Entrenched social inequities reverberate through to commercial real estate

Cracking through entrenched social inequities

Commercial real estate appraises its foundation for diversity and inclusion
Monday, January 18, 2021
By Barbara Carss

Commercial real estate investors, owners and managers are acknowledging that entrenched social inequities undermine their workforces, their tenants and the value of their portfolios. With both the COVID-19 pandemic and watershed events arising from systemic racism galvanizing their attention in 2020, senior executives and ESG (environmental, social, governance) practitioners with prominent Canadian companies have been grappling with how to rebalance hierarchies, broaden input, expand opportunities and reap returns from the resulting dynamics.

Panellists participating in two recent online industry discussions outlined some of their efforts thus far, affirming that there is still much to learn and do. Institutional investors’ growing reliance on ESG benchmarking presents one obvious avenue to measure companies’ tangible commitment to diversity and inclusion, and to analyze and compare organizational performance. However, to date, reporting and assessment have been more tied to environmental imperatives.

“The S is really hard,” mused Dan Winters, head of the Americas for GRESB, during last fall’s Canadian release of 2020 ESG results for commercial real estate portfolios. “You hear this all the time: Let’s focus on the E, and we can metric it and we can figure that out. The S is tricky.”

Property and asset managers sharing insight during a Buildings Week panel discussion sponsored by the Building Owners and Managers Association (BOMA) of Greater Toronto similarly noted that they are on something of a learning curve. While the industry’s endorsement of diversity and inclusion is certainly not new, and has often been tied to goals for attracting, nurturing and retaining adept, fresh-thinking personnel, panellists concurred that the year’s melding of homicidal racism and universal outrage pushed the issue to the forefront of their consciousness.

“We’ve all started having some conversations that I think needed to be had,” observed Nada Sutic, director of operational excellence with QuadReal Property Group and current BOMA Toronto chair. “We’ve had more conversations about: How do we hire people and who do we hire? We’re thinking about our own biases, perhaps, and biases that are really built into our systems and how we’re operating.”

Internal leadership and external expectations drive conversations and actions

Panellists pointed to the guidance and directions they are getting from internal leadership and influential clients. Kevin Hardy, vice president and head of Oxford Properties Group’s Toronto office division, reports that Blake Hutcheson, president and chief executive officer of Oxford’s pension fund parent, OMERS, has set the tone for the organization — for example, augmenting already existing commitments and objectives by retaining outside expertise to provide awareness and training sessions.

“Our teams are still a little too white and little too male, but I think there is progress being made on all of this,” Hardy said. “I am encouraged by just the sheer amount of discussion and openness. People now desire to have these talks and I think that will lead to more and more, better and better change.”

Marlene Farias, vice president, central region, with Triovest Realty Advisors, identifies the Healthcare of Ontario Pension Plan (HOOPP) as an influential client that has been ahead of the recent impetus in viewing diversity and inclusion as an indicator of high performance and investment growth potential. Like Oxford/OMERS, Triovest is also bolstering internal resources and adjusting strategic planning.

“Our shareholder core group of companies launched an executive learning series where they bring education and awareness around D&I topics and educate their leaders in higher positions so we can have the tools to lead our teams and move the needle,” she said. “In 2021, we’ve committed to develop a roadmap, where we plan to have a facilitator with the executive team to look at what we need to do to strategically implement more D&I within our workforce.”

From an institutional investor’s perspective, Andrew Garrett, executive director, real estate, with the Investment Management Corporation of Ontario (IMCO), is both privy to evidence that diversity boosts performance and in a position to forcefully convey that message to those who seek business and/or capital. Notably, diversity and inclusion was in the scoring matrix for IMCO’s RFP for property management services for its Canadian retail assets last year.

“Of the 15 bidders that went through something like a six or seven-month process bidding on this opportunity, not surprisingly, the highest performing team had a very diverse executive team,” Garrett recounted. “It was quite apparent to us that the high-performance culture always kind of shows up when you have a team on which everyone doesn’t necessarily always look the same.”

In turn, that insight gets channelled to other decision-making processes where IMCO holds sway, such as its representation on board advisory committees for real estate private equity firms. “As they are coming across project opportunities, it is incumbent on me to ask questions about the teams and the opportunities, and how they are impacting their communities and interests,” Garrett said.

Property managers are likewise applying those questions to tenant engagement programs whether that’s through surveys to glean wider input, events — “That could be a little more inclusive, celebrating everyone’s cultures and holidays,” Farias suggested — or support to address shared social goals.

“There can be philanthropy or volunteering where these values allow you to partner on a personal basis with the potential occupants of a building. There is going to be lots of opportunity there to develop more engagements,” Hardy projected.

Quantifying and elevating the S in ESG

Meanwhile, ESG practitioners are pondering how they might address some of the stresses COVID-19 has highlighted, and how to develop and quantify the metrics to support that effort. Ridhima Nayyar, manager of sustainability with RioCan REIT, sees GRESB and the collegiality of Canadian GRESB participants as key catalysts.

“With COVID, I think we all have figured out that we are going through a social crisis. Up until now, we have been talking about E and G, but now a big focus is on the social aspect,” she reflected during the GRESB results panel discussion. “We want to work not only within our own organization, but also with our peers to move this ESG movement to another level. GRESB is one platform that has brought these social issues that our industry currently faces under one umbrella, and I think that can take our awareness to another level.”

“Many real estate executives had a bit of an reckoning this year. There’s a recognition that we’re behind on diversity and inclusion,” agreed Jamie Gray-Donald, vice president, sustainability and environmental health and safety, with QuadReal. “We don’t even have the data on diversity and inclusion that any Fortune 500 companies have so we’re catching up on that.”

That could align well with what Winters has typified as the GRESB journey, in which participating companies initially sign on to meet their own corporate responsibility requirements, get further engaged in the peer-to-peer benchmarking aspects of the program and then realize the risk management and value enhancement benefits. Accordingly, Garrett contends that expectations are already shifting from due diligence to cultivating opportunities.

“Historically, we were a little more focused on risk. Diversity/inclusion, especially in the U.S. portfolio, it’s risk (management) against discrimination lawsuits; it’s risk (management) against property damage and social unrest from a real estate perspective. Part of the movement and focus now has changed the lens so people feel diversity/inclusion is a growth area. It’s not as fear-based,” he submitted. “Looking forward, as a long-term holder of assets in thriving cities, we need there to be cohesion; we need there to be inclusion. We need cities to be magnets for global talent so, for the long-term, we have a vested interest in inclusion. The ways it’s starting to manifest are pretty significant.”

Barbara Carss is editor-in-chief of Canadian Property Management.

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