Lion Electric: The bus stops here.

The context

The investor and owner community is demonstrating an increasing desire to address problems and negative externalities through their commercial real estate (CRE) portfolio holdings. This shift can be attributed to several factors, including changing societal values, the growing recognition of the long-term risks associated with environmental and social issues, and the potential for financial returns from sustainable investments.

A typical investment management approach would include things like reporting on and reducing carbon emissions, adopting green certifications, building in governance and benchmarking social and environmental initiatives.

At Avison Young Investment Management, we’re taking this a step further, layering on exposure to clean energy occupiers, which reflects the rental premiums that can be achieved through the flight to green and flight to quality, and recasting landlord-tenant relationships through shared ESG goals and objectives.

Keeping up with a highly dynamic and evolving investment landscape makes every day a school day, filled with learning opportunities for all of us.

Here’s today’s lesson.

In the U.S. more than 20 million children ride the bus to school, and over 90% of these buses run on diesel, which has been linked to serious physical health issues like asthma and other respiratory diseases. However, as states and municipalities set net zero and electrification goals, and manufacturers scale production accordingly, school districts nationwide have started the transition to electric school buses.

Meet our occupier Lion Electric, a Canadian-based manufacturer of commercial vehicles. As the biggest electric vehicle manufacturer in its segment, Lion primarily produces yellow school buses and medium and heavy-duty commercial trucks — all products that feature zero-emission battery-electric powertrains.

Its school buses have ranges up to and exceeding 250km/155 miles on a single charge, which is a much longer range than most school routes require. In fact, the average urban school bus route is less than 32 miles, making the decision to switch a no-brainer.

For communities surrounding schools, making the shift to electric transport also means the air in and around the bus would be free of diesel exhaust, and riding the bus would be much quieter and cleaner for its young passengers – overall delivering a calmer, safer and more energy-efficient ride.

The process

Meeting our client’s goal meant investing in an industrial facility holding a long-term lease with a company positioned for growth. The facility, located in Joliet, Illinois, U.S., was an attractive option and was ultimately selected by Lion Electric to lease as their new Truck and Bus Assembly Plant. As a forward-thinking Electric School Bus leader, Lion Electric will be a strong tenant for our client, garnering much interest in their EV manufacturing as they grow into this purpose-built facility.

Under the leadership of Amy Erixon, Avison Young Investment Management is changing the makeup of resilient portfolios. Aligned with our zero carbon transition goals, we are prioritizing and matching tenants with owners of newly constructed state-of-the-art facilities. For us, future-proofing is key.

“Future-proofing” means anticipating future risks and developing approaches to minimize the impacts, shocks, stresses and business disruptions that may arise from future climate events. For buildings, this means investing in facilities that can adapt to technological, social, environmental, regulatory and economic changes throughout their lifetime. A future-proofed building can respond to challenges and changing uses. In essence, we are investing in our clients, and with our clients to ensure their buildings remain relevant and fit for purpose for much longer.

In addition to this, spotting opportunities to leverage government incentives is influencing and accelerating the development of high-performance industrial assets. We ensure our Investment Management clients are well positioned to benefit from both state and federal incentive programs like the Biden administration’s Inflation Reduction Act and in this case, the recently announced $5 billion electric Clean School Bus program.

As Avison Young Investment Management expands in the Chicago industrial market, we gain economies of scale to pursue green and low carbon enhancements for our portfolio’s future.

The impact

This goes to show that there is more to ESG-resilient portfolios than carbon reporting and adding layers of governance – it’s about supporting businesses that can have a real social and environmental impact, right now. For our Investment Management team, this is about finding amazing, transformative tenants like Lion Electric and moving heaven and earth to welcome them into our clients’ portfolios.