Value Beyond Cost Savings - Green Building Finance Consortium

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Value Beyond Cost Savings: How to Underwrite Sustainable Properties3. Building Energy UseIn summary, evidence from the key studies to date looking at actual energy-use savingsfrom LEED certified buildings 44 suggests such buildings use 15% to 40% less “site” energythan non-LEED buildings, consistent with the anecdotal evidence the Consortium hasaccumulated from numerous case studies. 45 Actual energy savings in EnergyStar buildingshas also been found to be in the 30% range.While average site energy savings range from 15% to 40% in key studies, there is an evenwider variability in performance around the mean More importantly for real estateinvestors, actual energy performance was not closely correlated with modeled performanceat the property level, increasing uncertainty and risk in forecasting savings. Many factorsare cited to explain the variability in forecasts including the occupancy type and energyintensity of the users.The most widely cited source of energy performance evidence, the February 2008 NewBuilding Institute study, has been challenged by subsequent research. The 2008 NBI studyconcluded that LEED certified buildings on average use 25-30% less energy than non-LEED buildings. An initial follow-up study refining the NBI data and analysis concludedthat energy savings were as low as 18%, ranging from 18% to 39%, but that 28% to 35% ofthe LEED buildings actually used more energy than similar conventional buildings. Asecond follow-up study reported as its main conclusion that LEED office buildings onaverage used 17% less site energy, but total source energy for LEED buildings was actuallyhigher than the corresponding average for similar commercial stock.Each of these three key studies brings up a myriad of complex statistical and energymeasurement issues, and offers conclusions that suggest investors/valuers need to becareful in applying any general statistics to specific property analysis, and be skepticalconcerning forecast energy savings or links between environmental certification and energysavings.However, as LEED and other environmental certifications are becoming more energysensitive, and energy technologies and strategies become more tested, results andcommentary from properties certified in the first five years of this century will not definewhat is possible or likely with energy efficiency and renewal strategies. The key is to be aninformed consumer of “scientific” research.Each of the key studies identified below are analyzed in detail in Expanded Chapter IV.44 It should be noted, and considered in evaluating the results, that even the studies cited here published in 2008/2009only evaluate buildings certified through 2006.45 Most building managers are familiar with site energy, the amount of heat and electricity consumed by a building asreflected in utility bills. Source energy represents the total amount of raw fuel that is required to operate the building. Itincorporates all transmission, delivery, and production losses, thereby enabling a complete assessment of energyefficiency in a building. More detail on the differences and their importance can be found athttp://www.energystar.gov/index.cfm?c=evaluate_performance.bus_benchmark_comm_bldgs .66
Value Beyond Cost Savings: How to Underwrite Sustainable Properties• “Evaluating the Energy Performance of the First Generation of LEED-CertifiedCommercial Buildings,” Rick Diamond, Mike Opitz, Bill Von Neida, ShaunHerrera, 2006• “Energy Performance of LEED NC Buildings,” Kathy Turner and Mark Frankel,New Building Institute, Feb. 29., 2008; G.R. Newsham., S. Mancini, and B. Birt• “Do LEED-certified buildings save energy? Yes, but...,” The National ResearchCouncil of Canada, Aug. 2008• “A Re-examination of the NBI LEED Building Energy Consumption Study,” JohnH. Scofield, Oberlin College, OH, August 2009• “The Financial Benefits of ENERGY STAR Labeled Office Buildings,” GregKatz and Jeff Perlman, February 2007• “Participation in Voluntary Programs, Corporate Reputation, and IntangibleValue: Estimating the Value of Participating in EPA’s ENERGY STAR®Program,” Lou Nadeau, Jeff Cantin and Richard Wells, June 24, 2003• “Energy Management & Investor Returns: The Retail Merchandising Sector,”Innovest Strategic Value Advisors, February 2003• “The Proof is Performance: How Does 4 Times Square Measure Up?” Adam W.Hinge, P.E. and Donald J. Winston, P.E., High Performance Buildings, Winter2008• “Energy Management & Investor Returns: The Real Estate Sector,” InnovestStrategic Value Advisors, October 2002• “Core Performance Guide,” New Buildings Institute, Inc., July 20074. Occupant PerformanceThe fourth key component of sustainable building performance that we cover in this sectionof the condensed book is occupant performance. Occupants (tenants, owner-occupants, orvisitors/customers) are the most critical component of building performance. Individualsand/or enterprises that are healthy, productive, profitable, and happy as a result of theirbuildings should respond favorably from a market perspective, enabling higher revenues,reduced risk, and improved financial performance for building owners.67
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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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Property Type: CBD OfficeSquare Fee
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Value Beyond Cost Savings - Green Building Finance Consortium

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