James Finlay: Top 10 EE Concept Missteps

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  • 1. Energy Efficiency Investments & Valuations : Concepts and Missteps James F. Finlay VP, Commercial Real Estate Appraisal Manager Wells Fargo Bank – RETECHS Los Angeles Chair, Real Estate Finance Committee, USGBC-LAPenn Institute for Urban Research Energy Efficient Building HubUrban Outfitters, Navy Yard, Philadelphia PA Jan 14, 2013
  • 2. Top Ten Value, Investment Hurdles• Why is investment in energy efficiency not at the level that it “should” be?• What will it take to move the dial, increase market penetration?• Recognize the top conceptual hurdles: can be counterintuitive, entrenched, undeveloped
  • 3. Appraisal, banking1. “As Proposed” does not equal “As Stabilized” construction lending underwriting is vastly different than collateral with a 3 year stabilized history2. “Seven Tribes of RE” investment risk cultures hurdles and options are different per RE asset class3. “Don’t know does not = Zero”; Disproving the null hypothesis – fallacy that “there is no market data so value is zero”
  • 4. Retrofits4. “One step” deep retrofits vs low hanging fruit first – logic vs human’s tendency to act on personal experience5. Time the EE upgrade to the natural CapEx investment cycle – do deep retrofits with balanced system design in synch with the capex upgrades6. Deep retrofits need to consider “value beyond cost savings” – income, vacancy, expenses, risk, reputation, productivity
  • 5. Investments7. “The Simple Payback Fallacy” – not including reversion makes no sense, is misleading8. “Without incentives solar, wind, renewable don’t pencil” - what about tax and investment benefits for oil, coal, gas, nuclear? Cost per kWh key
  • 6. Behavior, Historic Solutions9. “Upside opportunity” is not equal to “downside loss” – Emotional impact of potential gain is half of the impact of losing what you have10.Complex credit problems have been solved before – SBA, hazardous materials impacts: credit enhancement and/or expert reports
  • 7. Behavior, Historic Solutions9. “Upside opportunity” is not equal to “downside loss” – Emotional impact of potential gain is half of the impact of losing what you have10.Complex credit problems have been solved before – SBA, hazardous materials impacts: credit enhancement and/or expert reports