An Interview with Nick Sinatra, Founder and CEO of Sinatra & Company Real Estate
What is ESG?
You may have heard the term “ESG” in the context of your business recently, as it has gained significant popularity over the past few years. But what exactly is ESG?
According to the CPA Journal, “Environmental, Social and Governance (ESG) comprises the manner in which a company manages its impact on the environment, treats society/stakeholders, and conducts its business—in other words, how it governs itself.”
While there are many governing boards globally that are starting to propose and implement various ESG standards, there are still no universally adopted standards for how companies can measure and report their sustainability performance.
Given both the increased popularity and confusion around this topic, our own Nancy Cox, Partner at The Bonadio Group, sat down with Nick Sinatra, Founder and CEO of Sinatra & Company Real Estate, a real estate investment development and management firm focused on investing in value-add real estate opportunities, to take a further look into what ESG is, and how it specifically applies to the real estate sector.
How Does ESG Apply to The Real Estate Sector?
The application of ESG to the real estate sector is wide-ranging. Nick explained, “at its core, the real estate sector is building buildings and homes out of the ground—you literally touch the earth. There is an environmental impact right away. This has been going on for decades in terms of making sure the environmental impact of the project meets the local code.”
However, over the last 20 to 30 years, it has evolved to be more than just that. Nick furthered, “the development we do these days is actually cleaning up the negative environmental impacts of old real estate projects or companies.”
One area where ESG has already been integrated into the real estate sector is through cleanup programs. For example, one of the cleanup programs that Sinatra & Company has used successfully over the past decade is the Brownfield Cleanup Program in New York State (NYS). The NYS Brownfield Cleanup Program incentivizes the cleanup and redevelopment of eligible contaminated properties. The incentive encourages cleanup and redevelopment of brownfields by allowing taxpayers to reduce their taxable income by the cost of eligible cleanup expenses in the year they are incurred. The credit is for between 22% - 50% of qualified remediation project costs and/or 10% - 22% of eligible construction costs. The credit % varies based on the version of the program that the project qualifies for and the level of contamination. The credit can be claimed for various time lengths depending on credit component (site, tangible groundwater for NY) following the issuance of a Certificate of Completion by the NYS Department of Environmental Conservation.
“This program takes tax credits and uses them to incentivize developers like us to take brownfield sites and make them greenfield sites and then build something cleaner and more desirable on top of them,” shared Nick.
Other ways that ESG has and will continue to apply to the real estate sector relate to:
- Government regulations: Laws such as the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act will have an impact on the development community. For example, with the IRA, developers will be able to offset higher building costs with a variety of tax incentives as long as they create energy-efficient buildings.
- Institutional investors: Investors globally have been placing importance on ESG, as demonstrated through the creation of the Global Real Estate Sustainability Benchmark (GRESB) – which is a benchmark investors can use to measure their portfolios against industry standards.
Will Individual Investors Find an Importance with ESG in the US?
While Nick has seen more and more individual investors placing importance on ESG, he believes that the natural progression is to have governments respond first. “If the public is prioritizing this, then governments will respond to it,” said Nick.
He continues, “the progression for this will be government first because the government forces the lenders to think more about it through regulation. Once the lenders are doing it, then you see investors start teaming up with more sustainability focused developers.”
Given that the real estate industry is a very slow-moving industry in many respects, Nick believes that this progression will take time.
How is Sinatra & Company Implementing ESG?
Sinatra & Company has been ahead of the curve in terms of ESG. They have been working on environmental cleanup projects almost since inception. They are a local leader in adaptive reuse projects—where instead of knocking down older buildings, they renovate them into new sustainable structures.
They are also leaders in working in underserved communities and have been dedicated to making an impact in opportunity zones in Buffalo, NY before the formal program even existed.
Looking Ahead
While change within the real estate sector may happen slowly and there are largely undefined guidelines surrounding ESG, it is still becoming a business reality.
If you have any questions or are interested in learning more about this topic, we’re here to help. Please do not hesitate to reach out to our trusted experts today. To watch the full video interview, click here. And to learn more about the work Sinatra & Company does, visit their website here.