Value Beyond Cost Savings - Green Building Finance Consortium

Value Beyond Cost Savings: How to Underwrite Sustainable Propertiesproperty value and cash flows, and that many of the underwriting actions typicallyundertaken can significantly help decision-makers understand and appropriately considerthe positive and negative risks of sustainable property investment.Further detail and background on existing office building retrofit decisions and buildingoperations is available in “Retrofitting Office Buildings to be Green and Energy-Efficient”, a book published in late 2009. 93 Chapter 2 provides some insights intoanalyzing green retrofit opportunities. Chapter 3 provides significant detail on theelements of a green office retrofit and Chapter 4 provides information on managing theretrofit process. Chapter 6 provides a primer on green leases and building operationsH. New/Retrofit BuildingsThe key underwriting issues for new construction or major retrofits are shown in GBFC’sSustainable Property Underwriting Checklist for New/Retrofit buildings in Exhibit VI-5.These issues are addressed in the more detailed guidelines presented in Expanded ChapterVI from the perspective of a lender or equity investor that is evaluating a capitalinvestment in a new development or major retrofit project. Unlike existing buildings, newprojects are subject to very different risks related to the construction process, constructioncompletion, cost control, costs to carry construction interest prior to lease-up (or sale), andachieving the market acceptance necessary to achieve an effective take-out by a permanentlender or buyer.Exhibit VI-5New/Major Retrofit Building Underwriting Checklist1. Preliminary Compliance with Investment GuidelinesProperty Type/Sub-TypeSizeLocationConstruction Type/QualityFloor plates/Elevators/Parking, etc.Market ConditionsLoan to Value/CostProjected Rates of ReturnLoan to Replacement CostTenant Improvement/Leasing Commission Allowance93 “Retrofitting Office Buildings to be Green and Energy-Efficient,” principal authors Leane Tobias and GeorgeVavaroutsos, Urband Land Institute, 2009.180