Book 4 - Appraisal Institute of Canada

Can appraisers adapt toclimate change?By John Peebles, AACI, P. Appn February 2, 2007, theUnited Nations-sponsoredIntergovernmental Panelon Climate Change (IPCC) releasedits fourth assessment report, concludingthat climate change is“unequivocal” and that human activityis the main driver of this warming,asserting with near certainty– more than 90% confidence – thatcarbon dioxide and other heat-trappinggreenhouse gases from humanactivities have been the main causesof warming since 1950. Whetheryou agree with IPCC or not, climatechange is front page news. Ourpolitical and business leaders areincreasingly mirroring the publicconcern over climate change with‘green’ economic strategies. 1Evidence that the valuation communityis embracing the green megatrendis the Vancouver Accord, signedby international industry representativesand valuation professionals onMarch 2, 2007, at the VancouverValuation Summit. Vancouver Accordgoals are to:• commit the industry to a review ofthe relationship between sustainabilityand standards of valuation;• promote awareness of and competencyin the appropriate methodsof addressing sustainability in valuationsand worth appraisals; and• work with those inside and out ofthe valuation industry to educateand inform about sustainabilityand its relationship to value andworth.The objective here is to focuson one of these goals, increasingappraiser awareness of the relationshipbetween green buildings andmarket value. Why? Green buildingdesign is moving from the domainof institutional and special purposeproperties to mainstream applicationsin industrial, retail and officecommercial markets. Evidence ofthis trend can be found in recentannouncements for new green designoffice and mixed-use projects in majorCanadian centres. 2 Appraisers need tounderstand the design, operation andeconomics of green buildings to understandhow markets will react to theseproperties.Our continuing green education willlikely centre on the following questions:• How do we define green or sustainablebuildings? What propertyattributes will alert us to the differencesbetween green and similarconventional buildings?• What are the economics of greenbuildings, e.g., initial constructionand life-cycle costs, annualrevenue-operating expenses, andvacancy and market capitalizationrates?• Is the slogan ‘green value’ fact ormarketing hype? How are marketforces responding to green buildings?• Should the appraisal professionaccount for the potential intangiblevalues of green buildings, such asincreased tenant satisfaction andproductivity, and social corporateresponsibility?Lower operating expenses, specificallyfor energy consumption, areoften promoted as a benefit of greenbuildings. This article relies on a literaturereview and property case studyto examine two questions aboutgreen building operating expenses.(1) Do green buildings, on average,have lower operating expenses(e.g., energy costs)?(2) If this expense advantage exists,is it reflected in market value?The Regional Municipality of Niagara recently expanded its Campbell East, NiagaraRegion headquarters in Thorold, Ontario and incorporated such energy efficientfeatures as high thermal resistance in the walls and roof, high performance windows,efficient condensing boilers, occupancy sensors for lighting efficiency, and low flowwater fixtures, among others. (Photo: Enermodal Engineering Ltd.) Photo courtesy ofthe Canada Green Building Council www.cagbc.orgC a n a d i a nAppraiserE CVolume 51 • book 4 • 2007 valuateura n a d i e n 41