A sustainably-designed multi-residential building can see its value appreciate by up to 30% over 10 years after factoring in the higher up-front construction cost, according to a life cycle analysis conducted for a trade union investment fund in Quebec.
The “action research project,” titled Générations 1,5 C, modelled the financial performance of a 320-unit rental building with ground floor retail, built in 2018 at a cost of C$60 million by Quebec’s Fonds immobilier de solidarité FTQ (FTQ Solidarity Real Estate Fund), the fund reported in late September.
The modelling covered a suite of improvements that would have boosted the building’s energy efficiency while reducing its operating emissions and embedded carbon. It placed the total construction budget at $100 million in 2023 dollars, including an extra $6 million for the sustainability improvements, for a building that was expected to remain in operation for 60 years.
Akonovia CEO Philippe Hudon told SustainableBiz the building was chosen because it’s typical of future structures that are expected to be built across Canada.
“The adjusted cash flow of the reference building, which was built to code and had not previously undergone substantial decarbonization measures, was estimated to decline by 15% after seven years and 80% after 10 years,” with factors like rising carbon taxes, higher energy costs, and the impacts of building codes on rental income driving down its valuation, SustainableBiz explains. And those risks began to accumulate sooner than the researchers expected them to.
“As a result, the owner of a newer building with electrical baseboards and high energy consumption would struggle to reinvest, impacting the profitability and revenue of the building over the long-term,” the news story states. “By comparison, an up-front investment of 6% of the building’s value to reduce operational and embodied carbon would cut initial cash flow by 15%, but free the property from the need to make green retrofits in seven years.”
“If we invest at the beginning we need to invest more money, more equity in the building,” Hudon said. “But what we discovered is at the end, the asset is protected against each risk.”
Serge Cormier, Fonds FTQ’s vice-president of ESG, value creation and sustainable real estate, agreed that “the additional investment in optimizing the building’s environmental performance was well worth it, especially since climate change is getting worse and its impact will be felt ever more acutely in the real estate industry. We’ve shown that investing in a building’s sustainability and in both its physical and financial resilience is key to fighting climate change and to increasing its value.”
Caroline Girard, vice-president of property management at Brossard, Quebec-based real estate developer Groupe Devimco, said the industry should be open to investing more in sustainable construction. “It is more important than ever that operational and embodied carbon be reduced in new construction,” she said. “Sustainable buildings can also offer additional value in terms of customer experience through the quality of spaces and indoor air.”
Éric Bernier, director of business customers and energy solutions at Hydro-Québec, said the focus on embodied emissions was an important part of the study. “As far as energy is concerned, the most important finding for Hydro-Québec is that by implementing measures to improve energy efficiency and manage power demand, you can have an almost zero-carbon building without increasing energy or power demand.”
The Solidarity Fund was set up by the Fédération des travailleurs et travailleuses du Québec (FTQ) in 1983, and held $14 billion in investments on behalf of 785,000 members as of late May. The real estate fund had a portfolio of 83 properties under management and 31 projects in development or under construction as of June 30.
