Value Beyond Cost Savings - Green Building Finance Consortium

Value Beyond Cost Savings: How to Underwrite Sustainable PropertiesG. Financial PerformanceSustainable property financial performance is not a simple concept, and needs to be clearlydefined and articulated when presenting financial performance evidence. For example,when talking about sustainable property financial performance, you must first clearlyspecify whether you are talking about value or returns for the property overall, or theincremental rate of return or value contribution of incremental investments in sustainablefeatures and strategies.Sustainable property financial performance can also refer to feature-based financialperformance measured by simple payback and rate of return analyses. These types ofanalyses are conducted for individual sustainable features or strategies like green roofs,daylighting, underfloor air distribution, etc. It is also important to keep clear whether one istalking about projected or actual financial performance.The complexities of sustainable property financial performance is further highlighted by thescores of different types of sustainable property investment decisions, including minorretrofits, major retrofits, commercial interiors, new acquisitions, new construction, andmany variations in between. The appropriate measurement and analysis for determiningsustainable property financial performance will vary by the type of decision and otherfactors.The key focus of the Consortium is to enable private sector investors to properly integraterevenue and risk considerations into their decision-making. Accordingly, simple paybackand simple return on investment analyses, and other feature- or strategy-based financialanalyses, are not the focus of our work.As is detailed in Expanded Chapter V, to understand the implications of sustainableproperty investment on financial performance, one must consider, at least conceptually, adiscounted cash flow analysis. The DCF produces specific financial performance measuresincluding an internal rate of return and value. Of course, no estimated rate of return orvalue estimate can be properly interpreted, and incorporated into a sustainable propertyinvestment decision, without a full and comprehensive understanding and consideration ofrisk.Summary of Sustainable Property Financial Performance EvidenceThe evidence for sustainable property financial performance was presented in prior sectionsof this chapter. Section D: “Feature-Based Financial Performance” of Expanded Chapter IVpresents further evidence for specific features or strategies. Evidence of the implications ofsustainable property investment on property rates of return and value were presented in the“Market Performance” section, under the Expert-Based and Statistics/Modeling-BasedFinancial Analyses headings.94