This document summarizes the top 10 conceptual hurdles to greater investment in energy efficiency. It discusses issues such as how construction lending differs from lending on stabilized properties, the different risk cultures across real estate asset classes, the fallacy that if there is no market data the value is zero, focusing on low hanging fruit improvements over deep retrofits, timing efficiency upgrades with capital expenditure cycles, and only considering cost savings without other potential benefits. It also addresses issues like the simple payback fallacy of not including reversion, incentives needed for renewable energy similar to subsidies for fossil fuels, greater emotional impact of potential losses over gains, and how complex credit issues have been solved before through mechanisms like credit enhancement.

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-LA
Penn Institute for Urban Research
Energy Efficient Building Hub
Urban 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, banking
1. “As Proposed” does not equal “As Stabilized”
construction lending underwriting is vastly
different than collateral with a 3 year stabilized
history
2. “Seven Tribes of RE” investment risk cultures
hurdles and options are different per RE asset class
3. “Don’t know does not = Zero”; Disproving the
null hypothesis – fallacy that “there is no market
data so value is zero”

4. Retrofits
4. “One step” deep retrofits vs low hanging fruit
first – logic vs human’s tendency to act on personal
experience
5. Time the EE upgrade to the natural CapEx
investment cycle – do deep retrofits with balanced
system design in synch with the capex upgrades
6. Deep retrofits need to consider “value beyond
cost savings” – income, vacancy, expenses, risk,
reputation, productivity

5. Investments
7. “The Simple Payback Fallacy” – not including
reversion makes no sense, is misleading
8. “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 Solutions
9. “Upside opportunity” is not equal to
“downside loss” – Emotional impact of potential
gain is half of the impact of losing what you have
10.Complex credit problems have been solved
before – SBA, hazardous materials impacts: credit
enhancement and/or expert reports

7. Behavior, Historic Solutions
9. “Upside opportunity” is not equal to
“downside loss” – Emotional impact of potential
gain is half of the impact of losing what you have
10.Complex credit problems have been solved
before – SBA, hazardous materials impacts: credit
enhancement and/or expert reports