Value Beyond Cost Savings - Green Building Finance Consortium

Value Beyond Cost Savings: How to Underwrite Sustainable Propertiescan be appropriate when replacing a particular system or feature in a building, or whenmaking decisions about the relative financial merits within a particular feature (type of lightbulbs, windows, or glazing, for example), the industry has grown to understand that a moreholistic analysis of buildings, rather than a feature by feature analysis, is the preferredoverall design and financial analysis strategy.Feature based performance analysis have typically focused on cost savings, and, in selectcases, a simplified capitalization of operating cost savings, to develop simple pay-back orsimple return on investment conclusions. However, as the sustainable investment challengehas moved to determining the maximum technically and economically feasible level ofsustainable investment, such cost-based feature-by feature models have become lessreliable and accurate. More holistic financial models, like the discounted cash flow analysisdiscussed in Chapter V, are needed to accurately reflect all benefits and risks that resultfrom investment decisions.Practically, a complex DCF financial model is not possible, or necessary, for all decisions,but even simple feature-based financial analysis can be supplemented with an independentand intelligently organized assessment of revenue and risk implications that can assistdecision-makers. These types of supplementary analyses need to be property specific,address both positive and negative risks, clearly articulate risk mitigating facts andcircumstances, and be organized to support an assessment of financial implications throughconceptual linkages to the discounted cash flow model. (This is the focus of Chapter V).Decision-makers should be cautioned that in many cases the specific structure of thesefinancial models, as well as the data on both costs and benefits, are often supplied, eitherdirectly or indirectly, from product suppliers and manufacturers, and thus must beappropriately screened and considered.Features or systems do not always perform as expected. Sometimes underperformance willrequire replacement of a feature or system or a significant redesign or re-engineering. Infact, based on our survey of practitioners and experience, feature or system problems aremore often than not an issue of a mis-use or misapplication, rather than a complete productor system failure. For example, green roofs that are applied when the slant is too severe willoften have problems. Materials like cork, which might be great for lower intensity usemight not be as effective in a school or highly traveled lobby.There are scores of feature-based financial analyses available. In Expanded Chapter IV, wepresent financial performance information from a few important sources including theRocky Mountain Institute and Carnegie Mellon University. These sources and many othersdemonstrate impressive rates of return and quick pay-backs for many sustainable andenergy efficiency features and strategies including daylighting, energy efficiency lighting,glazing, building controls, cool roofs, and under-floor air distribution. These positiveresults have been demonstrated prior to consideration of potential revenue and risk benefits.49