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“To repair the fabric of cities, towns and communities while preserving the land around them” is the stated mission of Jonathan Rose Companies. It may sound like an unusually lofty, exceedingly idealistic goal for a real estate company. But Jonathan Rose Companies is more than about developing real estate. Founded
in 1989 by a third-generation developer who sought to mix his passion for
real estate with his passion for making a difference in urban communities,
every project of Jonathan Rose Companies is guided by five principles:
First, to increase the diversity of the places where people live and work--mixing public spaces with residences, workplaces, marketplaces, and education
and spiritual centers. Second, to build with environmental sensitivity using
a combination of high-tech modeling techniques and practical, often low-tech
solutions. Third, to support the integration of work life and personal
life--as expressed by “livelihood.” Fourth, to be mindful of the linkages
between projects, users and their surroundings. And fifth, to consider that
change is a given for real property as it is for all things, and thus to recognize that development
projects must be conceived to adapt to often unanticipated future
needs. After
establishing a long track record for high quality, mixed-income, mixed-use
property development, Jonathan Rose Companies launched the Rose Smart Growth
Investment Fund I in 2005. The
Fund was the first of its kind in the country to focus exclusively on
acquiring and greening existing buildings in walkable, transit-based
communities. “Jonathan had been investing successfully with different groups
of investors for over 15 years and he thought it was time to put together a fund
that would give him the flexibility to act quickly when he found suitable
investments,” says Wendy Rowden who joined the firm in January 2009 as
managing director of its Investment Practice. “The fund gives us an
opportunity to take our green, mission-driven investment approach to scale.” The
Investment Appeal of the Smart Growth Fund The
Fund, which was closed to new investments in 2009, has raised $50 million. “It is
an unprecedented time of interest in green building that would have been
unthinkable ten years ago,” says Nathan Taft, director of acquisitions for
the Fund. “Green building is no longer a social 'do-good,' it is an economic
imperative.” Rowden
reports that Rose Smart Growth Investment Fund investors include both “savvy”
real estate investors who understand the economic and investment value in
green retrofitting, as well as social investors seeking a market rate
investment with a mission focus. While Smart Growth Investment Fund projects
all support the company’s underlying mission they are undertaken on
a strictly for-profit basis. Taft maintains that investing
“smartly” in green retrofits on the right properties is an essential element
of the Fund’s value creation strategy, which focuses on strengthening the
top-line, reducing expenses and increasing net operating income. Taft reports that recent studies
indicate that tenants prefer green space, which provides the Fund with a
marketing advantage and leads to higher tenant retention, even in a down
market. The Smart Growth Investment Fund has attracted interest from an array of seasoned impact investors including TIAA-CREF’s Corporate Social Real Estate Portfolio, which holds a 21 percent stake. The Portfolio has a triple bottom line strategy: to achieve market rate returns, high social impact and environmental sustainability with its investments. “The Smart Growth Investment Fund hits all my screens in the way few funds do,” says Cherie Santos-Wuest, the director of TIAA-CREF's Global Social and Community Investments Group. She also notes that while many real estate developers are trying to inhabit the green retrofit space, there is a steep learning curve, and few have Jonathan Rose Company’s longevity and expertise in the sector. [See The Impact Investor's profile of TIAA-CREF's Social Real Estate Portfolio.] The Smart Growth Investment Fund also wins points with impact investors for its “purity of purpose. ” “While
some REITS are trying to green their portfolios ours is green from the ground
up,” says Taft. Low
Cost Green Strategies Yield Short Term Paybacks While
Fund projects employ highly sophisticated energy modeling techniques, most
all of its green retrofits are selected to meet the Fund's relatively short investment payback requirements. (An
exception was the West 135th Street apartments in Harlem [see "Smart Growth Fund Projects" box to the right], which received state and federal grants to offset some of the cost of
a solar panel installation.) “There are a lot of lower cost strategies that
do a tremendous amount to improve energy efficiency and air quality of a
building,” says Rowden. “We look at the building envelope and base building
systems, as well as interior tenant spaces and common areas. We do everything from installing
low-flow water fixtures, higher efficiency lighting and motion sensors, to
increasing building insulation. While these things may not be as glamorous as
the higher tech solutions in new green buildings, they make a lot of economic
sense.” “There
is a misconception that greening existing buildings uniformly requires
extensive capital improvements," Taft further elaborates. "For some existing buildings getting to a
third-party verified green certification requires less of a focus on capital
and more on commissioning existing systems, such as HVAC, and operating the
buildings in a green manner. It requires a
thoughtful approach, understanding the building as a system and tweaking
things to have impact. We bring together our team of architects and engineers
at the outset of a project to determine the best greening approach for a
building and how to spend your money wisely. It isn’t a matter of
tacking green on piecemeal or at the end of a renovation.” How
the Fund Picks Properties While
“greening” is always figured into the equation when the Fund underwrites a
project, it does not bank on the associated cost savings when forecasting
projected returns. Instead, under Taft’s direction, the Fund selects
properties with “good architectural bones” in the right location, and with
the right tenant mix. “These are the qualities that provide great
long-term appreciation value,” says Rowden. “Green is not going to make a bad
asset a good asset, it will make a good one a great one.” The Smart Growth Investment Fund acquires two types of properties: class B office buildings and affordable housing. All investments are located in walkable downtowns, most often near or adjacent to more than one mode of mass transit, including rail, bus or light rail. “We focus on the larger, gateway cities that are rich in connectivity as well as intellectual and cultural capital, ” says Rowden. The
Rose social mission is always inextricably intertwined with the financial
one. “We are attracted to urban downtown areas because they are
historically underinvested,” reports Taft. “Our projects are
pivotal to the revitalization of a neighborhood. We feel real estate plays a
powerful role in peoples’ lives. Our projects enable low-income families to
spend less money on utilities and less time and money getting to services,
schools and work.” Tapping
In-house Expertise The Fund is fortunate in its ability to tap into the
in-house expertise of other Jonathan Rose Companies practice areas: The
Jonathan Rose Companies’ Development group builds new “green” affordable and
mixed income housing; the Planning Practice engages in longer-term
planning at the city, regional and national level, with an emphasis on building livelier,
healthier and more equitable communities (for example, the planning group wrote
the green guidelines for rebuilding southern Louisiana after Katrina); and
The Owner’s Representative Practice consults as program managers to cultural,
civic, and educational projects (it advised Cooper Union on the construction
of its new academic building). Measuring
Up to Green Building Standards And
Beyond Although
the standards for green building continue to evolve, Rose Smart Growth
Investment Fund projects are focused on attaining or exceeding them.
The Fund seeks to meet LEED standards for office buildings, and Enterprise
Green Communities standards, as well as LEED, for affordable multifamily
projects. Energy Star certification is used for both. “Even
if the standards are not ideal they are objective, difficult to game and
provide important third-party verification of our work,” says Rowden. Fund
projects go far beyond simply making energy efficiency improvements. Project
managers also work with tenants to operate the buildings in a green manner
going forward. Green manuals are published and distributed to tenants.
“We want tenants to be engaged in keeping the buildings green,” says Rowden.
“It is not just getting LEED certification but how the building works going
forward.” In the case of the Vance project in Seattle, the Fund has been very
successful in hosting post-LEED certification “green charettes” to brainstorm
ideas for maintaining and enhancing the sustainability of building
operations. The Fund also often seeks linkages with workforce training
programs looking to stitch the asset into the community. For example, in
Seattle, the Fund selected a local firm for recycling, composting and
sidewalk cleaning services, which returned at-risk populations to the local
workforce. Commercial
tenants are also encouraged to build out space according to a green tenant
improvement specification, which emphasizes open floor plans to minimize
resource consumption. Open floor plans not only preserve natural light and
appeal to workers but also are more cost effective from the owner’s
perspective, minimizing demolition costs for the next tenant. The Fund's retrofits also improve the work and living environments for tenants.
In addition to low VOC paints and sealants in construction, all cleaning
products are green and integrated pest management is implemented at all
project sites. Moving
Away from Suburbia and the Return to the Urban Green Rowden
notes that over the past year alone, greater awareness of climate change and
of the significant role that energy efficiency can play in addressing it
is translating into a heightened interest in green retrofits. She
also sees demand for green retrofits accelerating in urban areas in
particular. “As energy prices rise, there will be increasing demand
for green, energy efficient space that is mass-transit accessible. In 2008, when oil prices rose,
Americans drove less. Data indicate that rates of car ownership for people
under 30 are declining. There is more interest in urban locations and dense
suburban nodes near mass transit, jobs and amenities.” It
is also the Jonathan Rose Companies’ philosophy that city life offers other,
less quantifiable attractions that have stood the test of time.
“Diversity is a key piece of what we are looking for when we redevelop a
mixed-income project—it is in our DNA,” Taft reports. “We are looking not
just for racial but economic diversity. We like to be involved in projects
that weave together interesting communities. We think it makes for a richer
life.” For more information visit |