Financing Sustainable Real Estate Development

1. Set the project up as an independent financial and organizational entity with further financial subdivisions according to function and timeline
2. Figure out who all of the stakeholders are that benefit from the "extra" features provided with sustainable design
3. Provide investment vehicles for all of those stakeholders to participate financially and facilitate their participation, both financially and organizationally

• Local Governments - Local governments can financially participate in the form of tax incentives, land contributions, and municipal bonds. Municipal bonds, be they city or county, have significant tax advantages.
• State and Federal Governments - Projects and components thereof that meet certain criteria can be eligible for grants and tax incentives at the state and federal level. For example, there is federal grant funding available for wetlands preservation.
• Commercial Tenants - Commercial tenants can participate financially using build-to-suit arrangements.
• Residents - Residents can participate in pre-sales of lots, and can also be equity investors in the overall project. This kind of investment is in essence a "Two-for" investment at the individual level. An individual is making a sound economic investment, and also investing (quite literally) in their community.
• Utility Companies - It is often less expensive for energy companies to invest in low energy measures in a new development (like solar orientation of lots) than it is to invest in additional infrastructure to produce more energy to support the development. This is a larger version of the appliance "upgrade incentives" offered by many energy companies to their residential customers. This process is known as "Demand Side Management".
• Corporate Largesse - Corporations with a vested interest in a particular aspect of a project might choose to invest in that aspect of it.
• Pension Funds - Some pension funds have started devoting small percentages of their portfolio to "responsible" investments. For example, four British Columbian pension funds participated in a development on Vancouver Island that was subsequently purchased by a development company that represents 29 pension funds. This changing behavior on the part of pension funds has been driven by politicking on the part of fund participants as well as a changing definition of "prudent investment". These can be structured as debt or equity relationships. The key characteristic of these investments is financial return as well as less quantifiable "quality of life" returns for the fund participants.
• Non-profit Organizations and Foundations - Traditionally, charitable foundations have erected a wall between their "program" activities and their "continuity" activities. The continuity side of the house is responsible for ensuring the longevity of the fund and historically hasn't used any considerations other than financial. The program side of the house is responsible for fulfilling the foundation's charter using the funds maintained by continuity, and historically hasn't used any considerations other than charitable. However, there are two classes of investments made by foundations that are applicable to sustainable real estate development. "Program Related Investments" are debt investments made at or below current rates for projects that are within the foundation's charter. These are probably more applicable project specific, but might apply in a more general sense. There has also been a recent increase in "Two-for" investments that meet both the financial requirements of "continuity" and charter obligations of "program".
• Landowner Equity Participation - Depending on the disposition of the original landowner, it may be quite possible to secure land for development without significant capital outlays. In many cases, landowners have chosen to receive a significant portion of their compensation in equity rather than in cash. They typically do this for two reasons. First, the landowner can usually expect higher returns over time if they stay invested in their land. Second, many long term landowners have an interest in the land that goes deeper than mere economics. In these cases, they can be made to recognize that the responsible developer can do a better job of "doing the right thing by the family land" if the developer isn't capital constrained due to land acquisition costs.
• Conservation Easements and Trusts - In cases where a development is to include the preservation of significant open space, that open space can be preserved in a conservation easement or conservation trust prior to acquisition of the property by the developer. Like equity participation, this requires a landowner with a certain mindset. However, there can be significant financial benefits to the landowner in the form of tax credits. Trust land can also be purchased by foundations and conveyed into public ownership in the form of city or state parks. This is a strategy that can also be used to convert its open spaces into additional capital on a project specific basis.