Value Beyond Cost Savings - Green Building Finance Consortium

Value Beyond Cost Savings: How to Underwrite Sustainable PropertiesFinancial Analyses that ignore revenue and risk will result in significant underperformanceby investors.Regulator, space user, and investor demand are critical to value, as shown below in ExhibitV-3. If valuers only considered resource use (energy costs, etc.) and ignored marketperformance, as measured by demand, key value issues affecting entitlements, rents, caprates and other issues would be ignored. In essence, revenue and risk considerations wouldnot factor into decision-making, a recipe for long-term underperformance.Exhibit V-3Sustainability Demand Affects Value InputsResource UseRegulator DemandSpace User DemandInvestor DemandEnergy CostsWater CostsRegulatory ComplianceEntitlement BenefitsTax BenefitsFinancial IncentivesRentsOccupancyAbsorptionTenant RetentionCapitalization RatesDiscount RatesSummary of Traditional Sustainability Financial Analyses AlternativesThe ten traditional sustainability financial analyses are described in detail in Appendix F. Afull range of sources and links is presented in Appendix F with additional detail andupdates available in the Consortium’s Research Library and Industry Links sections underindex code 1.2. A summary is provided below.b) Traditional Real Estate Financial AnalysesTraditional real estate financial analyses integrate comprehensive cost, benefit, and riskinformation into measures of return and/or value. Rate of return or value estimates arebased on detailed specification of financial model inputs such as energy costs, rents,occupancy, tenant retention, discount rates, etc.102