Finance & Real Estate

2022-04-11 Andrea Beltratti, Alessia Bezzecchi

Sustainable Real Estate

What is sustainable real estate? Is it possible to make the formula of sustainability in real estate more concrete? When we imagine the city of the future, it is common to think of creating it starting from technology and its influence on projects and products. However, the importance of the human element in the organizational context remains the best instrument to interpret the challenges expressed by society and to exploit the opportunities granted by technology.

Demand does not become equal to supply by magic. Technology influences both, but does not create products and services by itself. Companies must estimate the demand coming from society and create the conditions for the creation of supply. Without management and its ability to manage businesses in the best manner possible, we cannot meet the challenge of sustainability, in which real estate has a prominent role.


Real Estate Sustainable Value Creation


In the REInnovation Academy C-Suite Forum,[1] sustainability in real estate was defined, recalling the 1987 United Nations Report “Our Common Future,” as a product that meets the needs of present society without compromising future needs, but at the same time as a force that must shape and at times changes the way businesses operate. The importance of technological innovation and cultural change were the two most important elements and those most present in the reflections of the Chiefs present, who noted that the challenge of sustainability is also a great and exciting opportunity to change the historic model of functioning of the entire economic system. Of those present, in responding to an I-feedback survey 37% claimed that sustainability is the main aim that leads their companies to innovate and transform, despite being aware of the costs necessary to reduce the impact of economic activities on environmental capital and to improve social capital. Avoiding a situation in which sustaining those costs has a severe impact on employment and production levels is and will be the true challenge, both immediately and in the future. However, awareness is not a necessary condition to find a remedy: the definition of sustainability referenced above (“development that meets the needs of the present without compromising the ability of future generations to meet their own needs”) dates back to 1987, but in the subsequent thirty years, according to a study by Partha Dasgupta, it was followed by a process of reduction of environmental capital quantified at 60%. What discontinuity of action can help us reverse these trends? 


Prop-tech, start-up & innovation

Technology is an enabling factor, but by itself it is not able to move bricks; it is necessary to have the capacity to exploit technical possibilities within businesses that are able to provide services. In Italy as well, we see signs of reawakening from this standpoint, given that the number of start-ups active in prop-tech has increased significantly despite the pandemic, going from 43 to 184 between 2018 and 2021, and that large companies are investing either through M&A transactions or by innovating internally or signing cooperation agreements. In prop-tech the principal areas of activity are, in order, professional services, Fintech, the sharing economy, and smart real estate. Technology impacts all of the phases of the value chain and life cycle of real estate assets, summarized in a preliminary analysis of economic feasibility, design, construction, asset & property management, and control of results, and assists sustainability through instruments such as software and algorithms, Artificial Intelligence and BIM; digitalization and sharing of databases. In more general areas, digitalization has allowed for greater appreciation of the value of real estate understood as collateral for loans (thanks to automatic valuation models-AVM), greater efficiency of the payment system also for real estate asset transactions and for loan portfolios secured by real estate on secondary markets (for example, securitization of non-performing loans). The pandemic has also accelerated the use of technology as a necessity, and at the same time has modified the needs of businesses and families. Innovation has allowed for solutions that have changed the paradigm of real estate, for example leading to personalization of residential products even before sale, guaranteeing economic benefits for the real estate operator, in terms of less risk and earlier receipt of income, and social benefits in terms of satisfaction of demand; in short, it is more sustainable. Those observations are even more interesting in light of the results of the international studies that highlight how before 2020 concerns about sustainability were not among the most important elements for investing in technology through innovation.


ESG criteria, real estate investment & financial institutions

Sustainability is increasingly relevant for investment activities in real estate. The impact of investors’ actions is potentially broader in moving towards investments characterized by higher returns and degrees of risk, including to reflect the greater range of activities that must be carried out in each sector: from the simpler activities of certification to the design of properties that places sustainability at the center, from the use of materials and production processes that respect environmental and social criteria to the design or re-design of entire neighborhoods from the viewpoint of sustainable cities. Moreover, the results of the empirical analyses of the REInnovation Lab[2] demonstrate the importance of ESG indicators and sustainability for the explanation of the heterogeneity of the prices present in different areas of Italy, an element that makes the proper evaluation of the sustainability of a property and area even more important for real estate investors. Although the environmental pressure itself (coming from final investors, funders and regulators) focuses attention on sustainability, the Chiefs present at the event noted that the changes in business organization for the implementation of sustainability must also come from the inside, for ethical reasons and due to the desire to contribute to the management of common goods. The change in the logic of investors, however, remains the main driver at this time; they no longer limit themselves to risk control and the search for returns, but they seek channeled returns that look to the needs of increasingly broad parts of society: from student housing to senior living, to affordable housing. To do this, though, it is necessary to work (in the literal sense of “working hard” given the complexity of the process) on three pillars of sustainability:

  1. refining ESG measurement models in order to incentivize international accounting organizations to increase disclosure by businesses and simultaneously reduce differences in ratings;
  2. change the behavior of families and businesses;
  3. involve the public sector, with a logic of PPP and public policy interventions in the area of green and social taxonomy.


Andrea Beltratti is a Professor in the Department of Finance of the Bocconi University, where

he teaches Economics of the Real Estate Market and Equity Portfolio Management, and

Academic Director of the Executive Master in Finance (EMF) at the SDA Bocconi School of


Alessia Bezzecchi is Associate Professor of Practice in Corporate Finance & Real Estate at the SDA Bocconi School of Management, where she is Program Director of the Executive Master in Finance (EMF) and of the Executive Program in Real Estate Finance and Real Estate (EPFIRE).

[1] The Chiefs of the main companies operating in real estate in Italy participated in the REInnovation Academy C-Suite Forum on April 6, 2022, an event organized by the REInnovation Lab of Sda Bocconi and Confindustria Assoimmobiliare. Participants included the heads of: Allianz real estate, Antirion sgr, Avalon real estate, Blue sgr, Caceis bank Italy branch, Casavo, CBRE, Confindustria Assoimmobiliare, DILS, Dovevivo, Kroll Advisory, Generali Real Estate, HOPE Sicaf Retail, Praxi, Prelios, Risanamento, Sensible capital, and Zenith Service.

ESG Real estate