Revealing value in green buildings http://portal.sliderocket.com/BSBTB/Show-me-the-green

1. SHOW ME THE GREEN
Revealing value in green buildings
Vann Joines | U.S. Green Building Council

2. ROADMAP
 Energy Savings ≠ Value
 Current Valuation Techniques
 10yr DCF Analysis
 Green Office Value Studies
 Fuerst | Pogue | Kok
 How to Convince Lenders
 Standardization & Data
 How to Convince Owners
 Tenants, Financing, Data
 Opportunities?
 Retrofits

3. ENERGY SAVINGS = INCREASED VALUE?
 Green Buildings: LEED and Energy Star
 Savings in Utilities = More Valuable Buildings
 BUT many Owners do not pay the Energy Bills

4. THE 7 TRIBES OF REAL ESTATE
 Single Family Homes  Multi-Family
 1 to 4 Units  Medium Large Investment
 Small C& I Grade Apts
 Mom and Pop / Owner-User  Condos
 May not have an income  These are where a new
approach approach needs to be taken
 Typically under $2MM  Specialty
 Medium C & I  Gas Station
 Larger Owner-User  Fast Food
 Part Owner – User  Hotel/Motel
 Local Investor  Theatre
 $2MM to $10MM  Data Center
 Large C & I  MUSH
 Multi Tenant Leased  Municipality
Investment  University
 Over $10MM  Schools
 Owner Individual to REIT  Hospitals
(Finlay, “The Retrofit Triangle.” 2011)

5. THE TEAM TO CONVINCE
 Everyone needs to agree in Increased Value
 Not just a snapshot, but long-term
 Tricky Problem
(Finlay, “The Retrofit Triangle.” 2011)

6. HOW IS MARKET VALUE DETERMINED?
 Income / Sales Comps / Cost
 MF,C&I: 10 Year Discounted Cash Flow Analysis
CASH FLOWS
Now Year 1 2 3 4 5 6 7 8 9 10
✚
Discounted % depending on Risk

7. WHERE IS GREEN VALUE?
 INCOME  Expenses
 Higher Market Rent  Utilities
Assumption  Repairs and Maintenance
 Vacancy  Management
 Absorption Time  Marketing Promotions
 Stabilized Vacancy  Insurance
 Tenant Retention or  Property taxes (PACE)
rollover percentage  RISK
 Lag Vacancy  Discount Rate
 Tenant Improvements  Terminal Cap Rate
(Finlay, “The Green 14.” 2011)

8. INCOME: US OFFICE STUDIES
HIGHER RENTS – (FUERST AND MCALLISER)
 2008  2009
 +4% Energy Star  +6% Energy Star
 +5% LEED  +6% LEED

9. ANNUAL INCOME
HIGHER RENTS – (POGUE, CBRE 2011)

10. ANNUAL INCOME
HIGHER OCCUPANCY – (POGUE, 2011)
Survey Set
+3.16%
LEED
+3.14%

11. ANNUAL INCOME
HIGHER RENTS – YES! EKQ 2010
 Market Rents  Effective Rents
 +3.3% for Energy Star  +9% for LEED
 +5.2% for LEED  +7% Rated
 Occupancy Rate +11%
(Eichholtz, Kok, Quigley, “Doing Well by Doing Good?” 2010)

12. RISK + INCOME
INCREASED VALUE AT SALE – YES!
 Fuerst and McAllister  Eichholtz, Kok, Quigley
 +25% Energy Star  +15.8% to 16.5%
+26% LEED(2008) Certified Bldgs
 +31% Energy Star,
+35% LEED (2009)

13. SURPRISING FINDING
ENERGY SAVING ~ VALUE
 10% decrease in energy use leads to 1% increase in
value over certification level increase
 $1 of Energy Savings correlates to
 +$0.95/sf Rental rates
 +$13/sf Transaction prices
 4.9% Premium in Market Capitalization
 (http://www.nilskok.com/ Prezi Slide: accessed March 15, 2012)
 Effect Varies by Market
 Premium for Green Retrofits is Larger in smaller markets
 (EQK “Doing well by doing good” 2010)
 Opportunity for NOLA Investors

14. WHO & HOW TO CONVINCE?
 Data and Standardization
 Different Approach for each group
OWNERS LENDERS

15. FOR LENDERS
STANDARDIZATION COVERS RISK
ASTM
 Building Energy Performance Assessment
 Used to gauge a building’s current energy use
 USPAP changes
 Increased Cash Flow, Decreased Expenses, and
Increased Valuation at Reversion
 DOE: Database | Appraisal Foundation: Techniques

16. FOR LENDERS
DOE & AF SEE VALUE
"If better performing buildings
have a higher value, it will
help enable the upfront
investment for energy
efficiency upgrades."
–Steven Chu, Sec. of Energy
(DOE Press Release, June 13, 2011
http://www.eere.energy.gov/pdfs doe_taf_mou_signed_6-10.pdf )

17. LENDERS OR OWNERS?
APPRAISERS RESPOND TO THE MARKET
“The theory that the problem lies in the appraisal
is mostly real, but the first crisis of confidence is
in the property owners themselves”- James Finlay
COULD THE OWNERS BE THE PROBLEM?

18. OWNERS: TENANTS
BIG DESIRABLE TENANTS
Big Companies = Reduced Risk
 2010 CBRE Survey of Office Tenants
 Big Companies care more about green!

19. OWNERS: DATA
COSTAR WORKING TO STANDARDIZE
 Co-STAR
 Most Comprehensive Database of Real Estate Information
 De-couple buildings from land
 5 star building is a 5 star building
 5 star property is a five star property
 Compare Green Bldgs to Green Bldgs

20. OWNERS: DATA
UNPACK THE PLAQUE
 Green
Building Information
Gateway
 Allows users to see LEED score on
each property
 Compare LEED buildings between
markets
 Compare one LEED market to
another
 Real
Time Performance of LEED
Bldgs
(Pyke, “Building the Economic and Social Case for Sustainable Development Practices.” 2011)

21. OWNERS: DATA
CMP: FINANCIAL VALUE INDEX
 Index to Score a building’s attributes that will
 Increase Long Term Financial Value
 Decrease Risk Profile
 Utilizing 3rd Party Verification
 LEED certification data
 Location based data
 Like a Green FICA Score for Buildings
 Range from 0 to 100
 Great for owners, lenders, equity investors, &
securities industry
(Winters & Katz, 2011)

22. OPPORTUNITIES?
EXISTING BUILDING UPGRADES
(EQK 2011)
EBOM Outpacing NC
Focus of LEED EB:
Large “Bang for your $”

23. OPPORTUNITIES?
LEED EBOM HIGHER RENTS!
 Higher Rents +7%
 Higher Effective Rents +9%
Median Cost: $438,957!
(EKQ, “The Economics of Green Retrofits.” 2011)

24. OPPORTUNITIES?
NEW FINANCING AVAILABLE
 Deutsche Bank
 $150MM in NY Building Retrofit Program
 Green Leases – NRDC and PlanNYC
 7 World Trade
 Silverstien Properties and WilmerHale
 210,000 SF 4 floors
 PACE for Commercial Buildings
 Miami area and Sacramento
 Requires multiple partners
 Ygrene Energy Fund
 Barclays Capital
 Lockheed Martin
 Energi Insurance Co
 Hannover Re

25. OPPORTUNITIES?
NEED BETTER MANAGEMENT CONTRACTS
 Energy Savings Performance Contracts
 Now only for the Feds
 Federal Agency and Energy Service Company
 Audit-Program-ESCO guarantees savings – Gaurantee
covers the loan over a period of time
 CBRE wants to set the goal of taking a
performing building to Net Zero only through
operations
 Advanced Energy in Raleigh, NC
 Guarantee Energy Use post Retrofit!
 http://www.advancedenergy.org/

26. OPPORTUNITIES?
LOUISIANA #4 ENERGY EXPENSES
-10% Energy Use = +1% Value
Higher in Smaller Markets
(www.energy.gov)

27. CONCLUSIONS
 Studies Show
 Higher Rents
 Less Vacancy
 Less Risk
 Higher Reversions
 Opportunitiesin Retrofits
 Higher Value = More Green Buildings
(Finlay, “The Retrofit Triangle.” 2011)

28. THANK YOU & QUESTIONS?
Vann Joines | U.S. Green Building Council