Value Beyond Cost Savings - Green Building Finance Consortium

Value Beyond Cost Savings: How to Underwrite Sustainable PropertiesSustainable buildings also reduce the risk of reliance on the energy grid (terrorism ornatural disasters), limit exposure to energy/water cost volatility, and limit both current andfuture potential liability due to building-related health issues. All of these benefits reduceexit or takeout risk by maximizing the potential pool of buyers or investors, and theavailability and cost of financing.While the benefits related to cash flow risk can be significant, sustainable properties canincrease cash flow/building ownership risk. For example, investments in newtechnologies, systems or products that are at risk of getting leapfrogged increases the riskof losing value due to functional obsolescence. Investors can also miss the market, overinvestingin sustainability relative to market demand. Worse, features attractive tooccupants could be eliminated to enable sustainable features or systems to be added.The reliability and accuracy of energy forecasts, as well as the risk due to energy pricedeclines, can also be important over a short time period. Finally, liability risk relative toperformance claims and marketing need to be carefully evaluated. Risk issues areextensively addressed throughout this book. Key sections include IV-C: ProcessPerformance, IV-D: Feature Performance, Sections V-E: Assess Costs/Benefits ofSustainability, V-H: Risk Analysis and Presentation, and much of Chapter VI: SustainableProperty Underwriting Guidelines.Public BenefitsThe public benefits section of the GBFC Cost-Benefit Checklist is the only part thatdoesn’t have a corollary cost category. While the focus of the Consortium’s work is onprivate value—that public value which can be monetized—fully understanding and beingable to articulate a project’s potential public benefits is important. All sustainable projectswill generate substantial public benefits beyond those of a non-sustainable property.Such “monetization” of public value is created from governments or utility companiesthrough enhanced entitlements/permitting, public grants, favorable financing, tax benefits,and carbon credits or payments, and from private companies through their contribution toEnterprise Value and resulting increases in space user demand.Depending on the specific type of sustainable project, and the level of sustainability, itmay generate substantial public benefits including reduced infrastructure costs,environmental and resource conservation, improved land use, less or more manageableclimate change, financial benefits, and security benefits as was detailed in Exhibit V-4.Some of the sustainable features and performance that contribute to public and privatebenefits are shown below:Location • NOT on fragile landscapes• NOT contributing to urban sprawl• Close to mass transportation120