Joined up thinking: Employing ESG initiatives to produce positive impact and increase asset values

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As a multifamily real estate investment company investing in apartment buildings across the US, FPA Multifamily has placed importance on environmental, social and governance initiatives that provide a positive impact and increase asset values, says Managing Partner Greg Fowler.

What are some of the biggest challenges your firm is facing in the current environment, and how are you overcoming them?

There has been an increase in operating expenses driven in part by a significant jump in insurance premiums as the capacity for insurers had tightened due to inflationary pressures and increased urbanisation. We believe this, in turn, has influenced our LPs to be less focused on ESG than they were one to two years ago. 

Other challenges we face include regulations around solar incentives. As would be expected, our portfolio would most benefit from solar opportunities where the climate is warmest and sunniest. Regrettably though, there are relatively fewer lucrative solar incentives available in many of these states.

Have your client needs and demands changed in relation to ESG-specific concerns? How has your firm responded to this shift, if any has taken place?

As our investors have become less focused on ESG due to the aforementioned increased operating costs, we have completed an organisational restructure aimed at reducing costs, increasing efficiencies, and optimising operations. We have also refocused on investing in solutions that can provide swift but long-lasting benefits, for example supplementary efficiency projects – in addition to the comprehensive range of energy and water retrofits we already carry out – that we believe can have a positive impact on both our costs and environmental footprint.

Has the difference in regional approaches to ESG impacted your firm? How have you handled these developments and what changes have you made as a result?

Regionally, we have experienced inconsistent opportunities in solar projects as state-level incentives vary widely. This has impacted our progress on solar installations, however we are still looking into various renewable opportunities. On an international level, investors from Europe and Asia demand more ESG reporting than their US counterparts. These pressures have advanced the development of our ESG program in a short timeframe. 

What ESG-specific opportunities are emerging in the private equity industry in the near future, and how are you positioning your firm to take advantage of them?

Opportunities include accretive strategies in solar, HVAC smart energy management, AI systems management, and the control of water consumption, especially in areas where local water is expensive. 

We are also looking at ESG-specific opportunities in terms of lifestyle, including waste diversion through increased recycling. With recycling offerings varying according to municipality, and some municipalities having no, or limited, recycling programs, we have introduced our own recycling initiatives, including access to a nationwide battery recycling program, while a second nationwide clothing and textiles recycling initiative is also under consideration. We are also encouraging the reuse/recycling of boxes and packaging material from e-commerce activities. 

A focus on health and well-being also forms a key part of our ESG thinking. During the global pandemic, we adopted a green approach to sanitisation and cleaning aimed at maintaining high levels of and disinfection as well as enhanced air quality. We are continuing to explore products that can improve air and water quality such as reverse osmosis filters and air scrubber technology.

Does the approach to risk management in the context of ESG and private equity investments differ from traditional risk management? In what way?

Our approach to risk management in the context of ESG does not differ from traditional risk management because we have fully integrated ESG within our organisation. 

 Greg Fowler, Managing Partner and Founder, FPA Multifamily, LLC – Greg is responsible for the overall direction of the firm and leads the acquisitions and investor relations teams. Greg has been the general partner on over 700 real estate projects valued in excess of $18 Billion USD and FPA has raised 11 discretionary real estate funds and acquired over 130,000 apartment units. Prior to forming FPA, he was Senior Marketing Director for Iliff Thorn & Company. Greg holds a finance degree from San Diego State University and a professional degree in real estate development from the University of California, San Diego. He currently serves on the boards of the Campanile Foundation, USD Real Estate School, National Multifamily Housing Council and the Investment Committee of the Santa Barbara Museum of Art. He is a member of the Urban Land Institute, Pension Real Estate Association (PREA) and the Olympic Club.