Frank Hovorka_caisse des depots_2011-11-02_Sustainable performance and value

Sustainable performance and value : Finding the linkshow to work with the necessary complexity or several key performanceindicators throughout the different real estate professions. Frank Hovorka Head of real estate sustainable policy

Key figures of CDC group ■ Consolidated assets: €255.6 billion ■ Equity: €19.2 billion ■ Funds managed by Caisse des Dépôts: €224 billion ■ Rating: AAA/AaaUnique status:Caisse des Depôts has a unique status enshrined in the founding law dating from 1816whereby it was “placed, under the most special surveillance and guarantee of thelegislative authorities”.The Chairman and Chief Executive Officer of Caisse des Dépôts is appointed by adecree of the President of the French Republic and takes the following oath of officebefore the Supervisory Committee:“I swear… with all of my powers to uphold the inviolability of Caisse des Dépôts.”. 2 3 novembre 2011

Caisse des Dépôts Group ■ manages from public regulated savings accounts and invests these on a secure basis in projects in the public interest, particularly social housing, ■ acts as public banker to the judicial and social security systems, ■ manages public and semi-public pension schemes, ■ invests in regional and local development alongside local authorities, ■ acts as a long-term investor in the French economy, ■ participates in national economic development via its subsidiaries. Caisse des Dépôts comprises the public institution and a number of subsidiaries: ■ business and infrastructure financing: Strategic Investment Fund, CDC Entreprises Qualium Investissement, CDC Infrastructure ■ personal insurance: CNP Assurances ■ real estate: SNI group, Icade ■ services: Transdev, Egis, Compagnie des Alpes and Belambra ■ Environment: CDC Climat, Société Forestière and CDC Biodiversité.3 3 novembre 2011

Value through cities ranking Attractivity: ■ Cultural ■ Connectivity ■ Density ■ People education ■… Tomorrow: Green City Index ?4 3 novembre 2011

Examples: Lyon ■ Rationale – to improve Lyon’s conurbations ranking and to improve social cohesiveness ■ Initiated by Raymond Barre (1997) ■ Bringing together 54 municipalities ■ A united, competitive conurbation: 21 priorities for the 21st century ■ A conurbation opened to other cultures and the world at large ■ An attractive liveable conurbation ■ A conurbation encouraging the spirit of enterprise ■ A conurbation encouraging life-long learning ■ A conurbation putting participatory democracy to work5 3 novembre 2011

Examples: Lyon ■ The Plan of Action for Technopolitan Metropolis (three poles: a top ranking scientific and academic pole; a sport and entertainment pole, a leisure zone) ■ The Bienalle de la Danse ■ The Science and Society Museum6 3 novembre 2011

Examples: Bilbao ■ Early 1990s – collapsed shipbuilding industry, 30% unemployment, aggravated environmental problems ■ Mobilisation of local actors – new vision to be developed using prospective methodology ■ Five aims: ■ Identification of opportunities in the new economic sectors ■ Taking account of long-term results ■ Connecting the economy to the civil society ■ Providing a collaborative leadership ■ Masterminding the regeneration process7 3 novembre 2011

Examples: Bilbao ■ 50% of initiatives proposed were put in effect ■ Flagship projects serving as catalystsThe Guggenheim MuseumThe new WaterfrontThe UndergroundThe Euskalduna Conference& Concert Hall8 3 novembre 2011

Planning vs. Futures ‘Traditional’ Planning ‘Futures’ Planning Perspective Partial, ‘everything else being Overall, ‘nothing else being equal’ equal’ Variables Quantitative Qualitative Objective Subjective Known Unknown Relationships Statistical Dynamic Stable Structures Emerging Structures Explanation Past explains the present Future is the raison d’etre of the present Picture of the Future Simple & certain Multiple & uncertain Method Deterministic and Qualitative, behavioural and Quantitative models stochastic models Attitude to the Future Passive or adaptive (the future Active and creative (the futures is will be) shaped)9 3 novembre 2011

How will you be working? How will you live? What will you stand for? The professional challenge10 3 novembre 2011for the 21st Century

Urban morphology and flows People Infrastructure, connectivity mobility Land use Flows : people and goods Land property and regulations impact Build shape, energy impact and waste management11 3 novembre 2011 Source: S. Salat urban morphology lab

Example : a smartgrid for what?12 3 novembre 2011 Source: IISBE Salat, Bourdic, Larson, Hovorka

Towards Synergy Grids Optimization of supply and demand for neighborhood-scale systems ■ Buildings with a deficit or surplus of : ■ thermal energy; ■ domestic hot water; ■ grey water; ■ DC power; ■ parking spaces; ■ Owners of private electric vehicles with a deficit or surplus of DC power13 3 novembre 2011

Towards Synergy Grids14 3 novembre 2011 Source: IISBE Salat, Bourdic, Larson, Hovorka

Structuring and Sizing Grids « Scale Free Complexity » concept Each level of the grid has to display the same level of complexity, no matter the scale considered15 3 novembre 2011 Source: IISBE Salat, Bourdic, Larson, Hovorka

Structuring and Sizing Grids Insights from hard-core thermodynamics: Power laws Energy Scale free complexity Efficiency Hausmannian Paris16 3 novembre 2011 Source: IISBE Salat, Bourdic, Larson, Hovorka

Structuring and Sizing Grids Most of the natural networks display scale free complexity, to optimise energy efficiency Neuronal networks Trees Blood systems17 3 novembre 2011 Source: IISBE Salat, Bourdic, Larson, Hovorka

Example: district of tomorrow in Netherlands The Site/district: no fossil fuels allowed Energy All functions selfsupplying or from overall production unit ( winturbines etc) Materials Reduction and preference for renewable materials, regionally and locally produced Water All water going out as clean as it came in. Land net built upon land increase = 0. ( That is the equal surface has to become available for other functions ( stack functions, energyroof, greenhousesroof etc) Food: Active search for combination that involve food production Economy/regulations Research will be started with market parties to find creative and constructive financial solutions for market introduction and policy/regulation support18 3 novembre 2011

Besides houses, many other elements are developed, Food and energy 0-energy or designed, constructed and production plus houses researched testing Urban Material-neutral windturbines houses 4 Exergy conceptServicecentre 2 3 Renewable material production 1 Mini- 0-water district hydropower Electric transport Sustainable road (retrofit car)19 3 novembre 2011 PV loading station Public lighting as service

For constructing the projects we created:Tender “Sustainable shopping”Buying materials and products for construction ofthe 1st house in an open tender for innovativeoffers by the market. Some of the selection criteria : - Material criteria - Energy criteria - Way of Delivery - Proposed financial construction - ‘Service’ offer in stead of product buy - co-operational variants20 3 novembre 2011

Value : ■ Location ■ Connectivity infrastructure ■ Local services and shops (density) ■ Security ■ Attractivity ( image…) ■ Quality ■ Indoor environemental quality ■ Energy performance ■ Lifespan ■ flexibility21 3 novembre 2011

From past market mirror to valuation22 3 novembre 2011 Source : D. Lorentz

Uncertainty23 3 novembre 2011 Source: S Sayce

Risk management24 3 novembre 2011

How sustainability impacts market value of real estate • Changes in tenants expectations • Lower costs for maintenance and servicing (+) activities (-) • Lower share of operating costs (+) • Lower investments to sustain building at market level (-) • Lower costs of fittings (+) • Lower rent waivers (-)Market net operating income (market rent – owner’s operating costs) =value Cap rate (risk free rate + risk premium – growth + depreciation) • More cash flow (-) • Competitiveness (+) • Longer life span (-) • Improved marketability (-) • Rising energy costs (+) • Longer compliance with increasingly stringent • Shorter vacancy periods (-) • Sustainability hype (+) legislation (-) From Dr. David Lorenz, MRICS 25 3 novembre 2011 25

Recent research results Criteria Research name Parution impact Miller & al. 2008 0 to 3% Eichholtz, Kok & Quigley 2008 et 2009 3 to 6% Rental value Fuerst & McAllister 2008 et 2009 4 to 6% Pivo & Fisher 2009 5% Leopoldsberger & al. 2010 0 to 6% Wiley & al. 2010 7 to 17% Salvi & al. 2008 3 to 7% Miller & al. 2008 6 to 10% Asset valuation Eichholtz, Kok & Quigley 2009 16% Fuerst & McAllister 2009 31 to 35% Pivo & Fisher 2009 13% Fuerst & McAllister 2010 3 to 8% Occupancy rate Wiley & al. 2010 10 to 18%26 3 novembre 2011

Survey in Australia27 3 novembre 2011

Additive versus Integrative Approach 2828 3 novembre 2011 Source T. Lutzkendorf

“Longlist” of valuation-relevant property characteristics & attributes (main structure) Main criteria groups Sub-criteria groups National market Location Macro-location Micro-location Characteristics and configuration Plot of land Surroundings Basic building description Sustainability-aspects aspects Technical quality Functional quality Building Environmental qulity Design / Aesthetic quality Urban design quality Cultural value Health / comfort / satisfaction of inhabitants, user and visitors Market Payments-in Economic quality / Payments-out cash flow Vacancy / Letting situation Tenant and occupier situation Building Image Brand value / Other Planning quality 2929 3 novembre 2011 Construction quality Process quality Management quality

Valuation sensitivity30 3 novembre 2011 Source T. Lutzkendorf

Example of energy : NZEB during the life cycle? Embodied energy Building needs (conventional Transport calcul) Specific Specific Embodied Mobility use energy use electricity Building Local needs renewable energy Local renewable production 3 3 novembre 2011 or novembre 2011 Source: Franck Richard ADP31 31 At construction In use per year Département Etudes, Planification Stratégique et Développement Durable refurbishment

Energy linked to a building: 4 main blocks Building energy Specific electricity Actual new building: 130 to 250 kWhep/m²/an Housing : 10 à 50 kWhep/m²/an NZEB : 40 to 65 kWhep/m²/an Office: 30 to 300 kWhep/m²/an Embodied energy Transport New building : French average daily distance: ≈ 1200 kWhep/m² 16km « As usual »NZEB: 20 km : ≈ 1600 kWhep/m² by car : 6450 kWhep/an bus: 630 kWhep/an32 3 novembre 2011

Energy and Carbon ■ NZEB : Production ≥ use 0,25 m² PV/m² P Embodied V energt50 kWhEP/m².a Energy in use -2,5 kgCO2/m².a 50 years ? 2,5 kgCO2/m² =renewable production Zéro Carbon 2,1 m² PV /m² !!! Energie Carbon emission PV PV grise bâtiment throughout lifespan50 kWhEP/m².a 2,5 kgCO2/m² Consommation 50 ans -23 kgCO2/m².y 25 years :lifespan of PV cells Renewable production 33 33 3 novembre 2011

Transparency and follow up Mandatory design construction In use Simulation Metering Real consumption - Construction - regular metering -Calcul hypothesis Mandatory quality - Tuning from hypothesis input calculation - Maintenance and - needed metrology modification - Bioclimatism for checking and tuning Performance Performance waranty at waranty in use delivery34 34 3 novembre 2011

COOPERATION – Data is valuable Source: Lützkendorf and Lorenz, 2011Manufacture / Production Planning / Disposal & Design / RecyclingEngineering Construction / Facility Commissioning / Management Modernisation35 3 novembre 2011

Conclusion ■ Changing legislative environment ■ Changing market landscape ■ Changing occupier behaviour ■ Changing investor strategies ■ Changes to future value36 3 novembre 2011

Frank Hovorka_caisse des depots_2011-11-02_Sustainable performance and value

by Sitra Energia on Nov 18, 2011

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