Value Beyond Cost Savings - Green Building Finance Consortium

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Value Beyond Cost Savings: How to Underwrite Sustainable Propertiesanalytics and decision-making. The Consortium’s approach moves away from the quest todesign and implement the “killer” quantitative study that proves the incremental value ofsustainability, to instead focus on the process and data needed to assess value for specificproperties.Assessing the incremental value of sustainable attributes or outcomes still has a key role inperformance assessment, but when viewed in its proper context as a contributor toestimating financial variables like rent, occupancy cap rates, etc., a different pictureemerges about the form and content of required data and analytics.This chapter introduces GBFC’s Sustainable Property Performance Framework, a newframework for organizing and evaluating sustainable property performance that directlysupports financial analysis, valuation and underwriting. Using this framework, we presentour assessment of sustainable property performance.While many green building publications, when discussing performance, focus onpresenting case studies or other presentations of successful projects, this chapter willpresent both evidence of positive performance as well as evidence of sustainable propertyfailure or underperformance, and select best practices that have been adopted to addressproblems that have arisen. Contrary to the belief of some, presentation of underperformanceand related sustainable building risks—and best practices to mitigate theserisks—will not scare investors, but actually significantly increase sustainable investmentdue to improved confidence by capital sources in their ability to appropriately price andmitigate risk.Chapter V: Sustainable Property Financial AnalysisIn this chapter we present a six-step process for sustainable property financial analysis,present checklists and tools to assist financial analysis, and discuss key considerations inthe role and implementation of sustainable property valuation.Regardless of the type of decision, an independent financial assessment of a sustainableproperty investment decision typically involves a financial model. We identify financialmodeling methods currently being employed for a range of sustainable propertyinvestment decisions for new construction, acquisitions, corporate real estate decisions,and investments in specific sustainable property features. We also discuss how to selectthe best method and data for a given decision.We focus our presentation on discounted cash flow analysis, the most common approachused for underwriting and valuing real estate, and the central analytic model required tounderstand the financial implications of sustainable property investment.4
Value Beyond Cost Savings: How to Underwrite Sustainable PropertiesChapter VI: Sustainable Property Underwriting GuidelinesThis chapter outlines the process for conducting underwriting/due diligence on sustainableproperty investments. While Chapter V focuses on creating pro forma financial modelsand property valuation reports, Chapter VI focuses on the underwriting/due diligenceprocess that investors undertake prior to making new or existing property sustainabilityinvestment decisions. Accordingly, the focus is on risk mitigation and compliance withunderwriting guidelines.We also identify and discuss eight key differences in underwriting sustainable propertiesand present special sections on the unique challenges in underwriting service providers,energy use, and space user demand.The underwriting and due diligence guidelines we address for existing buildings aresummarized below in Exhibit I-2. These guidelines will generally be applicable to bothlenders and investors, although lenders and investors may emphasize or de-emphasizeparticular issues given their specific needs and requirements.Exhibit I-2Underwriting/Due Diligence GuidelinesExisting PropertiesPreliminaryCompliance withGuidelines• Size/value• Property type• Age/quality• Etc.Owner Operator• Experience• Credit• Etc.PropertyCharacteristics• Site inspection• Location• Tenant profile• Certification• Etc.Property Management• Experience• Managementagreement• BudgetProperty Operations/Cash Flow• Verify operatinghistory• Lease structure &review• Verify operatingforecasts• Operating expenses• Cash flowavailability/escrows• InsuranceThird-Party Reports• Appraisal• Property condition• Environmental• Legal/title• Etc.The key underwriting and due diligence issues for new construction or major retrofits areshown in Exhibit I-3. New projects are subject to very different risks related to theconstruction process, construction completion, cost control, costs to carry construction5
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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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