Value Beyond Cost Savings - Green Building Finance Consortium

Value Beyond Cost Savings: How to Underwrite Sustainable Propertiesto an investment approval decision than an investment committee memberuncovering biased or incorrect information in a presentation, or uncovering risksthat were not presented.• Process and Feature Focus: As presented in Chapter IV: “Sustainable PropertyPerformance,” the success of a sustainable property can be significantlyincreased if sustainable processes and features are appropriately undertaken.Proper integrated design, energy modeling, commissioning, and related processesare particularly critical to sustainable property risk mitigation. The selection andimplementation of features can also reduce risk if properly done.• Enhanced Sensitivity Analysis: Enhanced sensitivity analysis that enablesdecision-makers to understand the relative importance of particular risks can beparticularly helpful in sustainable property investments. Many of the negativerisks can be controlled through risk mitigation, and often the risks themselves areof relatively small magnitude, particularly in comparison to the positive riskspossible through market and/or financial performance upside.• Risk Mitigation: Risk mitigation that is undertaken through legal, surety,insurance, or other forms of due diligence should be clearly delineated.• Advanced Risk Analysis Techniques: Depending on the type of decision, thesophistication of the underwriting/due diligence team, and the sophistication andrequirements of the decision-makers, advanced risk analysis techniques should beconsidered. These types of risk techniques will vary based on the industry andsituation, but would include multiple scenario analyses, alternative contracts andcompensation, “value at risk” financial risk management tools, and many othertechniques.Sustainable property investors have a significant opportunity to maximize the level ofinvestment in sustainable properties through better risk analysis and presentation. Realestate people like risk; it is how money is made. They just want to be able to understand itwell enough to properly price and mitigate it.4. Background on Cash Flow and Building Ownership RisksBy far the most important financial benefit of sustainable property investment is thepotential reduction in cash flow/building ownership risk. Reduced cash flow/buildingownership risk is an important contributor to an increase in space user demand, which candirectly improve revenues, and to an increase in investor demand, resulting in highervalues through reduced discount and capitalization rates.Cash flow and ownership risks are most significantly reduced due to the ability of asustainable/energy efficient building to cost-effectively meet the changing needs ofregulators, space users, and investors. It is almost a certainty that local, state and federal134