Value Beyond Cost Savings - Green Building Finance Consortium

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Value Beyond Cost Savings: How to Underwrite Sustainable Properties3. The Evidence of Space User DemandAs emphasized above and throughout Value Beyond Cost Savings: How to UnderwriteSustainable Properties, the evidence for space user demand must be developed through astructured analytic process at the property level. One of the ways to think about theprocess is that the underwriter is testing whether some of the general evidence and trendsare applicable for a subject property, and determining the magnitude of potential affects.Accordingly, the general evidence of the market demand for sustainable properties isrelevant and important. The market performance and building performance (occupantperformance) of sustainable properties was summarized in Chapter IV, Sections E. and Fof this book, and is fully presented in Expanded Chapter IV, Sections E. and F.As a starting point, to properly interpret and apply sustainable market performanceresearch it helps to understand the following three principles:• Principle One: Different decisions require different types of market data.• Principle Two: Failure to understand the different types of market research willlead to failure in interpretation and application.• Principle Three: Sweat the details when applying market research to propertylevel decisions.A detailed discussion of these principles is presented in Expanded Chapter IV, Section F-2.To better understand and ease the interpretation of sustainable property market andfinancial performance research, in Chapter IV, we report research results in four keycategories: 92Expert-Based Financial Analyses: Conducted primarily by valuers/marketanalysts on a property-by-property basis following traditional market analysispractices.Statistics/Modeling-Based Financial Analyses: Conducted primarily byacademics applying statistical modeling techniques to large databases of properties.Surveys and Market Research: Surveys and related market research studiesaddressing regulator, space user, and/or investor demand.Foundational Background and Theory: Foundational research and theoreticalstudies that address key issues in sustainable property valuation and financialanalysis.92 We combine sustainable market and financial performance research together because much of the research in thefield covers both these topics in their studies.176
Value Beyond Cost Savings: How to Underwrite Sustainable PropertiesCourtesy Wikimedia Commons, DemeesterG. Existing Building Underwriting GuidelinesThe GBFC Sustainable Property Underwriting Checklist for existing buildings is shownbelow in Exhibit VI-4. This checklist and the guidelines for each checklist item that arepresented in Expanded Chapter VI are generally applicable to both lenders and investors,although lenders and investors may emphasize or de-emphasize particular issues giventheir specific needs and requirements. In all cases, lenders will be more focused ondownside risk, because they do not fully share in the potential upside that equity investorsobtain by taking additional risk (they just get the mortgage payment). A key focus inexisting buildings for both lenders and investors is on verification of the propertyoperations and cash flow as well as debt service coverage and value.The ideas and recommendations presented below and in more detail in Expanded ChapterVI are not meant to be exhaustive. This chapter focuses on underwriting modifications,which may be warranted for a particular property due to its sustainability. Accordingly, wedo not provide a complete assessment of the actions that need to be undertaken under eachof the checklist items, but focus on marginal changes to process and procedures. Manyaspects of the underwriting process involve legal considerations including leases,contracts, mortgage documents, purchase agreements, etc. etc. The author of ValueBeyond Cost Savings: How to Underwrite sustainable Properties is neither an attorney noris offering legal advice, and legal questions should be reviewed with appropriate counsel.177
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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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Value Beyond Cost Savings - Green Building Finance Consortium

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