Case Studies

Kyle Burns and Rob Rikoon – The Rikoon Group

ESG grounded in private real estate deals

In East Harlem there’s a building that’s being renovated as a new model for co-living. The apartment units will be modest, enhanced by a common kitchen and ample congregating area for mostly young people trying to launch a livelihood in Upper Manhattan.

Privacy and shared space at a rent more affordable than what they’d likely find in a typical apartment—just what a budding artist, musician, writer, poet or, for that matter, any up-and-coming professional would appreciate.

Kyle Burns and Rob Rikoon – The Rikoon Group Equity Magazine

In Ashville, North Carolina, there’s a retirement community taking shape on 30 scenic acres. Half the real estate is destined to be kept plush and green, much of it for an organic farm where off-hours employees can share a different kind of space. The buildings will be energy- and water-efficient and built partially from recycled materials.

Both projects are among the many Environmental-Social-Governance investment opportunities that The Rikoon Group researches and participates in on a hands-on basis. And such projects don’t just meet The Rikoon Group’s ESG metrics—by almost any standard these are sound business moves that seem to have eluded so many other registered investment advisories.

“We’re making ESG values a high priority in private real estate investing and it’s a nice development,” Vice President and Portfolio Manager Kyle J. Burns tells Equity from Rikoon’s offices in Santa Fe, New Mexico. “We’re changing the way people are living in cities.”

Shining in many industries

That said, Burns and the rest of the Rikoon crew can’t help but lament that there’s still a misconception about ESG being largely about solar projects and emerging tech companies like the Tesla electric automotive initiative. With the evolution of what was termed socially responsible investing in the 1980s, ESG encompasses many lines, each of which contribute to society’s greater good.

“We think of ESG as an additional layer of research into the normal due diligence process that lets us look at factors that otherwise may be overlooked,” President Rob Rikoon explains. “Just think of it as a risk-mitigation tool or portfolio diversification. Clients will resonate with the approach if it aligns with their values.”

Kyle Burns and Rob Rikoon – The Rikoon Group Equity Magazine

Housing and the environment being common concerns among those with a social conscience, the trend into real estate makes sense. Especially since it’s not just the younger set that’s being attracted to a more communal lifestyle.

Through their interactions with clients, Rikoon’s portfolio managers have seen a trend of late middle-agers and senior citizens in a diaspora of sorts from suburb to city. These folks now want to be within walking or public transit distance of a grocery, pharmacy, professional offices and hospital, and a mixed-use building in a safe, lively area may suit their needs.

Rikoon, in association with local on-the-ground partners, has identified many such buildings, particularly on the East Coast—retail and professional offices on the ground floor, affordable or at least reasonably priced residential units above, and upper-end apartments or condos at the top levels to moderate the expenses of those below. All seemingly a good investment from any perspective.

Diversity can be priceless

Communications services and the financial sectors can also be overlooked ESG opportunities, and the Rikoon investment committee looks to see if their boards of directors and brass show diversity. Their research points to recent studies showing that women tend to perform better than men when put on salary rather than commission. Just another example of social responsibility meeting a business objective to the advantage of an entire company—and the investor.

Whatever a client’s passion, the Rikoon team can customize a portfolio. While other RIAs offer such an approach, this firm is quick to say that it has the longer history, its roots going back to 1987, when founder Rob Rikoon made sustainable investing the foundation of what then was called Rikoon Investment Advisors Inc.

Kyle Burns and Rob Rikoon – The Rikoon Group Equity Magazine

Say a client is interested in industrial hemp. Rikoon will research its investment potential and if it’s not yet available on a broader scale, the firm will find a way to customize it into a portfolio.

“We’ll work through market cycles and go that extra yard because we respect how strongly our clients may feel about their greater values,” Rob Rikoon assures.

The firm also goes the extra yard in weeding out what it regards as bad prospects. Long before the consumer credit reporting agency Equifax garnered the wrong kind of attention through a 2017 data breach that exposed the personal information of 143 million Americans, Rikoon had already taken it off its list, having done its own research finding Equifax remiss in data security.

For other reasons, Rikoon veered away from Monsanto. Those concerns were vindicated when the former agro-chemicals manufacturer—Forbes magazine’s Company of the Year in 2009—saw its market performance slip, partially as a result of controversy over possible carcinogens in its herbicides.

Environmental concerns alone would have meant a red flag to Rikoon. Nestled in the scenic mountains of northern New Mexico, the virtues of organic farming, sustainable energy and a collectivist mindset are represented in the firm’s bedrock values. The team counts beekeepers, medicinal herb growers and farmer’s market entrepreneurs amongst their ranks.

Burns formerly worked inside the New Mexico State Legislative Finance Committee, while another portfolio manager, Patrick Gendron, spent time with wirehouses, particularly Thornburg Investment Management, whose social funds are among those used by Rikoon. These folks are glad to be among kindred souls at Rikoon, where millennials are joining the senior members in various leadership roles.

“Our generation is pushing this ESG movement,” Burns and Gendron say. “The older generation may be more reluctant, but as we educate them, they may come around.”

Especially when it’s time for them to join so many of their contemporaries in that exodus back to the city.

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