Value Beyond Cost Savings - Green Building Finance Consortium

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Value Beyond Cost Savings: How to Underwrite Sustainable PropertiesOne challenge to the analysis and articulation of the value of sustainable propertyinvestment to the enterprise is in transitioning from a general discussion of these benefitsto a discussion about the potential magnitude of these benefits for a specific property. Theinfluence of potential enterprise value benefits on the decision of space users will varybased on the types of space users, their business strategies, the demographics of theiremployees, and the nature of the customers that they serve, among other factors.Once an understanding of the key drivers of potential space users is established, the nextstep is to assess the likelihood of whether the subject property will generate the types ofsustainable outcomes and building performance important to expected occupants.Government Tenants with Sustainable Real Estate Mandates or PoliciesLocal, state and federal governments are increasingly requiring that their employees workin sustainable properties. Sustainable property requirements for new construction havebeen prominent in many governments for some time, and requirements for governmentleases are increasingly being implemented as leases turn within government organizations.With over 18% of all commercial space in the United States government owned, andsignificantly more in many other countries (approximately 13% of which is office space),this is a significant market that will have broader influence on leasing policies throughoutthe country. 90The potential impact for a specific property will be a function of evaluating the level ofgovernment leasing in the subject property’s submarket, trends relative to governmentleasing, government lease rollover expectations, and the specific sustainability thresholdsrequired by different levels of government compared to the subject property. Evaluation ofthis potential benefit must take into consideration not only sustainability issues, but alsothe suitability of the subject property relative to other minimum requirements ofgovernment tenants related to security and other issues.Vendors/Suppliers Encouraged/Required by Big Customers to Consider SustainabilitySome large companies like General Electric and Wal-Mart are beginning to putsustainability requirements on their vendors and others in their supply chain to be moresustainable. These initiatives have grown over time, and while relatively small today, arelikely to increase.Evidence of this phenomenon can be ascertained for a property in a particular marketplaceby studying the profile of tenants in the marketplace. Again, this is just another of themany issues influencing space user demand, but is likely to grow. For example, nearly1,500 global businesses signed on to the United Nation’s Global Compact in 2008,90 “Who plays and who decides; the structure and operation of the commercial building market,” March 2004,Innovologie, LLC for DOE.174
Value Beyond Cost Savings: How to Underwrite Sustainable Propertiessignaling the growing interest of businesses that want to align their practices with theinitiatives in environmental, social, and governance principles.Approximately 7% of the 700-plus respondents in the annual survey of Global Compactparticipants indicated that they require Global Compact participation when selectingsuppliers. About a third said they extended their commitment to the Global Compact totheir subsidiaries. While these numbers are still small, they represent a significant andgrowing trend to extend the leadership of certain powerful companies on sustainabilityissues down through the supply chain.Space users with direct ties to sustainabilityThere are a growing number of tenants that have a direct tie to the sustainable propertybusiness: architects, engineers, consultants, contractors, lawyers, energy firms, productcompanies, etc. etc.There is increasing evidence of the growing size of the sustainable property market andcompanies with direct ties to the industry. For example, membership in the U.S. GreenBuilding Council has grown dramatically to nearly 19,000, with over 81,000 LEEDaccreditedprofessionals. 91“Friends of Sustainability”Demand from space users is also heightened by those individuals who want to “do theright thing,” independent of evidence of financial benefit. It is difficult to quantify the sizeof this marketplace, but service providers, builders, tenants and others that took on aleadership role without “proof”, initiated the green building industry.Demographics can play a key role here with younger people and people in certaingeographic locations more likely to be concerned about sustainability ideals independentof financial considerations.2. Space User Demand RisksAn independent assessment of the affect of sustainability on space user demand andproperty risk must consider potential negatives of sustainability related to space userdemand. These negatives include:• Excess investment relative to market demand;• Failure of space user demand to meet expectations;• Building operating problems.These issues are evaluated in detail in Expanded Chapter VI.91 U.S. Green Building Council, February 2009.175
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Appendix FSustainable Property Fina
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Appendix GSustainable Property Cost
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Appendix HDiscounted Cash Flow Anal
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Property Type: CBD OfficeSquare Fee
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