Evironmentally-Friendly Real Estate Investment

July 17, 2009 by Caroline Leave a reply »

live-waterThe Skoll Centre for Social Entrepreneurship at Oxford’s Said Business School has published an excellent article entitled “Blended Value Investing: Innovations in Real Estate.”  This article defines Blended Value Investing as investment that focuses not only on meeting defined financial return targets, but on preserving and creating ecological conservation value as well.  The paper focuses specifically on Blended Value Investing in real estate, and begins by listing the vehicles available to invest in such properties.  These vehicles are niche-individual deals, funds, and a marketplace.  Since much ecological and conservation-based real estate investment involves large tracts of land that trade infrequently, niche deals and funds provide the best way to access this kind of investment.

The article goes on to identify specific property types that are suitable for Blended Value Investing and the ways in which ecological conservation can be monetized in order to bolster financial returns.  As in all forms of real estate investment, the two primary ways to generate returns are current income streams and capital appreciation. The paper offers several interesting strategies to access both forms of return generation in an ecologically friendly manner.

For generating current income, the article suggests the following:

  • Obtaining tax credits or environmental impact credits that can be sold to organizations that need to mitigate their environmental impact (see  page 14 of document for further information)
  • Selling a Conservation Easement
  • Leasing the Land for responsible/low impact farming or grazing
  • Responsibly harvesting timber in a way that will preserve the ecological value of the land (Forest Stewardship Council approved timber can generate up to a 30% premium, page 12)
  • Altering the land use to include ecologically responsible development within the parameters of whatever conservation easements exist on the property

For generating long term capital appreciation, the article suggests the following:

  • Converting land use from purely agricultural to recreational by reducing impact of agricultural crops/grazing and improving presence of wildlife on propertyImproving streams and other fisheries to create greater recreational opportunities
  • Improving streams and other fisheries to create greater recreational opportunities
  • Managing the property using many of the techniques discussed above to maximize ecological value increasing capital appreciation due to scarcity

Many of these strategies are interconnected. For example, improving streams on the property will create capital appreciation, but it may also be a way to generate current income if fishing expeditions are now offered as a form of recreation on the property. However, it is important to notice that these fishing expeditions must not wear the river out, or the capital appreciation will be eroded.  This raises the very important point that using skilled and experienced management personnel and techniques is vital in employing Blended Value Investing through real estate.

So, how does this apply to the high net worth or institutional investor that may be curious about blended value investing in Investment Grade Ranch Real Estate? First, it offers a great framework for how to maximize the financial and ecological value of an individual ranch that you may be considering purchasing. Secondly, it offers a look into methods that a fund may employ in managing ranch real estate.  With the coming government incentives toward sustainability and the “green” movement, these strategies may become increasingly financially attractive. This would naturally lead to more advanced and competitive managers in this space that could offer lower transaction costs and more standardized practices, increasing the attractiveness of this investment strategy. Overall, Investment Grade Ranch Real Estate can be an excellent way to generate strong financial returns while preserving and enhancing the natural world and environment.  This is a great combination that investors should consider, using the help of experts in this field.

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