Capital Markets Partnership 1 10 09

  • 536 views
Uploaded on

Capital Markets Partnership's Sustainable Investment Initiative

Capital Markets Partnership's Sustainable Investment Initiative

More in: Technology
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
536
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
52
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. FSC Certified Wood Stops Illegal Logging & Irreversible Dangerous Climate Change Sustainable Investment Initiative Green & Climate Neutral Buildings Reduced Risk & Higher Valued Collateral Green Mortgages Cheaper Cost of Capital / Increased Liquidity Sustainable Building Securities Certified Sustainable Product Investment Green Building Underwriting Standards Improve quality of life
  • 2. Sustainable Investment Initiative Green Building Financing Program San Diego Pilot
    • - $1B mixed use complex
    • - LEED Platinum +
    • - CMP Green Value Score: 77
    • Section on Bond Offering
    • Official Statement
    • documenting higher value.
    • San Francisco Pilot
    • Existing building refinance to
    • minimum Green Value Score
    • - City, BOMA & CBRE Partners
    • Cheaper cost of capital pursued
    • Seattle Pilot
    • LEED Gold $300M complex
    • Public / Private / Mixed Use
    • Section on Bond Offering
    • Official Statement
    • documenting higher value.
  • 3. Sustainable Investment Initiative Green Building Financing Program
    • Sustainable Building Security
    • - $500M Pool through Freddie Mac
    • Green buildings qualified by
    • Underwriting Standard CMP
    • Green Value Scores
    • Section on Bond Offering
    • Official Statement
    • documenting higher value.
    • California AB 811 Model Resolution
    • $200B market
    • - Minimum Green Value Score
    • Leveraging local government
    • financing with investment bank
    • and investor funds
    • Cheaper cost of capital pursued
  • 4. Capital Markets Partnership – Partial List City of San Francisco City of Chicago City of Dallas City of Denver City of Miami City of New York City of Oakland City of San Jose City of Santa Monica City of Seattle
  • 5. Capital Markets Partnership CMP Officers , Chairman, Hon. Gavin Newsom, San Francisco Mayor, USCM Green Building Underwriting Standards Committee Sustainable Investment & Finance Committee GHG / Carbon Credit Monetization Sub-Committee Education Sub-Committee Standards Equivalency Sub-Committee Standards Adoption Sub-Committee
    • Sustainable Protocol
    • & Underwriting Standards
    • Due Diligence Framework
    • Green Building Industry
    • Value Rating System©
    • $3.2T Institutional Investor Survey
    • Business Case (Peer Review)
    • Standards Development
    • Executive Briefings (Peer Review)
    • Consensus Standards Approval
    • Green Building Financing
    • Product Development
    • Market Adoption
    Sustainable Investment Protocol Operating Group
  • 6. Capital Markets Partnership CMP Officers Green Building Underwriting Standards Committee EMERGENCY Consensus Standards Launched in April 2008 by JPMorgan Chase, Wells Fargo Wachovia Unanimously Approved September 2, 2008 Officers Wade Crowfoot , Director, Climate Change Initiatives, San Francisco Mayor Gavin Newsom Steve Hoffmann , President, Hoffmann & Associates Rich Pietrafesa , Managing Director, Destiny USA Tomek Rondio , President, Mortgage Green Michael Schneider , Vice President, Marxa Kubo Mario Silvestri , Vice President, Wells Fargo Ken Willis , Vice President & Director, Federal Home Loan Bank of Boston Dan Winters , Managing Principal, Evolution Partners
  • 7. Develop / Finance / Occupy Green Buildings
  • 8. What is “Green” in the Real Estate Industry?
    • Best business practices
      • Maximize efficiency aspects in construction / operations
      • Minimize waste and costs
      • Capture ‘free’ inputs from natural environment
      • Increased architect / engineer / contractor coordination
    • Mark of high-quality construction and asset value via several third-party verification processes
    • A product differentiation marker based on:
      • Energy and water cost savings
      • IEQ and associated health benefits
      • Amenities
      • Asset quality (perceived / real)
  • 9. Why Are Investors / Companies Going “Green”? It’s just business……
    • Operational cost efficiency
    • Risk reduction
    • Best management practices
    • Employee productivity
    • ‘ Halo effect’
  • 10. CFO Research Services / Jones Lang LaSalle Report March 2008
    • Top Sustainability Priorities
    • Improve energy efficiency
    • Reduce carbon footprint
    • Reduce environmental impact of operations
    • Manage risk
    • Barriers – CFO / Executive Reponders
    • Lack of decision framework / tool
    • Inability to measure effect on shareholder value / investor returns
    • Not integrated into financial management and control systems
    • Respondent Quote
    • “ As more efficient measuring tools are created and utilized, finance’s role in sustainability efforts will be greatly enhanced.”
    Survey Metrics: 175 responses – senior finance executives 95% from companies w/ over $500MM revenue
  • 11. Economic Benefits Projected* 70% US Commercial Green Building Market Penetration * Energy Savings & Daylighting:              $36 Billion/yr Construction Waste Reduction:           $6.7 B/yr Water Pollution Savings from Water Conservation:    $20 B/yr Energy Savings from appliances & Lighting:               $24 B/yr Added Value from Increased Occupant Productivity (5%), IAQ & Reduced Absenteeism:              $632 B/yr Health Care Savings $75 B/yr Emission Reductions’ Market Value: $ 1.1 B/yr Total                                      $795 Billion/yr. value added * 1. Leonardo Academy / MTS Projections 2003, Surgeon General 2006 (certified bdgs). 2. Green retail buildings will also accrue increased retail sales. 3. Excludes overwhelming benefits from avoided climate damages, & originator profits. 4. Dollar benefits are $200B/yr. for UK, $200B/yr. for rest of Western Europe, $87B/yr. for Canada & $80B/yr. for Australia. MBS is $4 trillion global industry (SEC 2003).
  • 12. Capital Markets Partnership
  • 13. Before it’s too late Capital Markets Partnership
  • 14. US Conference of Mayors Support Resolution June 2008
  • 15. UK – Stern Review – Nov ‘06
    • Report analyzes economic global impacts of climate change
      • “ Business as Usual” vs. global innovation and market-based intervention
      • QUOTE: “Climate change…greatest and widest ranging market failure ever seen…”
    • Relates costs/risks on economic, environmental, and social scales
      • Floods / Storms
      • Agriculture Yields
      • Fresh Water Access
      • Disease
    • Bush White House 2008 Climate Report Concurs with these Impacts
    • Mass Human and Species Migration
    • Species Extinction
    • Heat Waves / Cooling / Doughts
    PROJECTED GLOBAL WARMING ECONOMIC IMPACT - Up to 20% of Global GDP
  • 16. Electricity Transportation Heating Allocation of 6.2 GtC/yr Electricity: 40% Fuels used directly: 60% Underwriting Standards & SBS Global Carbon Reduction in 5-10 yrs Enhances Energy Security & Stops Imminent Irreversible Dangerous Climate Change Fossil fuel use in 2000 (IEA) Allocation of 6.2 GtC/yr. (Princeton) Buildings generate most of world’s climate pollution from electricity and heating. On average, certified buildings have 50% less conventional energy & climate pollution.
  • 17. LEED EB CERTIFIED National Geographic Society Headquarters, Wash., DC The Society added $16M in value from this LEED certification from a higher appraised value, raising tenant rents, lower operating costs, increased credit rating from Moody’s, & lower interest rates on large loans secured to the building. Presentation at 2003 Congressional Green Building Luncheon by Chris Liedel, CFO, National Geographic Society.
  • 18. SMaRT Sustainable Product Standard Adopted by Leading Fortune 500 Co’s, Fireman’s Fund, US Green Building Council’s LEED, & Underwriting Standards. C overs 80% of the world’s products.
    • Multiple environmental, social & economic benefits over global supply chain. Economic benefits exceed green buildings.
    • Maximum Credit for Certified Products With :
      • 100% reduction of 1000 pollutants
      • 100% Green-e power use & conventional energy reduction
      • 100% postconsumer recycled content
      • 100% biobased organic content w/BMPs
      • 100% reuse/reclamation
      • Social equity requirements
      • 300 manufacturer reps are educating their customers
    Capital Markets Partnership
  • 19. Capital Market Focus on “Green” Financially Tangible Asset Attributes
    • Energy efficiency & onsite green power
    • Water efficiency
    • Location aspects
      • Transit orientation
      • Pedestrian accessibility
      • Neighborhood amenities
    • Indoor environmental quality
    • Market positioning
    • Obsolescence risk
      • Bifurcated market – green vs. non-green (aka “brown”)
  • 20. Green Building Underwriting Standards Principles
    • Easy entry / differentiate superior performance
    • Easy to analyze / simple to implement
    • Disciplined
      • Tangible financial impacts
      • Acknowledgement of intangible value
    • Utilize consensus standards / reduces risk
    • Third-party verified
    • 6. Standard Unanimous Approval
      • Broad industry invitations and participation
      • Significant comments and amendments
      • ANSI consensus process
  • 21. Structure – Green Building Underwriting Standards
    • Recognizes and incorporates existing industry standards
      • Comprehensive
      • Transparent
      • Market-driven
      • Consensus-based
    • Standards include
      • EPA EnergyStar
      • USGBC LEED Rating System
      • MTS Climate Neutral
    • Performance based
      • Energy
      • Water
      • Indoor environmental quality
    • Third-party verification requirement
      • Self-Regulation = No Regulation = Wild West
    What is it? How does it work?
  • 22. EPA ENERGY STAR – Overview
    • Government-backed program helping businesses and individuals achieve superior energy efficiency
    • Energy performance rating tools
      • ENERGY STAR Portfolio Manager (existing buildings)
      • ENERGY STAR Target Finder (new construction)
    • Scoring system of 1-100
      • Commercial buildings
        • Bell curve based on statistically significant comparative data set
        • Higher score is better
          • Median = 50
          • ENERGY STAR Certified buildings score 75 or higher
      • Residential buildings
        • Based on energy consumption / HERS test
        • Lower score is better
  • 23. USGBC’s LEED ™ Rating System Leadership in Energy and Environmental Design
    • Environmental Responsibility Defined For Buildings
    • Answers question: “What exactly is an environmentally-responsible building?”
    • Third party certification of environmental achievement
    • LEED Implementation
    • Point-based system
    • Broken into categories
    • Sustainable Sites 14 Points
    • Water Efficiency 5 Points
    • Energy & Atmosphere 17 Points
    • Materials & Resources 13 Points
    • Indoor Environmental Quality 15 Points
    • Innovation 5 Points
    • TOTAL POSSIBLE POINTS 69 Points
    Certified 26-32 points Silver 33-38 points Gold 39-51 points Platinum 52-69 points
  • 24. Climate Neutral Certification
    • Consensus national standard
    • Certifies carbon neutrality
    • Certification process:
    • Audit baseline energy use
    • Implement efficiency measures
    • Address remaining energy use:
      • Install onsite renewable energy;
      • Purchase “Green-e” renewable energy;
      • Purchase/retire “Green-e” REC’s; and/or
      • Purchase annual emissions offsets based on the Cleaner and Greener ® program requirements
    • Certify by accredited 3 rd party professional
  • 25. Implementation Example Capital Markets Partnership GreenValue Score Formula Energy Star Score = 75 LEED Silver Certified Near Mass-Transit Energy / Water LEED Credits Various IEQ LEED Credits 75 68 30 24 5 0 59 = 59 C M P GREEN SCORE
  • 26. Example Capital Markets Partnership Commercial GreenValue Score Application
    • LEED Gold certified office building
    • EnergyStar score = 80
    • Green Building Underwriting Standard score = 74
    • Climate Neutral certified
    • = 78
    C M P GREEN SCORE
  • 27. Why This Matters Risk Management / Transparency
    • Real Estate Value
    • Cash Flow
    • Timing of Cash Flow
    • Risk of Receiving Cash Flow
  • 28. Risk Management
    • Lower operating expenses
      • Energy / water price volatility
      • Energy / water efficiency and conservation
      • Energy – peak load demand
      • Insurance
      • Waste disposal
      • Maintenance
      • Capital expenditures
    • Commercial - Evolving corporate green policies
      • Impact on tenant demand
        • Potential for two-tiered market
        • Obsolescence risk
      • Improved tenant satisfaction / retention
    • Future regulatory compliance
    • CO2 trading
      • Cost increases based on CO2 / ton used to power asset
      • Value capture
    • Current / future tax incentives
    • Building health / IAQ liability
    • Informs investment consideration, capital access and pricing
    • Real Estate Value
    • Cash Flow
    • Timing of Cash Flow
    • Risk of Receiving Cash Flow
  • 29. Why This Matters Risk Management / Transparency
    • Lower operating expenses
      • Energy / water – price volatility
      • Energy / water – efficiency and conservation
      • Energy – peak load demand
      • Insurance
      • Waste disposal
      • Maintenance
      • Capital expenditures
    • Evolving investor green policies / preferences
      • Impact on investor demand
        • Potential for two-tiered market
        • Obsolescence risk
      • Improved tenant satisfaction / retention
    • Future regulatory compliance
    • CO2 trading
      • Cost increases based on CO2 / ton used to power asset
      • Value capture
    • Current / future tax incentives
    • Building health / IAQ liability
    • CMP Green Value Score is a simple yet comprehensive tool informing:
    • Relative investment risk
    • Prediction of investment performance
    • Leads to capital access opportunities/constraints and may affect capital pricing
    • Real Estate Value
    • Cash Flow
    • Timing of Cash Flow
    • Risk of Receiving Cash Flow
  • 30. Applicability – CMP GreenValue Score Reporting Tool (Optional) Reporting Portfolio Management Lending Asset Management Appraisal Finance Decision Tool
  • 31. Applicability – CMP GreenValue Score Leasing / Market Position TI’s – Value Focus Capital Budgeting Reporting Portfolio Management Lending Asset Management Appraisal Finance Decision Tool
  • 32. Applicability – CMP GreenValue Score Leasing / Market Position TI’s – Value Focus Capital Budgeting Relative Value Indicator Focused Risk Analysis Obsolescence Signal Reporting Portfolio Management Lending Asset Management Appraisal Finance Decision Tool
  • 33. Applicability – CMP GreenValue Score Leasing / Market Position TI’s – Value Focus Capital Budgeting Relative Value Indicator Focused Risk Analysis Obsolescence Signal Buy / Hold / Sell Capital Raising Reporting Portfolio Management Lending Asset Management Appraisal Finance Decision Tool
  • 34. Applicability – CMP GreenValue Score Leasing / Market Position TI’s – Value Focus Capital Budgeting Relative Value Indicator Focused Risk Analysis Obsolescence Signal Buy / Hold / Sell Capital Raising Consultants Investors Analysts Reporting Tool (Optional) Reporting Portfolio Management Lending Asset Management Appraisal Finance Decision Tool
  • 35. CMP GreenValue Score Leasing / Market Position TI’s – Value Focus Capital Budgeting Reporting Tool (Optional) Relative Value Indicator Focused Risk Analysis Obsolescence Signal Buy / Hold / Sell Capital Raising Consultants Investors Analysts Reporting Portfolio Management Lending Asset Management Appraisal Finance Decision Tool
  • 36. Financial Product Development Using the CMP GreenValue Score in Practice PUBLIC DEBT EQUITY PRIVATE
    • Pension Investors
    • Commingled Funds
    • Separate Accounts
    • Syndicates
  • 37. Financial Product Development Using the CMP GreenValue Score in Practice PUBLIC DEBT EQUITY PRIVATE
    • Pension Investors
    • Commingled Funds
    • Separate Accounts
    • Syndicates
    • Commercial Banks
    • Life Companies
    • Syndicated Loans
    • Federal Home Loan Banks
    • Affordable Housing
    • Community Investment
  • 38. Financial Product Development Using the CMP GreenValue Score in Practice PUBLIC DEBT EQUITY PRIVATE REIT Analysis Real Estate Operating Co. Analysis
    • Pension Investors
    • Commingled Funds
    • Separate Accounts
    • Syndicates
    • Commercial Banks
    • Life Companies
    • Syndicated Loans
    • Federal Home Loan Banks
    • Affordable Housing
    • Community Investment
  • 39. Financial Product Development Using the CMP GreenValue Score in Practice PUBLIC DEBT EQUITY PRIVATE REIT Analysis REOC Analysis
    • Pension Investors
    • Commingled Funds
    • Separate Accounts
    • Syndicates
    • “ GOE” Securities
    • Fannie
    • Freddie
    • Securitizations (….if any)
    • Covered Bonds
    • Commercial Banks
    • Life Companies
    • Syndicated Loans
    • Federal Home Loan Banks
    • Affordable Housing
    • Community Investment
  • 40. Financial Product Development Using the CMP GreenValue Score in Practice PUBLIC DEBT EQUITY PRIVATE REIT Analysis REOC Analysis
    • Pension Investors
    • Commingled Funds
    • Separate Accounts
    • Syndicates
    • “ GOE” Securities
    • Fannie
    • Freddie
    • Securitizations (….if any)
    • Covered Bonds
    • Commercial Banks
    • Life Companies
    • Syndicated Loans
    • Federal Home Loan Banks
    • Affordable Housing
    • Community Investment
  • 41. Investment Performance
    • Increased cash flow
      • Revenue and expense side
        • Debt Service Coverage Ratio
        • Loan-to-Value buffer
    • Cap rate adjustments
      • Positive (at minimum neutral) / annual net operating income / cost (or value) = Capitalization Rate
    • Investor demand
      • Requires transparent tracking/reporting
      • Capital attraction to risk reduction
  • 42. Mechanics Green Building Underwriting Standards
    • I. Information Disclosure
      • Energy Star score of 1-100 (Portfolio Manager or Target Finder)
      • LEED certification and scorecard
      • Climate Neutral certification
      • Commissioning report (recommended)
    • II. Analyze LEED scorecard for specific LEED points achieved
    • Focus placed on a subset of specific LEED credits
      • Energy efficiency
      • Water use
      • Indoor environmental quality
    • Rate revenue/expense impacts of strategies employed
    • Relative scale compared to a ‘market’ asset
    XXXXX XXXXXXX XXXXX -5 -4 -3 -2 -1 0 1 2 3 4 5 LOW MEDIUM MEDIUM HIGH HIGH
  • 43. Implement Full LEED Scorecard Analysis SS-1 – Site Selection SS-2 – Density/Connectivity SS-4.1 – Public Transportation Access WE-3.1/3.2 – Water Use Reduction EA-1 – Energy Efficiency / ENERGYSTAR Score EA-2 –On-Site Renewable Energy EQ-1 – Outdoor Air Monitoring EQ-2 – Ventilation Effectiveness EQ-3.2 – IAQ Management Plan EQ-4.1 – Adhesives / Sealants EQ-4.2 – Paints and Coatings EQ-4.4 – Composite Wood / Agrifiber EQ-5 – Indoor Chemical / Pollutants EQ-8.1/8.2 – Daylight / Views FEATURE – Green Roof FEATURE – Under Floor Air Distribution INNOVATION – Integrated Design XXX XXX XXXXXXXXXX XXXXXXXXXXXXXXX XX XXXX XXXXXXXXXXXXXXXXXXX XXXXXXXXXX X XXXX X XXXX X XXXX X XXXXXXXXXX X XXXXXXXXXX X XXXXXXXXXX X XXXXXXXXXX XXXXXXXXXXXXXXX XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX These LEED points are linked when performing an assessment of value Income Analysis Summary (Note: Up to 10 LEED Points) SS-6.1 – Stormwater SS-7.2 – Heat Island Effect WE-1.1/1.2 – Water Efficient Landscaping EA-Prerequisite – Commissioning WE-3.1/3.2 – Water Use Reduction EA-1 – Energy Efficiency / ENERGYSTAR Score EA-2 –On-Site Renewable Energy EA-3 – Enhanced Commissioning EA-5 – Measurement and Verification MR-Prerequisite – Recycling FEATURE – Green Roof XXX XX XX XXX X XXXXXXXXXX XX XXXX XXXXXXXXXXXXXXXXXXX XXXXXXXXXX XXXXXXXXXXXXXXX XXXXXXXXXXXXXXX XXXXXX XXXXXXXX XX (Note: Up to 10 LEED-NC Points) EXPENSE Analysis Summary Note: DO NOT DOUBLE COUNT THESE AREAS -5 -4 -3 -2 -1 0 1 2 3 4 5 LOW MEDIUM MEDIUM HIGH HIGH
  • 44. Compile Score – Straightforward Analysis
  • 45. Summary – Green Underwriting Standards
    • Incorporate performance-based tangible attributes
      • Energy use /efficiency
      • Water use / efficiency
      • Location attributes
      • Indoor environmental quality
    • Simple due diligence requirements
      • ENERGY STAR score
      • LEED scorecard
      • Climate Neutral Certification
      • Commissioning report
    • Straightforward implementation
    • Transparent & Consensus
    • Third-party verified
  • 46. Summary – GreenValue Score
    • Incorporates performance-based tangible attributes
      • Energy
      • Water
      • Location
      • Indoor environmental quality
    • Simple due diligence requirements
      • ENERGY STAR score
      • LEED scorecard
      • Climate Neutral Certification
      • Commissioning report
    • Straightforward implementation
    • Transparent
  • 47. Crude Oil – Actual (Jan 1997 thru September 24, 2008) World oil production flat since 2004 / China and India’s consumption surging / domestic consumption in oil producing countries increasing Energy traders / OPEC publicly refer to the ‘proper’ price of $85 / barrel at which point OPEC reduces production to support prices
  • 48. US Electricity Prices (1982 – 2006) Source: US Department of Energy http://www.eia.doe.gov/fuelelectric.html ₵ / kwh
  • 49. US Electric Power Generation Sources (2007)
  • 50. DOE Coal Prices June 2003 to July 2006 Source: http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html Central Appalachia +88% Northern Appalachia +41% Illinois Basin 38% Uinta Basin 114% Powder River Basin 100%
  • 51. DOE Coal Prices June 2003 to July 2008 July Price = $149 / ton July Price = $140 / ton Source: http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html +312% - Central Appalachia +452% - Northern Appalachia +200% - Illinois Basin +254% - Uinta Basin +127% - Powder River Basin
  • 52.  
  • 53. Natural Gas Spot Prices (Oct ’83 – Apr ‘08) http://www.eia.doe.gov/oil_gas/natural_gas/info_glance/natural_gas.html
  • 54. Conventional Energy Costs Expected to Continue Increasing at 20% / yr. for 10 yrs.
  • 55. Energy Market Drivers
    • 1990
    Globalization Digital Economy Emissions and Climate Change Energy Reliability and Security Resource Scarcity 1995 2000 2005-10 2010-20 Market Restructuring Aging Power Grid
  • 56.
    • 1511 Wisconsin Avenue NW #200
    • Washington, DC 20007
    • 202-338-3131
    • [email_address]