Experts Weigh In – Multifamily Market Breakdown: Sustainability Trends and Outlook

While the multifamily sector experienced a historic boom in the wake of the COVID-19 pandemic, the industry has not been immune to economic challenges stemming from rising interest rates and stalled rent growth. As multifamily stakeholders navigate these ever-changing market dynamics, sustainability has emerged as a key area of differentiation for owners looking to boost asset value and strengthen appeal to residents and investors.

The business case for sustainability has only been strengthened by recent rises in severe climate events that jeopardize resident and building health, along with increases in government regulations and Building Performance Standards. For stakeholders looking to create resilient, forward-thinking communities that will stand the test of time and set a standard for future development, adopting innovative green strategies is imperative.   

With these dynamics in mind, BREEAM USA recently brought together a lineup of industry experts to discuss key opportunities, challenges, and trends shaping sustainable growth in the sector.    

Panelists included:   

• Cope Willis, Managing Director of Sustainability at Greystar  
• Thomas Stanchak, Managing Director of Sustainability at Stoneweg US  
• Giuliana Kunkel, Associate Director of ESG at MetLife Investment Management  

The discussion — moderated by BREEAM’s U.S. Director of Operations Breana Wheeler — focused on the value of sustainability within multifamily despite current market volatility and explored some of the industry’s most prominent challenges, including how to quantify green initiatives with less obvious impacts on the bottom line. The panelists shared diverse insights, experiences, and anecdotes informed by their combined decades of experience, including: 

1. Recent economic challenges have had an impact on multifamily performance, but sustainability remains a key tool for value creation in a competitive market.

“Now is the time. In economies like this, good management and good stewardship show, [and] I’m excited about that prospect,” said Thomas Stanchak. “I think that’s the differentiator, and if you're not already embracing sustainability in your strategy, you should look at it through an entrepreneurial lens and think about where you want to be at the beginning of the next decade… it's not about outspending or spending more, it's about outsmarting. Taking the resources you have and using them appropriately. Ultimately, that's what sustainability is, it's making durable investments.”   

Added Cope Willis, “The macro environment has definitely been a headwind. With interest rates [and] slowdowns in rental rate growth, I think portfolio managers and fund managers have sometimes had bigger fish to fry [outside sustainability], some other problems to focus on. But, on the flip side, the positive is that teams are looking for any way to improve net operating income and energy efficiency, [and] sustainability efforts can be a great way to do that.”  

2. Multifamily investors are prioritizing sustainability and requiring more frequent and detailed reporting on the performance of their properties.  

“[MetLife Investment Management] is continuing to see more and more investors approach us with questionnaires each year requesting different kinds of ESG data … usually [related to] climate risk and mitigation efforts, frameworks that we’re aligned with, emission tracking, scope 1, 2, [and] 3, and if we have any public or internal goals,” explained Giuliana Kunkel. “While the prevalence of these questionnaires has increased, I don't see that as a bad thing — a lot of times it can internally help to make a case for us to move forward with different ESG or sustainability initiatives. Related to multifamily, we had a consultant who works with our investors reach out and ask why, in one of our funds, three multifamily buildings had high water use intensities. Because of that question, we’re now moving forward with a water savings pilot at those properties. So, they do help to push initiatives along.” 

“[Sustainability is] definitely a top priority for our partners. [Greystar’s] partner base is mostly European [and] Canadian, so it's top of mind for them,” shared Willis. “Top issues are still energy and carbon, that's really been their focus. In terms of how we might prioritize [our focus], in the past it’s really been ROI…. what I think we’re going to need to do differently moving forward is [figure out] how to quantify some of the harder-to-quantify things, like the liquidity risk tied to inaction, and potential brown discounts and fines. [These are areas] where we don't really have an agreed-upon way to quantify and demonstrate the value.”  

3. Sustainability is more important than ever to residents, and multifamily owners should consider resident sentiment when crafting their sustainability strategies.  

“We do periodic surveys of residents on sustainability, and in recent surveys, at least half of the respondents said sustainability is very important or extremely important,” said Willis. “What's interesting is it’s pretty consistent across the different demographics, so if we ask a student, a high-income [resident], or a rent-challenged resident, they all feel the same. It's also interesting when you ask them what comes to mind when they think sustainability because they’re not domain experts and may not think about the same things we do as sustainability professionals. Things that rise to the top for them are [initiatives] like energy-efficient lighting, energy-efficient appliances, recycling, and smart thermostats.”  

“Every year, [MetLife Investment Management] does an ESG challenge where we invite all of our properties across all of our asset classes to apply and show that they're achieving or even outpacing some of the other properties when it comes to sustainability measures,” shared Kunkel. “And time and time again the multifamily winner is always the property that does the most social engagement. The property that won this past year had really cool [initiatives] like an edible garden for residents, meditation, resident community service events, a lap pool, [things] like that [which] really help to make [residents] feel like the place that they’re living has a lot of benefits for them.”  

Added Stanchak, “When [Stoneweg US] collects data, it's consistent that the majority [of residents] consider sustainability a priority … and if you discount the opinion of your customers I don't think that that is appropriate stewardship.”  

If you missed the webinar, you can view the full recording here.   

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