Value Beyond Cost Savings - Green Building Finance Consortium

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Appendix FSustainable Property Financial Analysis AlternativesAnalysis/Model Description/Commentary Key Links/Examples1. Cost Management Cost management is a Traditional Real Estate FinancialAnalyses that is not an integrated model incorporating allcosts, revenues and other risks, but rather a set of analyticalmodels focused on providing investors with the tools to identifyand manage cost issues that could impair successfuloutcomes. Cost benchmarking, cost planning, procurementpolicies, and other analyses focus on assisting decisionmakersto get the best possible outcomes for the least cost.Sophisticated cost management that provides propercoordination, guidance, and management of expectedoutcomes, can provide particular dividends for sustainableinvestment, with the myriad of choices and optional outcomesthat can be specified at the initiation of a project.2. Discounted CashFlow Analysis –Change in AssetValueThis approach considers the impact on value that theinvestment will have utilizing the discounted cash flow (DCF)approach to value as opposed to the direct capitalizationapproach. This method takes into consideration the benefits ofthe energy investment over a 10-year holding period, includingthe annual energy savings and the incremental property valuethat results from the energy savings at the end of the holdingperiod (net of selling costs).Change in Asset Valuation: Discounted Cash Flow = DCFValue – ICCWhereDCF Value = f (S1…S10, RT, RDISC, SCOST)S1…S10 = present and future Net AnnualEnergy Savings (dollars)RT = Terminal Capitalization Rate(percent)RDISC = Discount Rate (percent)SCOST = Selling Costs (percent)230
Appendix FSustainable Property Financial Analysis AlternativesAnalysis/Model Description/Commentary Key Links/ExamplesICC = Initial Capital Costs (dollars)This metric takes into consideration both the time value ofmoney and changes in future energy prices and presumes thatthe benefits are ongoing and permanent. Similar to the SimpleDirect Cap valuation measure, the CAV-DCF has theadvantage of incorporating at least some of the elements ofchange in property value through changes in NOI.CAV-DCF is therefore a more robust measure of the merits ofthe energy investment than the simple change in Asset Valuediscussion above in Section A.3,, applicable to higher-ICCinvestments or where there are data uncertainties surroundingICC or cost savings. It is particularly appropriate in its moreexpanded application, where the investment has measurableimpacts on other valuation components.3. Discounted CashFlow Analysis – NetPresent ValueThe Net Present Value (NPV) metric is analogous to the DCFtechnique except that it focuses only on the energy savingsover the expected useful life of the investment and does nottake into consideration the impacts on property value.NPV = DCF Energy Savings – ICCWhereDCF Energy Savings = f (S1…S10, RDISC)S1…S10 = present and future Net AnnualEnergy Savings (dollars)RDISC = Discount Rate (percent)ICC = Initial Capital Costs (dollars)This approach takes into consideration both the time value ofmoney and changes in future energy prices. Since it assumesa fixed time period over which benefits are realized, it isapplicable to less durable investments. For such investments,it is a robust measure and applicable to higher-ICCinvestments or where there are data uncertainties surrounding231
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Appendix GSustainable Property Cost
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Appendix HDiscounted Cash Flow Anal
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