Value Beyond Cost Savings - Green Building Finance Consortium

Value Beyond Cost Savings: How to Underwrite Sustainable Propertiesbecause the analysis of the market demand by potential occupants for sustainable space is afunction of the type of property, the particular geographic market, the profile of actual orpotential property occupants, and other factors such as existing lease structures and marketconditions.Investor demand is somewhat easier to address generally, given the more regional, national,or even international capital markets for many real estate properties, but the type, size,quality and other attributes of a property will significantly influence a particular property’sinvestor demand due to its sustainability. Most importantly, investor demand is largelyderivative of regulator and space user demand, which are unique to specific properties.Surveys and related market research make up the bulk of what actual valuers andunderwriters use to value and underwrite the risks of sustainable properties. Expert-basedresearch has been very limited to date, with only a handful of credible studies.Statistics/modeling-based market performance research has never been used by the industryto implement detailed property-specific valuation and due diligence. Accordingly, valuersand underwriters must collect and integrate many different sources of quantitative andqualitative research to assist them in deriving their opinions about key financial inputsincluding rents, occupancies, tenant retention, cap rates, discount rates, and expenses.Surveys and market research are part of a broader array of supportive “Sustainable Sub-Financial Analyses” that we define and describe in significant detail in Expanded ChapterV-C and Appendix F. Sustainable sub-financial analyses are those analyses and models thatprovide quantitative insights/data that is typically combined with other information andanalyses to aid valuers/underwriters in their specification of key financial assumptions in adiscounted cash flow analysis, or a related traditional real estate financial model.In Expanded Chapter IV, we highlight and discuss three key types of surveys and marketresearch:• Space user and investor sustainability surveys;• Corporate sustainability surveys and research; and• Tenant demographics and market segmentation.Each of these types of research is briefly presented below.Space User and Investor Sustainability SurveysSpace user and investor sustainability surveys provide insight into the potential magnitudeand/or direction of sustainability demand by type of tenant or investor. Furthersegmentation by geography and/or property type and other categories is often possible. Weidentify and briefly describe approximately 50 of the most important tenant and investor86