Value Beyond Cost Savings - Green Building Finance Consortium

Value Beyond Cost Savings: How to Underwrite Sustainable PropertiesIn summary, the volume of sustainable property financial performance evidence is stillsmall. The significant dearth of sales and leasing transactions, and substantial value andrent declines since 2008, will also continue to make it difficult to generate statistics/modeling based empirical evidence. However, evidence from the key expert-basedfinancial analyses and statistics/modeling-based financial analyses presented in the priorsections shows a clear trend towards improved rents, occupancies, risks, and resulting ratesof return and value. Additionally, by fully identifying and assessing the positive andnegative sustainability risks of specific properties, and carefully evaluating surveys/marketresearch, there is hope for more intelligent assessments of the value contributions ofsustainable property investment.Not unexpectedly, enhanced rate of return and value performance evidence to date has beenmore incremental than dramatic. This result is reasonable given that sustainable featuresand strategies are just one part of the rate or return or value equation for any particularproperty. Additionally, the key forces driving value—enhanced regulator, space user andinvestor demand—have only recently been increasing measurably.H. ConclusionsSustainable property performance measurement and monitoring must evolve to includemarket performance to enable the full value of sustainable properties to be more easilyquantified. Process and feature performance assessment need to be modified to focus moreon their contribution to risk mitigation than incremental payback. Building performancemeasurement needs to sharpen its focus on the key things occupiers’ value includingresource use, carbon footprint, and the potential health, productivity and satisfaction ofbuilding users. Property owners must also be wary of changing social attitudes andregulatory changes that could negatively affect even “high performance” buildings that areauto dependent.Fortunately, even if measurement efforts lag, and data availability (number of sustainableproperty sales, for example) remains constrained, real estate valuers and underwriters canstill assess potential market response to a property’s sustainability, and incorporate revenueand risk considerations into value. Real estate valuers and underwriters often work withsignificant data constraints and highly qualitative information, but traditional valuation andunderwriting processes have evolved with these limitations and can accommodate them. 66In many cases, less than perfect information—potential health and productivity informationfor example—can provide important insights that can reduce the uncertainty in a forecast,adding significant value.66 For example, real estate markets around the world frequently have gone through periods of volatility. Markets aredown today, and were previously as a result of the Internet bust of the early 2000s, the Asian debt crisis, the Russiandebt crisis, and other events or market changes. During such times, the number of sales and leasing transactions reducesdramatically and those transactions that are completed are often distressed and/or from a few months earlier whenmarket conditions may have been quite different. Valuers adjust to these limitations through more detailed focus ontenants, market forecasts, leases, and risk analysis.95