August 2025 Newsletter

Happy Summer!

We are back in the Lower 48 after a wonderful visit in Alaska.

August in Alaska is a season of contrasts: daylight still stretches long into the evening, yet the first signs of autumn are already here.

Salmon runs bring rivers alive (the Cook Inlet sockeye salmon run this year is record setting) while construction crews rush to finish projects before the frost. It is a reminder that timing and adaptation matter, whether in nature or in capital markets. Frontier mentality, anyone?

One of the best parts of writing this newsletter is hearing from you.

Your stories and reflections make these conversations richer and remind me that this is not a broadcast but an exchange of ideas.

Thank you for reading and if you have any questions, feedback, or comments, please reach out.

Markets Are Pricing Sustainability. Who Is Listening?

Two major reports released this year shed light on the future of capital allocation and sustainability. Together, they provide a powerful picture of the future access to capital for real estate investors and managers.

The first is MSCI’s Financial Materiality of Sustainability Risk in Credit Markets: A Decade of Evidence. This is one of the most comprehensive studies to date of how sustainability risk has been reflected in global bond markets. Evaluating data from January 2015 through December 2024, it covers investment grade and high-yield issuers across regions, sectors, and maturities.

The second is ShareAction’s Voting Matters 2024. This report examines how the world’s largest asset managers, who invest money on behalf of pension funds, insurance companies, and other clients, voted on shareholder resolutions related to climate, social, and governance issues during the 2024 proxy season. ShareAction analyzed 279 resolutions and reviewed the policies and practices of the 70 largest managers representing trillions in assets under management.

Individually, each report is important. Together, they tell a story of divergence that is hard to ignore.

What the MSCI Research Found

The MSCI study is clear: sustainability risk is financially material in credit markets. Over a ten-year period, issuers with higher MSCI ESG ratings consistently outperformed their lower-rated peers on measures that are material to credit investors.

A central focus of the analysis was to validating the three economic transmission channels through which sustainability affects performance: cash flow, systematic risk, and idiosyncratic risk.

1. Cash flow channel

• Question: “Were issuers with high MSCI ESG Ratings more competitive (better at revenue generation) and more profitable?”
• Finding: Yes, high-ESG issuers exhibited stronger profitability, better interest coverage, and lower leverage ratios. These fundamentals translated directly into stronger credit profiles and financial resilience.

2. Systematic risk channel

• Question: “Did bonds of issuers with higher ESG Ratings display lower systematic risk?”
• Finding: Yes, high-ESG issuers showed lower exposure to broad market volatility, especially for long-duration bonds where stability matters most to investors.

3. Idiosyncratic risk channel

• Question: “Did companies with higher ESG Ratings exhibit better risk-management capabilities, preventing involvement in negative incidents?”
• Finding: Yes, high-ESG issuers faced fewer controversies and lower issuer-specific risk, underscoring the role of governance and risk management in credit resilience.

Another focus for the analysis was to understand the performance attribution when controlling for traditional drivers such as credit quality, duration, and liquidity. After adjusting for these standard credit factors, ESG ratings carried distinct explanatory power. Put simply, sustainability signals something about resilience that credit ratings alone do not capture.

For investors, the evidence is decisive: sustainability is not a reputational preference. It is a financial reality, already embedded in credit markets.

What ShareAction Found

If MSCI confirms that sustainability risk is priced in, ShareAction provides a reality check: many of the largest stewards of capital are not acting on this knowledge.

Key findings from Voting Matters 2024 include:

• In 2024, only four (1.4%) of the 279 climate, governance, and social resolutions assessed received majority support, a drop from 3.0% in 2023 and a precipitous fall from 21% in 2021. This signals a retreat from risk and accountability just as financial evidence is strongest.
• The four largest firms, representing $23 trillion in assets under management (BlackRock, Vanguard, Fidelity Investment, and State Street) exert outsized influence. In 2024, they voted for the fewest shareholder resolutions on record.
• There were 48 additional resolutions that would have passed if these four asset managers had voted in favor of them. These resolutions covered issues such as climate targets, human rights, discrimination, and lobbying payments.
• Even for resolutions directly tied to risk oversight or disclosures, managers often declined to support them. Notably, 75% of proposals ask for greater disclosure.
• Regional patterns diverged. From 2021 to 2024, the 36 European and UK managers tracked increased their average support for climate, governance, and social resolutions from 68% to 82%. Over the same period, the 13 US managers tracked declined from 40% support to 19%.

ShareAction concludes that by voting against climate accountability, large asset managers may be exposing their clients to unmanaged systemic risk. In other words, they are not aligning their stewardship practices with the financial realities that MSCI and others have now documented.

The Disconnect and the Lesson

Together, these two reports reveal a striking disconnect. On one hand, credit markets are already rewarding sustainability and penalizing unsustainable practices. Yet, many of the largest asset managers are voting against climate action, effectively ignoring the risks priced in by credit markets.

This gap represents both a challenge and an opportunity. The challenge is clear: too many managers lag behind the financial evidence. The opportunity lies in closing that gap.

How to Access the Opportunity

For real estate investors and operators, the path forward is not about compliance for its own sake. It is about using the financial evidence and stewardship lessons into long-term value.

1. Strengthen balance sheets with better credit profiles

The MSCI data shows that issuers with stronger ESG practices achieve better outcomes in credit markets. For real estate, this means improved access to debt, lower spreads, and more resilient financing. Embedding sustainability and resilience into strategy directly strengthens balance sheets and financial performance.

2. Differentiate through transparency

ShareAction’s findings highlight a widespread failure to support sustainability in voting. This leaves space for leaders to stand out. Real estate investors who commit to clear targets, set measurable milestones, and disclose outcomes with credibility will become more attractive to capital allocators who prioritize risk-adjusted opportunities.

4. Create value through stewardship

Voting and engagement are levers for shaping healthier markets. ShareAction shows that too few investors are using this influence. By supporting accountability and alignment on climate and governance, real estate investors can reduce systemic risks while increasing resilience across their portfolios.

5. Treat sustainability as a driver of fundamentals

Both reports suggest that the future belongs to those who view positive sustainability outcomes as integral to underwriting, asset management, and portfolio strategy. The firms that see sustainability as value creation, rather than a box to check, will build more durable advantage.

The Bottom Line

The evidence is clear. MSCI demonstrates that sustainability risk is financially material and already reflected in credit markets. ShareAction shows that many of the largest asset managers are not yet aligning their actions with this reality.

The leaders in real estate will be those who close that gap. By embedding sustainability outcomes into strategy, differentiating through transparency, and using influence wisely, investors and operators can seize a powerful opportunity.

This is not about compliance or public relations. It is about resilience and risk management, access to capital, and competitive advantage. The credit markets have already priced sustainability risk.

The question is who is listening and will step forward to act on that knowledge.

What We Are Sharing

Join me in geeking out on CRE investment leasing strategy by digging into the "Abundance Premium."

What is the Abundance Premium? ​
It is the phenomenon where office lease sizes that are more prevalent in a market command higher rents.

Why does this matter?
​Because delivering what the market wants is how real estate asset management teams meet the market demand, negotiate from a position of strength, and deliver value.

How do asset management teams use this principle?

They effectively create value when they:

• Understand the average, median, and most common lease sizes in each submarket and market.
• Deliver spec suites that match the most prevalent lease sizes.
• Design floor plates in new developments that align with market demand for multiple, full floor users along with the smaller users.
• Build in flexibility so that demising walls can shift to accommodate that inevitable additional exterior office or conference room needed to land the lease.

On the ground: For a coming three-floor vacancy of 100k sf, one strategy is to land the optimal, largest sf lease possible and design spec suites around a shared amenity space for the remaining space. If the most common lease size in the market is 5,000 - 7,000 sf, best in class CRE asset management teams design the spec suites with flexibility in order to fit that user demand.

I enjoyed The Real Estate Haystack's outline of the specifics from a recent white paper on this topic:

• Office markets are not monolithic as lease sizes create distinct supply-demand pools.
• When a lease size band is abundant, landlords achieve higher rents: +$0.15 psf per month on average; up to $0.22 psf in NYC and DC.
• Larger leases and buildings amplify the effect because they are harder (and riskier) to repurpose.

Yes, while this white paper reflects 2010–2019 data, the principle remains highly relevant today: track lease sizes in your market, use that intelligence to sharpen positioning, and capture pricing power.

The takeaway: Investors and managers who slice markets by lease-size distribution uncover overlooked value and optimize performance, even amid structural shifts.

Over to you.

• Feel free to share the lease-size market dynamics that your team has used to inform your leasing strategies.
• Are there instances where it is easier when the prevalent lease size is larger? or smaller?

​Office Space Segmentation and the Abundance Premium, Xue Xiao, Liang Peng, 25 Jan 2025

Always appreciate real life examples of agile problem solving.

Walmart’s latest AI move is a great reminder that agile is not just a buzzword.

• They started by rolling out a bunch of AI tools, each tackling a specific problem.
• It worked… to a point.
• Then came the complexity, too many tools, too many handoffs.
• So they hit pause, looked at what was and was not working, and reorganized into a simpler, stronger system.

That is agile in action: try things, learn quickly, make it better.

The lesson I take away is not to “get it perfect on the first try.” It is to “keep adjusting until it works in the real world.”

​What can a compostable designer sneaker teach us about commercial real estate?

A lot, actually.

Stella McCartney’s plant-based, compostable, designer sneakers are more than fashion. They reflect a consumer mindset that is reshaping expectations not just for products but for places. Educated, conscious consumers expect the spaces they occupy to reflect their values. And they are willing to pay for it.

So what does that mean for CRE?

1. Design with intention = higher asset value.
   Every stitch of that sneaker was selected with purpose. Buildings should follow suit. Choosing low-carbon, health-certified materials and integrated smart systems not only aligns with sustainability but also boosts occupancy rates, tenant satisfaction, and long-term NOI. Investors (and customers) reward intentionality.
2. Communicate sustainability as a feature = pricing premium.
   Stella’s shoes do not hide their sustainability, they wear it proudly. Buildings should do the same. Visible ESG metrics, green certifications, and tenant-facing dashboards translate to stronger leasing velocity and asset differentiation in crowded markets.
3. Speak the language of values = better tenant retention.
   Tenants, especially large corporates, are aligning their real estate decisions through ESG+R lenses. A building that supports their values is a building they are more likely to stay in longer and pay more for. Alignment builds loyalty. That increases retention and valuations.

Bottom line: Learn how a designer sneaker delivers performance, circularity, and brand alignment to the customer and charges a premium for it, so that you can apply it to your real estate portfolio.

Your building is more than square footage. It is a platform for your tenants’ values. Design, communicate, and operate accordingly.

🪑🪑 The Two Chairs Rule.

​Leadership Through Stakeholder Perspective.

I read a recent article where Starbucks’ Howard Schultz shared that he kept two empty chairs in every meeting, one for their people and one for their customers.

Why? To keep their voices present at the decision-making table.

In CRE, this principle applies now more than ever as we navigate:

💸 Tight capital markets and liquidity constraints (interest rates, anyone?)
👷 A workforce skills cliff and reskilling imperative (cough, AI, cough)
🏢 Evolving tenant and customer space needs (hybrid is the present and future)
🌱 Rising sustainability requirements from investors, customers, and regulators (table stakes to protect the exit value)

Real resiliency starts with asking:

🔍 Whose needs are we solving for?
🔍 Whose priorities shape our response?

In every strategic conversation, are those voices invited into the room or just spoken in abstract?

Pull up those two chairs. Listen before you act.

Then build the systems, investments, and teams that meet the future head on.

​Which chairs are empty at your table?​

Howard Schultz’s two-chair approach is about perspective and stakeholder leadership.

We can take this deeper and ask:

What do the empty chairs around your table reveal about the gaps in your team’s decision-making and problem-solving capabilities?

In CRE today, the challenges we face are multidimensional and consequential:

💸 Capital market liquidity is tight
👥 Talent pipelines are strained by hiring gaps and skill mismatches
📦 Tenants and customers demand more flexibility, performance, and impact
🌍 Sustainability is no longer optional, it is expected by investors, regulators and the public.

To uncover both risks and opportunities, ask yourself and your team:

🔍 Who is helping us scenario-plan liquidity under stress?
🔧 Who is designing a workforce pipeline for emerging needs?
🎯 Who is translating customer experience into investment strategy?
🌱 Who is guiding the sustainability roadmap to create long-term value?

When we cannot identify who is in each seat, the key gaps are revealed.

🌲Every empty chair means lost potential.
🌲Completing your seating chart means building true resilience.

​The Two Chairs Rule is more than a symbol. It is a strategic discipline.​

Adding a chair for your employee and a chair for your customer is not just about listening.

It is about translating their needs into how you operate, invest, and lead.

So ask yourself:

• Are your capital allocation decisions meeting today's liquidity constraints and tomorrow's resilience goals?
• Do your workforce development plans reflect the actual skills needed for technology (including AI) deployment and operational excellence?
• Are your customers' voices influencing portfolio strategy, asset performance goals, or amenity investments?

The empty chair shows you where the stakeholder sits.
Your actions show whether they matter.

If the chair is there but ignored, it is just furniture.
If the voice is heard but not translated into outcomes, it is just optics.

Build the feedback loop. Close the gap. Make each chair count.

What We Are Reading

✨ Noahpinion, Will data centers crash the economy? Noah Smith, 2 Aug 2025 – valuable perspective on how private credit (debt) is funding the extreme level of investment (spending) in data centers.

✨ AFIRE, Podcast 2025.13: Averting Polycrisis with Dr. Michael Neiberg 13 Aug 2025 – viewing the intersection of geopolitical and economic forces through a historical lens.

✨ Who is Government? A Series of Opinions, Washington Post, Sept 2024; also published as a book: Who is Government? The Untold Story of Public Service, Michael Lewis – gripping stories from the people on the frontlines of public service.

✨ The Alice Network, Kate Quinn – riveting story about the women who made up the real life spy network during WWI.

✨ The Nightingale, Kristin Hannah – fast paced read telling the story of the women who led the Resistance in France during WWII.

Where We Can Catch Up

✨ MCPS Boundary Study Presentations

✨ CREBA Annual Meeting, 27 Aug

✨ CRE Diversity Equity and Inclusion Advisory Board speaker: Sandy Paik, Tower Companies, 11 Sept

✨ Inspiration @ Intersection of Real Estate + Tech Dinner

✨ Feroce webinar: The Realities of AI and CRE Asset Management

✨ Feroce AMA: President to President Chat

✨ Girl Scouts Nation's Capital Camp CEO, 3-5 Oct

✨ NexusCon 2025, Denver, 6-8 Oct

About Feroce Real Estate Advisors

Feroce Real Estate Advisors works with forward-thinking real estate companies to leverage change and build value at the intersection of real estate investment, sustainability, and technology. We guide clients through complex challenges, positioning their real estate and teams for success in a rapidly changing world.

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Our work usually falls into one of these categories:

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• Fractional executive roles serving as head of asset management or portfolio management for growing real estate investment management companies.
• Provide high value strategic advisory services with a focus on delivering investment performance measured by risk-adjusted returns and organizational priorities.
• Advisory board roles with proptech organizations focused on high ROI solutions in renewables, decarbonization, cleantech, and operational improvement.

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Please reach out to connect:

• Book a discovery call with us.
• ​Invite us to speak at your event.
• ​Email us to share your strategy or execution need.

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All the best,

Mandi