because it's going to be such a massive issue, people have no idea yet." That's because I took the time to really understand what is going on, and every time, I come back frightened. I'm a dad as well. I want my kids to live in an environment that's still supportive of life, if you will.
I don't think that we have 30 years left to deal with these issues. I think it's really just around the corner, that's what my concern is about. Perhaps not a lot of investors have permission to think beyond the next year or so, and that's a real issue. And that's why they don't talk to the companies about it, and it's self-perpetuating. I think there's so much short-termism in the market.
That seems funny, given that real estate is inherently a long-term asset class.
You're quite right, but the thinking, particularly because we're talking about listed REITs, is that you can sell out tomorrow. So why would I worry about something that is going to occur in five years' time or 10 years' time? But if people think about it and say, "If I want to have a job and be in this industry, this industry has to survive," then they'd better get their act together on this. Because ultimately, you don't know when the valuation dislocations will occur, but they will occur at some stage, and I've become convinced of the fact that it's going to be early rather than late.
I think some investors can afford to spend more time on it than others, but those are the investors that I think the companies are keen to have on their register. We're the most likely candidates to step in when valuations become distorted in the trough of a cycle. So they need us, and we take advantage of that by pushing them. We call that the driving force of capital. It's in our strategy to push the market forward using the capital that we invest on behalf of our clients.
You're the most likely to invest during a trough because of your clients' long-term orientation?
Yeah. And we need to be invested anyway. And we can afford to support those companies that we feel are going to stand out. Because I know the way it worked for us back in '08 and '09. You had a list of companies: "OK, who do I want to survive? To whom am I going to give the money?" Because you cannot help all of them, and you go, "OK, the management is flawed, the portfolio is flawed, sustainability issues, governance issues." So they drop to the bottom of the list, and the other guys are the beneficiaries.