Value Beyond Cost Savings - Green Building Finance Consortium

Value Beyond Cost Savings: How to Underwrite Sustainable Propertiesdocuments, purchase agreements, etc. The analysis in Value Beyond Cost Savings: How toUnderwrite Sustainable Properties is not intended as legal advice or as a substitute forconsulting appropriate counsel.B. Underwriting Perspectives by Investor Type1. Underwriting Output and Investor TypeThe specific decision criteria, key underwriting issues, and form of output vary by type ofinvestor. Mortgage underwriters typically have specific requirements that must beaddressed. It is particularly important to understand that while equity investors can reaprewards for taking risks, lenders just get the mortgage payment. Consistently availablecash flow to pay debt service is key for debt providers.Sponsors or promoters of sustainable projects will be most successful in attracting capitalif they understand explicitly what drives investment decisions for different types of capitalproviders. For example, the perspectives of different types of equity investors can varydramatically. “Core” investors seeking returns of 6-8% and “opportunistic investors”seeking returns over 20% have very different investment criteria and underwritingperspectives. However, all equity investors will be more receptive to capital requests ifwell-reasoned support for taking risks is documented.Tenant real estate decisions, once strategic goals are met, have historically been costdriven, with three-year or shorter simple-paybacks (sum of operating expense reductionsexceed investment cost within three years) required for investment. Recognition ofsustainable real estate’s contribution to enterprise value (recruiting, productivity, sociallicense to operate 82 , etc.) has accelerated recently, but clear support for non-cost relatedbenefits needs improvement.2. Corporate Real Estate UnderwritingCorporate property decisions, whether new construction or existing buildings, will besubject to many of the underwriting and due diligence guidelines presented for investorsand lenders, but are also subject to additional underwriting and due diligence issues assummarized in Exhibit VI-1 and outlined in the Space User Underwriting Checklist shownin Appendix I.Since the primary purpose of real estate in a corporate or space-user situation is tocontribute to the successful execution of the business’s overall strategic goals, all realestate property decisions must be evaluated for their strategic compliance, including their82 Successful companies effectively maintain a social license to operate. For example, when its customers view acompany negatively, or worse as unethical or criminal, the company’s social license to operate can be diminished.148