Chris Gorman
Head of Real Estate Portfolio Management
A mortgage lending portfolio focused on positive social and environmental impact can help investors achieve impact goals while securing an attractive income stream.
Most institutional investors are familiar with real estate ESG equity investments, and many are active in ESG investing. What’s less well known is that real estate loans can have a strong impact on communities while providing the potential for high, attractive income streams and competitive risk-adjusted returns. Importantly, the benefits of real estate impact investing can be measured and reported.
Affordable housing can be a cornerstone of real estate impact investing
As rents rise in response to higher construction costs and scarce supply, affordable shelter is becoming increasingly critical to supporting a healthy community. Real estate impact investments can specifically include loans for low- to moderate-income housing. Importantly, these loans often include a renovation component, providing property owners with the capital to modernize residences while keeping rents affordable. Fitting outdated homes with new kitchens, bathrooms, appliances and amenities creates a more sustainable community and a better standard of living.
For example, the Voya Commercial Mortgage Loans group recently provided an $11 million loan on a multi-tenant property in Augusta, Georgia — a city that has suffered a 50% rise in homelessness since 2018.1 In a 2020 city survey, 48% of the city’s homebuyers and 60% of its renters cited affordable housing as a “very large need.”2 The capital will be used to renovate every unit in the 38-year-old building with new flooring, cabinets and lighting, along with improvements to the fitness center, security and landscaping. Yet monthly rents will remain around $1,100 — an 11% discount to the maximum threshold to maintain affordability in the area, based on the government-sponsored agencies’ test for affordable housing.
Real estate impact investing can help the environment
Technological advances in energy-efficient building systems, updated building codes and the use of sustainable materials have paved the way for developers to reduce real estate carbon emissions. By providing construction loans that support environmental best practices, lenders can play an active role in driving progress.
Opportunities to reduce greenhouse gas emissions aren’t limited to new construction projects. It’s often possible to retrofit existing buildings by replacing outdated heating and cooling systems, inefficient lighting and other outdated materials to improve the building’s energy efficiency. Furthermore, the government-sponsored CPACE (commercial property-assessed clean energy) program helps facilitate projects that retrofit existing buildings with energy-efficient improvements, creating investment opportunities in commercial mortgage lending.
We believe it is possible to invest profitably in real estate debt while making a tangible, lasting impact on communities and the environment.
Impact investing is measurable, transparent and accountable to all investors
As stewards of capital, our focus at Voya IM is selecting investments with favorable risk/reward potential. Our impact investments also consider a portfolio’s social and environmental impact, and we are committed to measuring and reporting on the characteristics of the underlying loans.
Voya’s real estate team goes to great lengths to ensure the success of impact investments and has built a comprehensive framework with three main goals:
Through this process, we believe it is possible to invest profitably while making a tangible and lasting impact on communities. Real estate lending can be an effective way to diversify impact-focused portfolios while also observing disciplined underwriting and competitive return standards.