Operations
few years as a priority, companies that embraced deregulation could find themselves behind the tech curve and unable to meet long-term emissions targets. Smart investors should weigh the possibility of short-term efficiency gains against the big picture. COSTS COULD GO UP Along with a push for deregulation, the Trump administration has proposed tariffs on imports. Depending on which goods those tariffs will apply to, properties could see anything from construction
to sustainability are extremely valuable. But even at the industry’s highest levels, many companies aren’t taking full advantage of them. According to the Deloitte survey, fewer than a third (32%) of major commercial real estate companies had programs to fully take advantage of sustainability incentives and credits. Investors looking for an edge should look into the “carrots,” such as which credits and incentives offer the best return on investment, who’s taking full advantage of tax credits, and how properties can be financed or upgraded with local, state, and national sustainability tax incentives. SUSTAINABILITY AND RISK When you think about sustainability regulations and risk, the relationship works on two levels. The first level is physical, climate-related risk from events like wildfires or hurricanes or long-term shifts like extreme warming or sea level rise. Sustainability is often a proxy for this kind of risk, which many analysts believe still hasn’t been fully incorporated into real estate valuations. Any investor who can accurately assess these risks is already ahead of much of the market. The second kind of risk is transitional risk. As the real estate industry continues its transition to sustainability, slow movers risk falling behind and sustaining damage not only to their bottom lines but to their reputations and market shares. Although this risk is more challenging to assess than the risk of a flood or fire, it still offers a significant advantage to investors who can calculate it correctly. SUSTAINABILITY TECH Many technological advances developed in response to sustainability
initiatives also offer broader quality-of-life improvements that even skeptics can appreciate. Tenants and owners widely appreciate smart building tech that automates energy efficiency and management. Integrating systems such as alarms, lighting, and heating and cooling into a single central network increases not only cost savings but also convenience. Smart real estate stakeholders are embracing consumption-tracking smart tech. Innovations like occupancy sensors or daylight sensors automatically reduce consumption by turning off systems when they’re not needed and newer, more responsive HVAC systems consume less water and electricity. Low-power LED lighting and sensitive smart thermostats can also lead to big sustainability gains—and big savings.
to renovation to simple operation and management costs increase.
Is Now the Time to Embrace Sustainability? POTENTIAL DEREGULATION, CHANGING TAX INCENTIVES, AND TARIFFS PUT A QUESTION MARK ON WHETHER IT’S BETTER TO PLOW AHEAD OR WAIT FOR THE DUST TO SETTLE.
Tariffs may also have broader knock-on effects. The inflationary price increases of the past few years led to macroeconomic policies that dramatically impacted every sector of the real estate market. Some experts believe tariff-related cost increases could be similarly impactful. Could a wider market slowdown push the smart money to areas where the rent-to-income ratio is more favorable? Will interest rates continue to trend downward? Will housing demand continue to far outstrip supply? Will homeownership remain out of reach for the majority of Americans? These are all questions investors should ponder. IDENTIFY ADVANTAGES Right now, the sustainability ecosystem is made up of “carrots” (financial and tax incentives) and “sticks” (regulations and penalties). Many investors tend to concentrate too much on the downsides— the “sticks”—and not enough on the potential benefits, or “carrots.” Considered together, the many tax credits, deductions, and incentives connected
LUKE BABICH
LUKE BABICH
W e’re in an uncertain moment when it comes to sustainability regulations in real estate. On the one hand, most sectors of the industry have been pursuing sustainability for years, often with positive results. On the other hand, the incoming Trump administration has signaled that deregulation in the construction and real estate industries is a top priority. So, where does that leave real estate investors? Many won’t have to change course much. According to a 2024 survey by consulting firm Deloitte, almost 60% of global real estate CFOs said their companies “didn’t
WILL THE INDUSTRY STAY THE COURSE? During the past decade, the real estate industry has largely accepted
have the data, processes, or internal controls they need to comply with current environmental regulations.” For real estate investors on the street, sustainability seems like a more remote consideration than figuring out how to be a landlord or finding a good low-commission real estate agent to partner with. However, understanding how the industry may (or may not) adapt to evolving sustainability demands can give investors valuable insight into the future of their portfolios. Let’s touch on some of the most critical regulatory questions for savvy investors.
Luke Babich is the co-founder of Clever Real Estate, a real estate education platform committed to helping homebuyers, sellers, and investors make smarter financial decisions. Babich is a licensed real estate agent in the state of Missouri. His research and insights have been featured on BiggerPockets, Inman, the Los Angeles Times, and other online and media outlets. Babich earned a bachelor’s degree in political science, with honors, from Stanford University.
decarbonization, embracing measures like renewable energy sources and storage, data collection, and smart building technology to gradually reduce carbon footprints. However, if the anticipated deregulation push happens, some companies may suspend or cancel those efforts. Although such moves could lead to short-term gains, whether or not it’s a good long-term strategy remains to be seen. If sustainability reemerges in a
46 | think realty magazine :: january - february 2025
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