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Real Estate Impact Investing: Attractive Returns with Positive Environmental and Social Outcomes

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Can real estate have a positive impact on the world? Consider what happens when a state-of-the-art office building operates with zero carbon impact, thanks to specially designed panels that capture solar energy and provide cooling, a natural ventilation system that keeps air moving without expensive pumps and fans and an inviting rooftop garden. Or how a low-income apartment complex located near shops, jobs and transportation can give low income families a place to live and thrive economically while reducing car traffic and sprawl. Or how neighborhoods benefit when a community organization subsidizes rooftop solar panels in underserved areas, reducing carbon impact and energy costs for lower income residents.

What Is Real Estate Impact Investing?

The above situations are all examples of the way that forward-looking players in the real estate industry are building sustainability into their business models. That’s important because experts estimate that the real estate sector accounts for over 40% of global carbon emissions annually, with 27% coming from building operations and another 15% from the manufacture of building materials such as cement, iron, steel, and aluminum.1 If the buildings where we live, work, shop and entertain ourselves can be made greener, the whole world will benefit.

Want to get involved? Both institutional and individual investors can participate in the trend towards greener, more livable, more equitable real estate by including real estate impact investments in their portfolios.

Real estate impact investing seeks out real estate companies, properties, funds and securities that are attempting not only to earn a financial return but also to achieve positive social and environmental outcomes. It’s a way to participate in the unique risk, return and income-generating characteristics of the real estate asset class while making the world a better place.

Four Key Benefits of Impact Investing in Real Estate

Real estate impact investing provides all the advantages of traditional real estate investing with the added bonus of positive social impact. Here are four important benefits:

  1. Financial returns: Real estate impact investments provide the potential for stable and attractive returns.
  2. Social and Environmental Impact: Depending on their objectives, real estate impact investments can produce measurable improvements in a variety of key indicators including reduced carbon emissions, increased energy efficiency, higher use of recycled or low-emissions materials, increased affordable housing stock, lower incidence of homelessness and tree planting/expansion of green space.
  3. Portfolio Diversification: Real estate, as an asset class, tends to perform very differently from stocks and bonds in many market climates—and has had particularly strong returns during inflationary environments, since the cost of housing and buildings tends to rise with the general level of prices. As a result, adding real estate to a diversified portfolio can provide important diversification benefits and protection  at different times of a  market cycle.
  4. Risk mitigation: Real estate has a relatively low correlation with traditional asset classes—for example, from 2000 through 2020, private real estate had a correlation of only about 0.12 with publicly traded stocks and -0.14 with publicly traded bonds.[2] (Assets that move exactly in sync have a correlation of 1.0.) By investing a portion of your assets in real estate, you can reduce your exposure to sudden moves in stocks and bonds and lower overall portfolio risk.  

Strategies for Impact Investing in Real Estate

You can gain exposure to impact investing real estate in several ways, including:

  • Direct Investment: Here, you’re buying a property (or an interest in a property) itself with the goal of building or retrofitting it to achieve sustainable goals. For instance, you might invest in a new building project that will use primarily recycled or low-carbon building materials in its construction. Or you might invest in an older property with the intention of upgrading its insulation, adding solar roof panels or installing energy efficient heat pumps to reduce energy use and carbon impact. The key is that you’re investing directly, without the intermediation of a fund or securitized structure.
  • Real estate investment trusts (REITS): REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors. These are highly liquid investments that trade on public stock exchanges, and, in recent years due to investor interest, they have become increasingly focused on sustainability issues. NAREIT, a real estate industry association, reports that 100% of the REITs it tracks now perform annual reporting on progress towards ESG goals, while 67% tie executive compensation to ESG performance and 78% have board-level oversight of ESG initiative.[3]
  • Private real estate funds: Private equity impact real estate funds raise capital in order to buy a direct equity stake in buildings and projects designed to improve affordable housing, sustainable economic development and green buildings, while private debt funds lend to operators with an impact focus. These funds are typically only available to accredited investors, and they often require a substantial upfront commitment and a lengthy holding period. Proper due diligence is critical, since performance and risk varies widely from fund to fund. However, for wealthy investors guided by experienced advisors, private funds can provide compelling opportunities in impact real estate.
  • Green Bonds: Investors can also incorporate impact real estate into the fixed income portion of their portfolio by investing in green bonds. Governments, municipalities and corporations issue these bonds to fund environmentally friendly real estate projects.

Green debt has grown rapidly over the last few years. In 2023, issuers raised $492.30 billion in green financing, up from $446.18 billion the previous year.[4] Experts expect even more robust issuance in the next several years, especially if interest rates come down.

Individuals can invest directly in a diversified ladder of green bonds, or they can participate through green bond ETFs and mutual funds. In addition to income and environmental impact, green bonds often offer tax benefits, since they are frequently structured as municipal bonds (to fund environmental projects) and consequently are exempt from federal income taxes.

Opportunities for Impact Investing in Real Estate

  • Affordable Housing: Investors can address the housing crisis—one that leaves 580,000 Americans homeless[5] and millions more struggling to make rent or mortgage payments—by investing in affordable housing. There are a number of ways to make investments in affordable housing programs, including through public REITS (real estate investment trusts) and private funds. NAREIT recently published a helpful list of public REITS investing in affordable and workforce housing[6]. On the private side, investment managers such as Enterprise, Kimpact and Jonathan Rose offer affordable-housing funds designed for high net-worth investors. For more information, read our issue brief on impact investing in affordable housing here.
  • Sustainable Buildings: You can invest in the technologies that make buildings green—like smart sensor systems to manage heating, cooling, lighting and ventilation; innovative materials that keep interiors warm or cool naturally; roof and balcony gardens; and other innovations—through a range of mutual funds, ETFs, hedge funds and private equity and debt partnerships.
  • Community Development Projects: Business incubators, low-income housing, grocery stores in food deserts, integrated community college/job training facilities, rooftop solar—investors can allocate funds towards projects like these that revitalize neighborhoods and promote economic growth. CDFIs or community development finance institutions can be a vital conduit for investment, connecting private capital with public/private initiatives in underserved areas.
  • Senior Living Facilities: An aging baby boom will exacerbate an already pressing shortage in senior living facilities and staffing. By 2030, one in five Americans will be 65 or older, and that percentage will continue to grow.[7] Investors can help address the need for senior living space by investing in targeted REITs, and private debt and equity funds focused on the sector.

Challenges with Impact Investing in Real Estate

When properly managed and monitored, impact investments in real estate can enable investors to meet both their financial and sustainability goals. However, there are a number of risks to consider.

  • Measuring Impact: Asset managers in the impact real estate space often struggle to quantify the social impact that their strategies generate. Even if conditions improve, it can be difficult to separate out the effect of the investment from other factors. Look for funds and strategies that set measurable key performance indicators and report regularly on progress against these goals.
  • Regulatory and Compliance Issues: Impact investment funds must comply with complex requirements for compliance and reporting, which varies by country and, in some cases, state and municipality. Experienced asset managers will be familiar with this regulatory landscape and can ensure that their funds remain in compliance.
  • Market Risks: Like all investments, real estate impact investments are affected by market and economic conditions, including interest rates, inflation, employment levels and business activity. Before you invest make sure you understand how a fund or security can be expected to perform in different market climates.
  • Due Diligence: Impact real estate is an unusually diverse investment category with funds and securities targeting many distinct kinds of impact in communities all over the United States and the world. An experienced advisor can help you by thoroughly researching opportunities and finding the ones that best match your needs and preferences.

We Can Help With Your Real Estate Impact Investing

Real estate can play a key role in any diversified investment portfolio, adding stability, steady income and protection from inflation. But it’s also a critical part of our world and our future, with a role to play in combatting climate change, poverty and social inequity. By investing in impact real estate, you can benefit from all the positive characteristics of the real estate asset class, while also creating positive social and environmental outcomes.

At Colorado Capital Management, we are deeply immersed in the complicated issues that surround real estate impact investment. We understand the players in this space, their track records, their philosophies and investment vehicles they offer—and we are committed to helping our clients find the opportunities that best fit their values and investment objectives.

Success in this space requires expertise, not just in real estate but in the sustainable strategies that surround it. That’s why our team of experts is always on hand to provide the necessary guidance, conduct thorough due diligence, and help build strategic partnerships that align with your investment goals and values.

We love helping our clients get involved with impact real estate, and we’d be delighted to help you too. Whether you’re a seasoned impact investor or just beginning to explore the possibilities, don’t hesitate to reach out. Let’s work together to create a more sustainable future for our planet while simultaneously driving value for your portfolio. Contact us today, by clicking the button below.

[1] “WHY THE BUILT ENVIRONMENT?” Architecture 2030. 2024. https://www.architecture2030.org/why-the-built-environment/

[2] “Quick Guide to Real Estate Correlation,” 37th Parallel Properties, https://37parallel.com/real-estate-correlation/

[3] REIT Industry ESG Report 2023, NAREIT. 2023. https://www.nareitphotolibrary.com/m/6c6ce61d6f6b915a/original/Nareit-REIT-Industry-ESG-Report-2023.pdf?e=1

[4] “Global green bond sales to get boost in 2024 as interest rates may fall,” S&P Global Feb 4, 2024. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/global-green-bond-sales-to-get-boost-in-2024-as-interest-rates-may-fall-80251156

[5] “Homelessness,” GAO, 2022.  https://www.architecture2030.org/why-the-built-environment/

[6] “REITs are Helping to Bridge the Gap,” NAREIT, April 13, 2021.  https://www.reit.com/news/reit-magazine/march-april-2021/reits-are-helping-bridge-gap

[7] “Older People Projected to Outnumber Children for First Time in U.S. History,” Census Bureau, March 13, 2018. https://www.census.gov/newsroom/press-releases/2018/cb18-41-population-projections.html

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Lee Strongwater, Senior Financial Advisor
Lee Strongwater
Senior Financial Advisor | + posts

An entrepreneur and world traveler, Colorado Capital Management vice president and co-owner Lee Strongwater brings a global perspective to investments and life planning.

Editor’s Note: This blog post is for informational purposes only and does not constitute financial, legal, or tax advice. Readers are encouraged to consult with a qualified professional regarding their individual circumstances. Please refer to our firm’s website for full disclosures and important information: CCM Website Disclaimer

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Jason Black, Financial Advisor (CFP)

Jason Black, CFP ®

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With a drive to live purposefully and passionately, Jason focuses on helping clients to live in abundance.

Jason is a partner and senior advisor at Colorado Capital Management.  He brings more than 15 years of varied experience working in the financial services industry. He joined CCM after a long search to find the perfect firm that aligned well with his values and mission. Jason is passionate about helping individuals and families live abundant and intentional lives. He is proud to be part of a Certified B Corporation, doing meaningful financial and investment planning for clients, while also focusing on socially responsible business practices and making a positive impact. As a Chartered SRI CounselorSM, Jason has a strong background and keen interest in sustainable investing and enjoys helping clients understand the merits of this approach. Jason is also a Certified Financial Planner™ and has a bachelor’s degree in business administration from the University of Colorado. 

Before joining CCM, Jason worked with Jackson National as a consultant for financial advisors. He helped create meaningful connections with families, creative asset allocation strategies, and tax-advantaged retirement-income solutions. During his tenure there he worked with over four thousand financial advisors across the country, was recognized multiple times as consultant of the year, and also managed a team of twenty-five individuals. 

Jason is happily married to his wife, Bridget, of thirteen years, who he met while in college at CU. Together they have a son and daughter, and a Frenchie named Coco Disco. They live in the Whisper Creek neighborhood of Arvada. When Jason is not at work, he and his  family can often be found making turns in Summit County, wakesurfing in Glendo, WY, cooking, dancing and traveling.

Erica Loughrey, Associate Financial Advisor

Erica Loughrey

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Erica is passionate about providing purposeful advice to help clients enjoy a meaningful life.

Erica is an advisor at CCM. She joined the firm in 2021, fulfilling her desire to work for a values-based company with a deep commitment to making an impact. She moved from her hometown of Anchorage, Alaska and quickly fell in love with the sunny and beautiful state of Colorado. She brought with her prior experience as a para-planner and is delighted to be engaged in a profession that empowers individuals to flourish financially. She believes strongly in exceptional client service and creating lifelong generational relationships.

In 2022, she accomplished two of her major career goals, finishing her master’s degree in financial planning (MSFP) and earning her Certified Financial Planner™ designation.

Erica enjoys spending time outdoors and traveling to exotic locales. In her free time, you can find her out skiing, hiking, scuba diving, practicing yoga or jetting off to new places to explore. She has a never-ending list of travel plans, having already visited over 20 countries, and feels lucky to have so many wonderful opportunities and adventures.

Lee Strongwater, Senior Financial Advisor

Lee Strongwater, WMS

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An entrepreneur and world traveler, Colorado Capital Management vice president and co-owner Lee Strongwater brings a global perspective to investments and life planning.

For more than 15 years, Lee has passionately assisted clients with their financial planning and portfolio management needs. He especially enjoys helping them live more meaningful lives and invest in ways that are aligned with their values. Lee holds a bachelor’s degree in political science from the University of Colorado and a master’s degree in international affairs from Columbia University. He also holds the Wealth Management Specialist (WMS) certification.

Before joining Colorado Capital Management, Lee was a managing partner at Strongwater-Schott, a fee-only investment management and financial planning firm in Denver. Prior to that, he was an entrepreneur who helped start and manage several small firms, including a children’s product company that went public in 2007.

Lee is an active volunteer for several organizations. He is a past President and current member of the Board of Directors for the Boulder Jewish Community Center, an organization that is highly respected on both a local and national level. Lee is also on the Investment Committee of Girl Rising-Global Education, a venture philanthropy fund that invests in social entrepreneurs with culturally-relevant ideas. The fund’s investments promote gender equality and improve educational outcomes for girls and boys living in poverty in Kenya and India.

Lee is married and has two daughters. He enjoys hiking, skiing, traveling—mostly to Mediterranean countries—and trying out new recipes from his journeys. When he’s not on the go you can find him engrossed in a book.

Steve Ellis, Senior Financial Advisor

Steven Ellis, CFA

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Steve Ellis has spent his career making an impact, so it’s not surprising that Colorado Capital Management’s founder and president launched the firm’s entry into impact investing.

He brings over 30 years of experience as a financial advisor to high net worth clients. His early work included teaching college courses in accounting and finance, consulting for a major accounting firm, and researching and acquiring investments as the chief due diligence officer of a leading national financial planning firm. Since 1989, he has advised individual and institutional investors on the management of their wealth. Steve is a Chartered Financial Analyst (CFA), holds a business degree from the University of Colorado, magna cum laude, and a master’s degree from Cornell University.

Steve launched the firm’s entry into impact investing in 2012 and is committed to helping build the field. Steve is a passionate speaker on the topic. He has taught about impact investing at various conferences and classes around the country, including as a past faculty member at Middlebury Institute of International Studies. He is listed in the Who’s Who in Impact Investing.

Steve is married, with two daughters, enjoys hiking, biking, skiing, tennis and bridge, and is actively involved in the community. He has served on numerous boards and committees for a wide array of nonprofit organizations, including the Boulder JCC, Rose Community Foundation, Jewish Family Service, and Friendship Bridge. His passion for impact and community service helped lead Colorado Capital Management to become a Certified B Corporation and to build a strong culture of volunteerism and philanthropy.