Value Beyond Cost Savings - Green Building Finance Consortium

Value Beyond Cost Savings: How to Underwrite Sustainable Properties“value” engineering process. Developers have the most difficult challenge with valuationbecause they are dependent on assessments by third-party valuers hired by capital sourceswho may not yet have the education and experience to properly value properties withsustainable features.LendersLenders, particularly if they are federally regulated in the United States, require formalmarket appraisals prepared by licensed appraisers following the Uniform Standards ofAppraisal Practice (USPAP), governed by the Appraisal Foundation prior to originating acommercial mortgage. 76Lenders have been slow to recognize the benefits of sustainability and/or energy efficiencyin their underwriting practices. Some smaller banks are offering more favorable financingterms for green buildings, including higher LTVs and lower interest rates. Some largerbanks are in the process of developing programs that provide some recognition ofsustainable property attributes, but both larger and smaller bank lending policies andprocedures are undergoing significant change, beyond sustainability, due to currentfinancial market upheavals.4. Valuers Have the Skills Necessary to Make Significant Contributions toSustainabilityValuers, underwriters, or brokers, not engineers or architects, are better positioned andtrained, and have the requisite skills and experience to judge how space users andinvestors will respond to a building’s sustainable performance (resource use, occupantperformance, etc.). In fact, as illustrated in GBFC’s Sustainable Property PerformanceFramework discussed in Chapter IV, valuers and brokers play a critical role because thereis no way to assess the financial implications of sustainable property investment withoutmeasuring the market’s response to a building’s sustainable property performance.For example, once the science is clearly presented about how a sustainable property couldaffect occupant health, it is up to the valuer, underwriter or broker to judge whether theoccupants for a particular subject property will “value” such benefits, and at what level, inthe context of the particular types of occupants expected in a building, current marketconditions, and the many other factors driving occupant space decisions.Not only should all certified valuation professionals have the requisite skills to contributeto sustainable property valuation (with appropriate additional education), they will needsuch skills to value any property in the future. As sustainable attributes and outcomesbecome more important to regulators, space users and investors, no credible valuation of anon-sustainable property will be possible without consideration of potential sustainability76 The Appraisal Foundation has international representation, not purely U.S. direction. Sixty countries support the InternationalValuation Standards Committee.139