Earth Day Dialogues: Allison Binns & Lisa Speltz Talk Sustainability in Net Lease Real Estate

In honor of Earth Day 2022, Angelo Gordon’s Head of ESG & Sustainable Investing Strategy Allison Binns sat down with Lisa Speltz, Managing Director and Head of Asset Management for the firm’s net lease group, for a conversation about sustainability in the net lease space as well as real estate more broadly. 

Allison Binns: Hi Lisa, thanks for joining me. With Earth Day upon us, I thought this would be an excellent time to talk about sustainability in real estate and your role on that front within Angelo Gordon’s net lease strategy. When I joined Angelo Gordon last December to build out a firmwide ESG program, I was surprised and delighted to find someone with your breadth of sustainable design expertise already in-house. You’re not only a registered architect, but you also have two significant green building accreditations: the U.S. Green Building Council’s LEED Advanced Professional (LEED AP) credential with a specialty in new building and construction (BD+C). You completed the coursework and examinations for those credentials while leading the asset management team for Angelo Gordon’s net lease strategy. What made you want to pursue additional expertise in sustainable design?

Lisa Speltz: My interest in sustainability stretches back to the beginning of my career when I worked as a registered architect for Pelli Clarke & Partners (formerly Cesar Pelli and Associates). While there, I was a designer for the North Terminal at Ronald Reagan Washington National Airport, as well as a design team leader for the Canary Wharf Docklands Light Railway (DLR) station in London. Both projects required systems-level sustainable design thinking in order to maximize the efficiency with which the public moved through these key transit nodes. That fascination with sustainability in the built environment has stuck with me throughout my career, though when I joined the net lease team at Angelo Gordon in 2011, I wasn’t sure whether my asset management role would have a sustainability focus. Luckily, Gordon Whiting – the founder and portfolio manager of the firm’s net lease strategy – is a dedicated environmental conservationist and could see the increasing relevance of sustainability to real estate investment strategies. He recommended that I develop green building expertise and supported my completion of the LEED AP BD+C accreditations. Even though net lease is a challenging market for sustainability, Gordon believes that our in-house sustainability capabilities – we also have two LEED Green Associates on our team – can be a strategic differentiator for Angelo Gordon’s net lease platform.

Allison: You touched on an important point that I’d like to expand on: Net lease is one of the toughest investment strategies for ESG and sustainability, given the lack of control over how tenants are using properties. Tenants pay taxes, utilities, and maintenance on leased properties and are also responsible for environmental remediation and onsite injuries. Because of this relatively limited level of control over the property during the holding period, our ESG integration strategy in net lease has historically focused on identifying and mitigating ESG risk in the diligence phase of the investment. Despite this reality, you have established a long track record of engaging and partnering with tenants on sustainability factors post-close. How does this work and what do you see as your biggest win to date?

Lisa: In net lease, we cannot directly manage the sustainability performance of our leased properties, so we encourage resource efficiency efforts by engaging with our tenants as a very involved partner that can provide value-add service and guidance. As such, I rely on my expertise as an architect and as a LEED AP to help tenants navigate decisions and make sustainable choices. Additionally, where we can, we seek to be forward-leaning on green building initiatives. For example, we request LEED certification at the LOI stage of any build-to-suit acquisitions. In that capacity, we worked with Goodyear on the LEED Gold certification for their 640,000-square-foot build-to-suit headquarters in Akron, Ohio. We also partnered with Fresh Express to obtain LEED Silver certification of the company’s 335,000-square-foot consolidated “improve-to-suit” manufacturing facility in Chicago. Looking ahead, we are currently working with tenants to encourage solar installations and take advantage of renewable energy generation incentives.

Allison: Given your leadership on sustainability in net lease, you’ll also be playing a key role in sustainability capacity-building at the firm more broadly, as I’ve enlisted you to aid in the development of a sustainable design curriculum for Angelo Gordon’s entire real estate platform. What do you see as the most important sustainability trends in real estate moving forward?

Lisa: In the industry at large, we see resilience to climate change and greenhouse gas (GHG) emissions reduction as the two most important – and interrelated – sustainability factors. In net lease, we seek to address both of these things in our investment process. First, in an effort to improve climate resilience and respond to effects of climate change like rising sea levels and severe weather events, we work to identify and mitigate physical and environmental risks during the initial underwriting and structuring phase of a deal process via strong due diligence, protective lease language, and enhanced insurance requirements. We then seek to address emissions reductions during the holding period. More and more corporations are making decarbonization commitments, and we think the SEC’s recent proposal to make climate reporting mandatory for public companies will only accelerate that trend. We believe tenant demand for energy efficiency in leased buildings will continue long term and want to serve as a partner in our tenants’ decarbonization strategies. To reduce GHG emissions, Angelo Gordon Net Lease’s asset management team encourages tenants to track their progress toward net zero though ENERGY STAR’s free Portfolio Manager platform and partners with them in evaluating the potential for solar installations and green building certification. With all of this in mind, I expect the benefits of having sustainability expertise in net lease and the real estate space more broadly will only continue to increase as we move into the future.

Allison: Agreed! While there’s certainly more to discuss here, I think that’s all we have time for today. Thank you again for sharing your perspective, and I look forward to continuing our work together on the real estate platform’s internal sustainability education program.