Nuveen: US catching up with Europe, Australia on ESG front

The $1.2trn manager sees C-PACE financing on the rise.

Nuveen believes the US is starting to up its ESG game, drawing closer to Europe and APAC countries such as Australia that have long taken the lead. The $1.2 trillion global investment firm ranks ESG as its number-one priority and is also witnessing an uptick in the acceptance and use of C-PACE financing space – a smaller-scale strategy that is steadily growing.

“ESG is becoming a front and center topic in the US,” Carly Tripp, global chief investment officer and head of investments for Nuveen Real Estate told Real Estate Capital USA.

“US investors [are] starting to adopt more sustainable objectives and are catching up to their European and Australian counterparts,” said Tripp. “The US has accelerated because of the investor conversations. They’re asking more questions, trying to get a better understanding, as well as being realistic.”

In May 2021, Nuveen’s parent company TIAA announced its commitment to be net zero by 2050. “They have a $270 billion general account that invests in every asset class you can think of, so we’re pretty pioneering in that regard,” said Tripp.

ESG has been a big conversation on the equity side in recent months. It is now starting to bleed into real estate debt markets.

“Lenders are more dependent right now on their borrowers for those strategies, and don’t necessarily have the transparency into the information that [market players] do on the equity side,” explained Tripp. “Lenders are trying to figure out how they build out carbon objectives into their portfolios. There’s a little bit of art and science right now.  When you think of the lending community [it] is linked to a lot of big institutions like ours, it is absolutely at the top of mind.”

Trending in this space is Property Assessed Clean Energy Financing, or C-PACE financing. In February 2021, Nuveen acquired Greenworks, a Stamford-based company considered to be a pioneer in this space.

“C-PACE financing is done on a smaller scale because it’s project based, but it is steadily growing,” said Tripp. “In our office portfolios, we’re starting to look at how to collaborate with Greenworks on the lending side, and I think there’s a lot of [opportunity] for senior lenders that are looking [at] PACE financing to offer a full capital stack but in the differentiated way.”

Away from ESG, Nuveen is still seeing significant migration and reckons Texas – namely Dallas, Austin and Houston – stands out from an office perspective.

“Texans have been back in the office for a long time,” said Tripp. “All forms of real estate are incredibly strong [here], whether it’s multifamily, retail, housing, industrial – [they are all] still relatively undersupplied, so the supply demand imbalances remain.”

Nashville, the Carolinas, and Charlotte Raleigh have also seen strong migration trends, where most key property types are recovering well.

“[These places] have seen massive population growth. The segment of the populations [here] and the age cohorts want to support commercial real estate investing, so those remain really strong,” said Tripp.  “On the flip side of that, when we look at markets that have been disproportionately hit as a result of the pandemic, New York and San Francisco are clearly at the top of mind.”

Yet, Nuveen expects some windows of opportunities for investment in some of these locations where pricing is attractive.

In San Francisco, office occupancies are about 7%, the lowest across the US, noted Tripp, adding that the majority of the West Coast, particularly California, has been slower to return to a normal environment. “I think [this will change] in 2022, but fundamentally it is very weak right now,” she said.