Real estate can deliver gentrification without displacement, a new report has claimed.
The report – Social Impact: investing with purpose to protect and enhance returns – by the Urban Land Institute and law firm DLA Piper, said all real estate investment and development has the potential to deliver social impact.
It concluded that real estate can deliver market-rate returns and social benefits at the same time, through relatively small adjustments to strategy. It added that a social impact approach could also offer specific risk management benefits that support returns.
ULI Europe CEO Lisette van Doorn said: “Real estate and social infrastructure always create an impact on society. The shift now is from unintended consequences to considered outcomes. In many ways, there is nothing new in the social impact model. Investors need to leave behind a mindset that sees this as something different from what they already do in managing real estate and serving customers. It is still best practice real estate investing and asset management focused on tailoring products and services to customers – it is just those customers that are new.”
ULI pointed out that while social impact investing was more commonly applied to housing, healthcare, education and public sector-led placemaking strategies, there were already strong examples of its integration into wider forms of real estate.
“Through impact strategies that bring benefits for underserved communities in wealth, health, education and inclusion,” the report saidit was possible “to deliver gentrification without displacement”.
The research was based on 24 structured interviews undertaken with investors, investment managers, investment management consultants and impact management consultants involved in impact investing in Asia, Europe, the US or globally. A survey of the wider real estate investment industry during March and April 2022 received 198 responses.
Improved asset value
ULI said the research demonstrated that social impact strategies improve the intrinsic value of assets by enhancing net income, reducing risk, lowering sensitivity to market cycles and ensuring the long-term viability of the project, and ensuring the long-term viability of the asset, including potential capital growth.
It added that these benefits to net income and certainty of income were not yet fully understood by the market, with just 43% of those responding to the survey appreciating their potential to reduce financial risk and have a positive impact on returns. Benefits in reputation and recruitment, it added, were more widely accepted.
While the report makes a clear distinction between social value and social impact investing, it found that that only 46% of the real estate investment industry was conscious of the distinction. For those still unsure, social impact is the creation of social value, which is fully integrated into the investment process. As a result, it delivers intentional and additional beneficial value to under-served people and communities. In other words, while all social impact creates social value, but not all social value delivers social impact.
Value versus impact
ULI said it was important for the industry to examine and understand the difference between social value and social impact.
“Developing a strong corporate social value culture is key to unlocking the potential of social impact investing,” said van Doorn. “Like environmental considerations, we see that social impact will simply become best practice over time through integration into all stages of investment decision-making.”
The report found that interest in social impact strategies was strongest in Europe, followed by the US and lowest in Asia. However, it added that this was likely the result of the fact that the public sector is responsible for delivering most of the social infrastructure in Asia, while in the US and increasingly in Europe it has become the responsibility of the public sector.
The requirement for “patient capital” in social impact investing was acknowledged by 83% of survey respondents.
Susheela Rivers, global co-chair of DLA Piper’s real estate sector, said: “As providers of the built environment where we live, work and play, real estate stakeholders have always had a social impact, both positive and negative, which puts them in a position of huge responsibility. But impact investing not only has the ability to improve lives, it also has a growing commercial imperative whereby net incomes can be improved, costs reduced and certainty provided.”
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