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CHARITY RUBS OFF ON RETAILERS, IKEA PUTS ON ITS LANDLORD CAP, AND ISRAELIS INVEST IN THEIR PARENTS’ HOMELANDS

EU landlords, tenants face energy-efficiency mandate

European Union landlords and retailers are mulling over the potential impact of a law that will require member nations to rate buildings for energy efficiency and then furnish that information to investors and tenant candidates. The Energy Performance Building Directive is to take effect in 2009 for commercial properties. Under EPBD, all newly constructed buildings must be inspected and rated A through G, with the A-rated properties being the most efficient. Owners of existing buildings must have those properties inspected and rated before selling them or leasing space. Buildings that fail to meet basic standards will incur fines. Many attendees at April’s ICSC European Conference, in Warsaw, Poland, were only vaguely aware of the legislation, but others are already plotting a response.

“Most people aren’t aware of it, but it’s going to be a huge challenge for managers,” said Joaquim Ribiero, head of finance at Portuguese development firm Sonae Sierra. In Portugal, for instance, the responsibility to pay a fine falls on the landlord, though the tenant may be the one responsible for any excessive energy use, Ribiero says. Owners need to start adding special clauses to their leases now if they don’t want to be stuck paying those fines, he cautions. Another problem will be that each EU country will implement EPBD in its own way, which could lead to inconsistencies. Some countries are woefully unprepared, says Iain Sellers, regional operations director at Orco Group, a Czech Republic-based landlord firm. “In Hungary they have no idea how to implement it, and the U.K. has determined it will need 8,000 inspectors to implement the certificate program,” he said.

EPBD is not yet on real estate investors’ radar, because the market is riding high, says Ribiero. When cap rates stop compressing and the market for shopping centers becomes less frenzied, investors will start to factor these energy grades into the value of properties, he says. A poor grade is likely to depress a property’s value more than a high rating would raise it, he says. Retailers may well embrace the program, as it will offer them more transparency when deciding which shopping centers to lease space in, says Frank Hoendervangers, corporate social affairs officer at C&A Europe, a German retail chain. “Our costs of operations will be higher in the less efficient buildings,” he said. Even so, location, accessibility and size will still be the primary deciding factors in site selection, Hoendervangers says. EPBD even has a few executives seeing dollar signs. “We see a nice new revenue stream and the chance to become a green energy trader,” said Sellers. “We can generate green energy on-site and sell it to occupants.”

ICSC has already established the European Sustainability Working Group, a panel made up of development firm executives from the region, to investigate this and other European environmental concerns and promote environmental best practices for Europe and the rest of the globe. ICSC is also retaining a consulting firm to represent its members before European Union legislators. Such public policy work is not just a regional issue for Europe, says Ermine Amies, managing director of ICSC Europe. “With the European Union’s explicit objective of being the global leader in sustainability, policy decisions in Brussels and Strasbourg will influence regulation as far afield as California and China,” she said.

CHARITABLE MOTIVES

Smart European developers and retailers are finding ways of linking their brands to charities that appeal to activist shoppers, said a speaker at the ICSC European Conference, in Warsaw, Poland, in April. “Activism has reached the mainstream, with the media encouraging ordinary people to see themselves as activists,” said political economist Noreena Hertz, Distinguished Fellow of the Cambridge, U.K.-based Judge Institute. Environmentalism and human rights charities resonate most, said Hertz, who is currently campaigning for U.K. soccer stars to donate one day’s wages to Britain’s nurses. About 26 percent of the respondents to a British poll last year said they view shopping as a form of political expression, and 50 percent said they had boycotted products they felt to be unethical. British apparel chain Marks & Spencer says that about 75 percent of its customers want to know where and how its clothes were made, Hertz told the gathering. “People tend to believe groups like Amnesty International over corporations and even governments,” she said. Hertz collaborated with rock musician Bono on his campaign to get retailers and manufacturers to sell specially labeled products in support of global AIDS research. She said the Global AIDS Fund received $30 million in proceeds from the sales of such products during the first six months they were sold at Gap and other stores this year.

ISRAELIS FUND EASTERN EUROPE RETAIL BOOM

Bulgaria, Romania and other East European countries are among the hottest markets for retail real estate investment in the European Union. As those economies rush to catch up with their neighbors, trailblazing investors are watching their returns multiply. And many of those investors are Israeli. “A lot of Israelis have their origins in Central and Eastern Europe,” said Roy Linden, CFO of Amsterdam, Netherlands-based Plaza Centers, an arm of Israel’s Elbit Medical Imaging. “After the Holocaust a lot of people came to Israel. We have a lot of Polish Jews and Hungarian, Russian, Romanian and Czech Jews. So there are a lot of connections.” The three biggest Israeli development firms in Eastern Europe are Plaza Centers, AFI Europe, an arm of construction giant Africa Israel Investments Group, and Globe Trade Centre, a subsidiary of Kardan Group, a Tel Aviv-based investment firm. Among them they have built dozens of centers in the region.

One of the first to recognize the potential was Elbit, which, besides being a maker of magnetic resonance imaging equipment, is also one of Israel’s largest property developers. Its Plaza Centers entered the region in 1995. AFI Europe has 60 Israeli employees in the region. Most of them have close ties to the country in which they work, says David Hay, business development manager for AFI Europe. “Many Israelis who grew up in families from Romania or Bulgaria or the Czech Republic know the language because their grandparents spoke it,” he said. “They know the culture and mentality, so it is easy for them to operate in these markets.” Israeli involvement in the region is only just beginning, says Efrat Tolkowsky, academic director of the Chaim Katzman Gazit-Globe Real Estate Institute at Tel Aviv University. The first developers have started selling properties and planning projects even in regions beyond, such as India, Tolkowsky says. “Now you’ll see a second wave [of Israelis] going into Eastern Europe,” she said. “The first wave does not hold assets. Next will come people who specialize in holding assets for the long term. Israelis are not going to disappear, that’s for sure.”