FCP: Workforce housing, adaptive reuse, & ESG excellence ft. Summer Haltli

In this episode of The ESG Experience, hosts Helee Lev and Ryan Nelson are joined by Summer Haltli, Senior Vice President of Strategic Management & Sustainability at FCP. They discuss how FCP's adaptive reuse projects and workforce housing investments relate to ESG and dive into the ways that FCP's disciplined & strategic investment approach has created value for stakeholders while maintaining their dedication to incorporating ESG values & practices throughout their business operations.

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Read the transcript of this episode below:

Helee Lev: Hello, and welcome to The ESG Experience podcast brought to you by Goby, the ESG platform. I am Helee Lev, Goby’s Chief Revenue Officer.

Ryan Nelson: And I am Ryan Nelson, Goby’s CEO, and we’re your hosts today. Looking forward to another great discussion.

Helee: Looking forward to it. So, whether you are an ESG expert or just dipping your toes in the ESG universe to understand how it can help with engaging stakeholders, mitigating risks, and attracting investors, this podcast is for you. Together, we’ll navigate the alphabet soup of ESG, discuss ideas, review strategies, and share industry news and trends. In today’s episode, we are lucky to be joined by Summer of FCP and we’re going to discuss workforce housing, adaptive reuse, and true ESG excellence with someone who has truly achieved ESG excellence.

Summer is responsible for leading FCP with the forward-thinking focus on the organization’s strategy operations, fund management, communications, and company culture. Sustainability leadership includes implementing ESG best practices and reporting to its stakeholders. As SVP, she oversees FCP’s sustainability, D, E and I, and retention and FCP SERVES committee which we are going to dive into because that is actually super interesting. Summer is an active member of the Urban Land Institute Center for Building Performance and the National Multifamily Housing Conference. She also serves as an Advisory Board member for the annual Kayo Women In Real Estate Summit. Welcome, Summer! We are very excited to have you. Looking forward to digging in.

Summer Haltli: Thanks so much, you and Ryan; great to be here.

Ryan: Yes! I also say thank you for joining. Helee, why don’t you tell us a little bit about FCP?

Helee: I was just going to, but I wanted to make sure that Summer felt very comfortable and very welcomed, out of the gate. So now, about FCP. FCP is a privately held national real estate investment company that has invested in or financed nearly 8.3 billion in assets since its founding in 1999. FCP acquires, operates, and develops residential and commercial assets nationally. In addition, they deploy capital in residential and commercial product sectors through JV Equity, mezzanine debt, and preferred equity investments. They are currently managing four funds totaling 3.6 billion dollars in assets and there are more than 60 FCP professionals supporting the firm’s hands-on approach to investments and asset management. All right. So, here we are. We have an expert with us today who has truly achieved ESG excellence within a firm, FCP. What do we want to ask her, Ryan? What do we want to extract? The pearls of wisdom?

Ryan: Right. I will just continue again. I appreciate everything that FCP is doing and a lot of those under your direction, Summer. I’ve been familiar with FCP for a while now, working together a little bit, but doing some research and really diving in and getting to know what you’re up to has been really cool; some really great projects. I’m sure we’ll touch on a little bit today. You come from, Summer, from an asset management background and you’re now responsible for leading FCP’s ESG platform. And it’s always interesting to kind of hear and I’ve seen it in your background for quite some time now, but what drew you to ESG in the first place?

Summer: Yeah. Thanks, Ryan and thank you, Helee, for having me here. It’s going to be fun today. So, what drew me to ESG was I was actually in graduate business school during the last financial crisis and there was a lot of talk about reshaping business and so I became interested in it then. And I actually launched an ESG investment fund focused on equity with one of my classmates 10 years ago in business school. And so out of that, I ended up joining FCP shortly after business school 10 years ago. And along the way, FCP was already doing sustainability projects even before the term ESG was really well known, but that’s one thing that attracted me to FCP and along the way, just began working on initiatives on the environmental and social side as an asset manager and that grew over the years to be a fully dedicated platform.

Ryan: That’s a great story. I appreciate it. I love the idea that ESG is a discipline that we can align ourselves with and study and be kind of an industry on its own. And, of course, we’re talking about it in the scope of real estate today, but very cool.

Helee: Yeah. And I also think it’s notable, especially these days, I’m looking and interviewing people and otherwise that you’ve been with the firm for 10 years. That’s amazing. So, you’ve been there for a decade so that’s really like you’ve kind of seen like the full evolution. And, like you said, when they came in, maybe they were cutting edge and already doing these things before it was trendy to do so, but I can’t imagine just the evolution that you’ve seen and that you’ve really, as a professional, driven since joining the firm a decade ago. Even if I think of how ESG has progressed in the last decade within commercial real estate, it has just really matured. And especially now, when we talk to other sectors like private equity where they’re just starting to figure out what I think real estate was doing 10 years ago so it’s exciting to see that.

So, when we think about, I think a lot of times when we approach ESG and the rating system and the frameworks that we’re helping our customers with, like you guys, we’re talking about the whole period; the assets that you’re holding. If you think about acquisitions or you’re thinking about before you acquire property, what ESG metrics are you looking at that point? Can you tell us a bit about the process so not just the assets that you already hold, but before you guys go to acquire new ones?

Summer: Yeah, definitely. So, we look at a variety of metrics on all sides of ESG. On the environmental side, we evaluate a property. Before we purchase it, we look for any environmental hazards and conduct studies on that property. We have ESG checklists for all of our properties and we look at site risks, including any prior estate history of environmental issues.

And then we also look at opportunities before we even buy a property to evaluate for efficiency projects to implement water and energy efficiency projects. We have an in-house construction team that looks at each property very closely for those opportunities and then we also work with some consultants who help us evaluate renewable energy potential at each property. So, that’s what we look like on the environmental side.

And then on a social side, a lot of what FCP does is investing in workforce housing. That’s 50% of our portfolio. There are properties where residents earn anywhere from 50 to 100% of the area median income and so these serve America’s teachers, civil servants, essential workers. And so, we undertake a lot of initiatives on the social side to evaluate who is the resident base at our properties and provide support services for residents at our properties. And we can talk a little bit more about that when we get to FCP SERVES.

Helee: Yeah, I would love to hear. I was going to ask you; can you think of an instance where you actually passed on a potential acquisition because of an ESG-related issue or because of something that was uncovered? Or does it feel like it’s kind of more business as usual, go through the diligence checklist or has it ever really held up a deal?

Summer: Yeah. I would say there have been a few instances where there were some environmental issues that after doing more diligence on a property where we ultimately decided not to move forward with that acquisition. Some of them related to flooding issues or other environmental hazards that we just couldn’t get comfortable with. Our first step is usually to look for ways that we can mitigate the risk with our team, but if we feel like we can’t appropriately address the risk, then we will not move forward with the acquisition.

Ryan: Yeah, that’s brilliant. More and more organizations are certainly considering ESG as a section or some sort of component of due diligence. It sounds at FCP that, again, you’re maybe ahead of the curve and it’s almost more core and looked at more seriously or really part of what you’re doing. Even in the assets you’re selecting, like you said, that’s a key component so that’s really cool to hear. I got really excited reading up on some of this stuff about adaptive reuse. And probably a lot of people in the industry understand that, but probably a lot of people don’t hear that term regularly so maybe you could tell us a little bit about adaptive reuse.

Summer: Yeah. Sure, Ryan. So, adaptive reuse is the term we use for our commercial projects that basically involve converting old warehouses to hip creative office and retail spaces. These are often placemaking projects. We have done projects in Nashville, our Sylvan Supply Project, and in Atlanta, Stockyards. The Dillon was a huge placemaking project in Raleigh, very close to the train station that involved converting an old warehouse, but also adding floors on top of it for office and residential towers. So, we partnered with development partners to do this work and a lot of the transformation. I think repurposing these older buildings is really inherently sustainable. I mean instead of just coming in, tearing everything down, creating a lot of construction waste, we’re actually reusing something old. They’re usually in these kind of dilapidated city blocks. So, we come in and take something that has been dilapidated and bring new life to it and then we also, along the way, implement more efficient state of the art mechanical systems.

And so, when I think about sustainability from FCP’s ESG platform, I think like you hear a lot of talk about sustainability and the new building stock, but really 80% of the building stock in the United States is built before 2000. So, if you really want to tackle carbon emissions and get us to these climate goals, it’s really important that owners and the real estate community undertake these projects to make these older buildings a lot more efficient.

Helee: And I think too, it builds character. It makes the buildings cooler. Even you’re putting up these new towers, these glass towers, some of them are beautiful, but I’m thinking of in Chicago here, we have the Fulton River District that’s exactly that. It’s all adaptive reuse. It used to be like a meat packaging district. So, it’s all now these cool storage buildings that are like cool offices and it just has so much flavor and character in addition to your point of it being more sustainable because you’re kind of keeping what’s there and improving what’s there versus building new and kind of reviving these dilapidated city blocks which is super cool.

So, speaking of adding value, it says here in the past five years that you have created 54.7
million dollars in value specifically through environmental sustainability. So, one thing that I find in my comings and goings is a lot of people will say ESG is great, all things equal as long as it’s not cutting into profits or no one would necessarily like pay a higher rent or something, albeit, but people I think have a hard time, what I’m trying to say is, quantifying the actual value around ESG or actually converting it to a meaningful monetary sum that’s directly tied or attributed to ESG. So, how do you guys look at that or how are you quantifying that 54.7 million in value as a result of ESG?

Summer: Yeah, sure. So, the way we quantify it is, well this 54.7 million really represents doing 126 projects, efficiency projects, across a portfolio of 129 assets. So, you can see that we’re essentially doing projects on almost every property we purchase. And the way we quantify it is by talking the energy savings. And actually, we use Goby to help us track utility consumption, but we track the savings and then we apply a cap rate to that savings because when you can reduce the expense line item of the property, you’re improving the operating income and that’s adding value when the next buyer comes to purchase the property. Some of these projects include LED lighting, HVAC replacements, a lot of exterior building upgrades. And then on the water side, we implement a lot of low-flow devices. And so it’s a win-win because we’re not only adding value to the building and to the income statement, we’re actually reducing expenses for our residents and tenants as well.

Helee: That’s awesome.

Ryan: Yeah. Another thing I love about ESG is telling a story and kind of all ships rise with the tide sort of thing and a lot of coopetition, if you will, goes on, people sharing so that other firms can do better too. I think that’s really good. There was a lot of humble approach to it I think for a while and so we’re trying to help encourage people to tell their story. It’s like, “Well, I want to be humble about it,” but you have to tell your story. People are interested in it and we learn from each other. It makes the whole system better and one way to do that are the Corporate Social Responsibility reports. I really enjoyed reading yours, the one that was released in June of last year right at the peak of the pandemic and it was a great report. It’s great to hear some of the things, see the metrics behind some of the things you were just explaining and to see examples of those projects and what they’ve done. So, love the CSR report; well done on that. I’m going to read a quote from it, from your team: “Through our management of residential and commercial properties, we are in a unique position to make a positive impact on numerous lives.” Yes, it’s kind of like with great power comes great responsibility. Maybe could you tell us a little bit more about what’s behind that quote and things that you’re particularly proud of?

Summer: Yeah. Thanks, Ryan. Great that you read the report there on our website and we actually have our next one coming out in June, so we’re excited to share that with everybody. But with regard to that quote, we recognize that we’re a multifamily owner of thousands of apartments and really what that means is we provide homes for thousands of people, and we take that role really seriously. And as I mentioned, our workforce housing portfolio does serve America’s essential workers like teachers, grocery store workers, civil servants. So being a responsible owner, we focus on supporting children in education in our communities. And I think we’ve seen with this COVID-19 pandemic, I mean it has brought to light so many challenges for so many people. So, our FCP team members really rallied, and we coordinated with multiple non-profit organizations to deliver food to our residents. We also continued our programming. We have after school programs at some of our properties and we continued with that programming virtually. We created resource guides to help our residents navigate this confusing network of support services. And as a company, we came together to personally donate to COVID-19 relief through an internal fundraiser. And our team through the FCP SERVES, the charitable part of our organization and other affiliates, we have contributed over 675,000 meals to the broader community. So, really our team just, we recognized that we can affect numerous lives and we really wanted to come together during this pandemic to help people during this situation.

Helee: That’s awesome. And I think above and beyond the kind of business-as-usual thing that you’re talking about, that’s just core to the kind of business that you guys are and the types of properties that you have and the types of residents that you have. In addition, you have this FCP SERVES now, and it sounded like, from what we read, that it was kind of new with regards to the pandemic. Do you want to tell us more about that? I thought that was a pretty admirable and exciting thing like if you guys would put out there. That’s a really meaningful and tangible, above and beyond as a result of what’s happened over the past year.

Summer: Yeah. Thanks, Helee. Our FCP SERVES, we’ve had an FCP SERVES committee I think for about six years now so it’s something that we have been doing for a while. It’s basically our community volunteering and charitable giving program and it’s a group of team members from all different groups within FCP and we come together to meet to plan volunteer activities such as bill days or we have toy drives and we even volunteer to help renovate local schools, things of that nature. And every year, we host an “Empower for School” campaign where we donate backpacks and school supplies to the children at our communities. So, I think in terms of FCP SERVES, it has been a part of our culture, but really with this pandemic, the committee came together and held a lot more events and really came together to even do more. And I would say I’m really proud of that effort of our team.

Helee: I love that. I wish I was local, and I would invite myself to tag along. Because one of the things, I think you have little kids too, but with my little kids, I’m trying to instill this sense of volunteering in them early, right? I want to take them to actually do stuff that’s not the same as just give money. They don’t understand giving money. You need to have the experience of actually going and I found that during the pandemic, it’s almost impossible to find those kinds of things. You can’t go to a nursing home and sing and draw pictures for them the way that you used to or things that I did when I was a kid. Do you guys include like your employees’ families as well or is just kind of for the employees themselves?

Summer: Yeah. I would say pre-COVID, we have events every year where employees and their families can come out, and I’ve brought my children and it’s a great way to showcase the value of volunteering.

Ryan: Well, great. I think just one more question we wanted to get to and then of course you can share anything else that you’d like to. It sounds like, what I’m gathering is, ESG and diversity and inclusion and these things are very core to FCP and seems to be successfully part of the culture there. And then, additionally, as you just told us about, you have FCP SERVES to really make sure that you’re contributing and that you have a dedicated program so that’s incredible.

One of the things that I picked up on in your CSR report were your employee retention rates, talking about your own leadership and your team and the growth that you’ve had. You have retention rates that are significantly higher than the average at 95% over an average of 82% which is even pretty high depending on how you segment firms. I think there are a lot of organizations that would love a few tips on how to improve employee retention especially as we’re getting into maybe a more competitive market from that perspective. So, if you’d like to share, please do?

Summer: Yeah. Thanks, Ryan. I have given this some thought, and I would say that we have a really collaborative and open culture. One thing that’s really unique about FCP is that every team member is related to an investment committee, and I have never heard that in any other organization. And so, even our most junior team members can come, can ask questions. We invite feedback and it’s a wonderful training ground especially for all of our junior staff. Over the past few years, we’ve really taken an effort. We hired an expert Diversity and Inclusion consultant two years ago to come in and to help us redo our recruiting and talent management practices. It has really standardized our processes and that has helped a lot and I think our team members are really happy with the work that has been done in that area. And overall, I would just say that our team members are really passionate about real estate, they’re passionate about the projects that they pursue and no matter what level they are, they have a voice within the firm which I think makes people feel a part of a team and we see good morale. We’re about 61 people now, but we still have this entrepreneurial spirit where like if you have an idea and you want to try something at a property, you’re welcome to try it and bring it to the table to see if it works.

Summer: So, that’s what’s really fun. That’s what keeps me energized and we don’t really take ourselves that seriously. I will say that we have some holiday party lip-sync battles with some face costumes so that’s always a funny time and...

Helee: And that translates to Zoom even. Like that translates to Zoom. You don’t even have to rethink that.

Summer: Yeah. It was all done online last year. We had to submit our videos so they’re out there online somewhere, but yeah. It’s just a really fun group of people to work with, and I’m super excited to see all the new projects we have coming up this year and over the next few years.

Ryan: Well, that’s great. I really appreciate that insight and those tips that sharing and being transparent about having people in those investor meetings and those kinds of things. I know it’s tough to figure out that balance because you want to share information, but you want to allow people their own time to be productive, but you want to share. So, it’s great to just draw a line and make some very specific things that allow that kind of entrepreneurism and those things to happen so that’s really cool. And as you grow, I’ve seen it many times, as companies grow, it’s kind of hard to maintain a good culture, but by measuring it, being thoughtful about it, the things you’re doing, it seems like you’re going to have success as you grow and still maintaining a great culture over there and hopefully keep that retention number in the 95s. That’s excellent.

Helee: So, Ryan’s takeaway is inviting them to the bigger meetings and giving visibility. My takeaway is lip-syncing contests.

Ryan: Lip-syncing, yes. Anything else, Helee or Summer?

Helee: Nothing else by me. Thanks again for joining us. It was fun to learn. Even though you guys have been a customer for years, I felt like I learned new things today from you so yeah. Appreciate it and thank you to our tens of thousands of listeners for joining us on The ESG Experience podcast. We appreciate your loyalty. Look forward to our next episode and make sure you tune in. Follow us on your favorite social media channel at #esgexperience and yeah. We appreciate you supporting our podcast and we’ll catch you next time. Have a good one.