EMBODIMENT OF ENVIROMMENTAL VALUE ADDED FOR GREEN REAL ESTATE Masato Ito The Sumitomo Trust and Banking Co., Ltd.
The 3 Most Important Key Messages <ul><li>Green real estate has possibility to make “added value” . </li></ul><ul><li>Gree...
Main global environmental problems and countermeasures of real estate Global  environment problems Countermeasures Counter...
Visualizing the value-added components of sustainable real estate(1) Net income that real estate produces Capitalization r...
Visualizing the value-added components of sustainable real estate(2) Cash Expenses Net income Cost of New Tenants Utilitie...
Visualizing the value-added components of sustainable real estate(3) Marketability environmental  Capitalization rate Risk...
Examples of Monetary Effect (1) <ul><li>The expense ratio to occupy in total income :35% </li></ul><ul><li>The ratio of en...
Examples of Monetary Effect (2) <ul><li>Building occupies 40% of real estate in terms of price </li></ul><ul><li>Skeleton ...
Sustainability-related Policy in Japan (1) <ul><li>Toyako Summit  The goal of achieving at least 50% reduction of global g...
Sustainability-related Policy in Japan (2) <ul><li>Tokyo Climate Change Strategy  Reduce Tokyo’s greenhouse gas emissions ...
Activities 1 Connecting CASBEE to Real Estate Appraisal (1)  <ul><li>What is CASBEE? Comprehensive Assessment System for B...
Activities 1 Connecting CASBEE to Real Estate Appraisal (2) Improvement of Durability(Q-2) Decrease in repairs Increase in...
Activities 1 Connecting CASBEE to Real Estate Appraisal (3) CASBEE Items Real Estate Appraisal Items Income Increase Cost ...
Activities 2 Sustainable Real Estate Appraisal <ul><li>Investigations for the planned building and the site where environm...
Activities 3 Consulting for Sustainable Construction <ul><li>The advice offered concerns energy conservation, landscape-fr...
Preferential interest rate loans for the purchase of environmentally friendly houses Preferential housing loan rates which...
Activities 5 Energy Conservation Promotion Mechanism  (LLP Structure) [Owner] Pays the energy costs for common areas (set ...
Activities 6  Support for Contaminated Land Purchase and Revival Fund Contaminated property Eco-Land-Fund   Green Earth Co...
Activities 7 On the way to launching a  “Japanese Sustainable Real Estate Fund.&quot; Meeting the Standard of Environment ...
We present specific products and services of Sumitomo Trust’s Eco Trustution, which provide solutions to ecological proble...
Global Warming Brown Field Others Preferential Interest Loans for Environmentally Friendly Housing Environmentally Friendl...
The Sumitomo Trust’s homepage on Green Real Estate http://www.sumitomotrust.co.jp/csr/innovation/real-estate/01english.html
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Pursuing Additional Value of Green Buildings in Japan

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Masato Ito, Deputy General Manager, Real Estate Consulting Department - The Sumitomo Trust & Banking Co., Ltd. - Japan.

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Pursuing Additional Value of Green Buildings in Japan

  1. 1. EMBODIMENT OF ENVIROMMENTAL VALUE ADDED FOR GREEN REAL ESTATE Masato Ito The Sumitomo Trust and Banking Co., Ltd.
  2. 2. The 3 Most Important Key Messages <ul><li>Green real estate has possibility to make “added value” . </li></ul><ul><li>Green building rating systems have possibility to be used as a tool for evaluating ”added value”. </li></ul><ul><li>We have many opportunities to launch new businesses in order to disseminate green real estate. </li></ul>
  3. 3. Main global environmental problems and countermeasures of real estate Global environment problems Countermeasures Countermeasures in real estate arena Examples Global warming ( Greenhouse gas effect ) Acid rain ( Nitrogen oxide , sulfur oxide ) Depletion of ozone layer Depletion of energy resources Reduction of Greenhouse gases ( Kyoto Protocol ) Regulations on exhaust gas Avoid Freon/Halon Energy saving Recyclable energy Energy-saving design Improved insulation, reduction of illumination load, skeleton heat storage, natural ventilation, night purge Use of recyclable energy Passive cooling/heating, photovoltaic power generation Avoid Toxic substances in buildings / facilities Extinction material, Insulator, refrigerant, others Ecosystem crisis Protecting ecosystem Protection and creation of ecosystem Afforestation, preservation of forest floor, adoption of local vegetation, biotope Waste Promotion of resource recycling Introduction of eco-friendly materials, building material circulation, and longevity Prolongation of building life, circulation of building material, introducing material of low environmental load
  4. 4. Visualizing the value-added components of sustainable real estate(1) Net income that real estate produces Capitalization rate(*) Three aspects of real estate valuation Expense characteristics Marketability Profitability Two major elements of income approach Countermeasures from environmental consideration Deduce worth of environmental value-added components “ The income approach&quot; that reflects &quot;profitability&quot; of real estate tends to be emphasized Value indicated by Income approach (*) = ( Real estate yield ) * In the case of direct capitalization (description upcoming )
  5. 5. Visualizing the value-added components of sustainable real estate(2) Cash Expenses Net income Cost of New Tenants Utilities Leasing & Mgt Maintenance Gross Income Taxes & Insurance Added value Net Income Cost of New Tenants Utilities Leasing & Mgt Maintenance Taxes & Insurance Decreases by Energy Saving Decreases by Improvement of Durability Net Income Increases If there is a reduction of property taxes… If the total income increases … “ A note on environmental value added for real estate” (Masato Ito) On the occasion tenth anniversary commemorative article for Tokyo Association of Real Estate Appraisers, 2005 Value added by Increasing Net Income Conventional Real Estates Sustainable Real Estates
  6. 6. Visualizing the value-added components of sustainable real estate(3) Marketability environmental Capitalization rate Risk Free Rate Added value Environmental depreciation Depreciation Risk premium marketability Other Risk Free Rate When Durability of a building increases Sustainable Real Estate will not be affected by future taxation and regulations thanks to its environmental nature. “ Image Improvement Effect” thanks to environmental consideration “ A note on environmental value added for real estate”(Masato Ito) On the occasion tenth anniversary commemorative article for Tokyo Association of Real Estate Appraisers, 2005 Environmental value-added means risk premium reduction Other Conventional Real Estates Sustainable Real Estates
  7. 7. Examples of Monetary Effect (1) <ul><li>The expense ratio to occupy in total income :35% </li></ul><ul><li>The ratio of energy expenses to the total income :10%. </li></ul><ul><li>Provided that environmentally considered real estate realizes energy saving by 30% </li></ul><ul><li>The increase in net income is calculated as follows. </li></ul><ul><li>(1 - (35% - 10% * 30%)) / (1 - 35%) - 1=4.6% </li></ul><ul><li>(1) (2) </li></ul><ul><li>(1) rate of return after energy-saving realized, </li></ul><ul><li>(2) normal rate of return </li></ul>
  8. 8. Examples of Monetary Effect (2) <ul><li>Building occupies 40% of real estate in terms of price </li></ul><ul><li>Skeleton occupies 70% of building </li></ul><ul><li>The differential between the depreciation rates for 50-year durable skeleton and 100-year durable one: </li></ul><ul><li>(1 * 0.4 * 0.7 /50) – (1 * 0.4 * 0.7 /100) = 0.28% </li></ul><ul><li>Set the net income of real estate &quot;a&quot; and assumed the capitalization rate of normal real estate at 5.00% </li></ul><ul><li>Value indicated by the income approach of real estate for building of 50-year durability: </li></ul><ul><li>(V ) = a / 5.00% </li></ul><ul><li>Value indicated by the income approach of real estate for building of 100-year durability: </li></ul><ul><li>(V ') = a / (5.00% - 0.28%) </li></ul><ul><li>V '/ V = 1.06 </li></ul>
  9. 9. Sustainability-related Policy in Japan (1) <ul><li>Toyako Summit The goal of achieving at least 50% reduction of global greenhouse gas emissions by 2050 </li></ul><ul><li>Reinforcement of Energy Conservation Law Tighter regulations to take sufficient measures during new construction and large-scale repair </li></ul><ul><li>New subsidy schemes Projects for installation of advanced CO2 reduction facilities and systems Projects for ultra long-term houses </li></ul><ul><li>Dissemination of CASBEE </li></ul>
  10. 10. Sustainability-related Policy in Japan (2) <ul><li>Tokyo Climate Change Strategy Reduce Tokyo’s greenhouse gas emissions by 25% from the 2000 level by 2020 adopting cap & trade law </li></ul><ul><li>Yokohama CO-DO 30 Aims to reduce its greenhouse gas emissions by 30 percent per capita from the 2004 level by 2025, and 60 percent by 2050 </li></ul><ul><li>Some Japanese local governments have introduced CASBEE system </li></ul>
  11. 11. Activities 1 Connecting CASBEE to Real Estate Appraisal (1) <ul><li>What is CASBEE? Comprehensive Assessment System for Building Environmental Efficiency </li></ul>http://www.ibec.or.jp/CASBEE/english/methodE.htm
  12. 12. Activities 1 Connecting CASBEE to Real Estate Appraisal (2) Improvement of Durability(Q-2) Decrease in repairs Increase in Tenant Income Improvement of Productivity(Q-1) Energy Saving (LR-1) Decrease of utilities Reduction of environmental risk Decrease of Depreciation ratio Sustainability Ranking Image improvement effect L (building environmental loadings) Q (Building environmental quality and performance) Building Environmental Efficiency (BEE) BEE = Capitalization rate the net income generated by real estate Value indicated by Income approach Value of Property* = *In the case of the direct capitalization
  13. 13. Activities 1 Connecting CASBEE to Real Estate Appraisal (3) CASBEE Items Real Estate Appraisal Items Income Increase Cost Reduction Risk Reduction Image Improvement Q-1-1 Noise & Acoustics ○ Q-1-2 Thermal Comfort ○ Q-1-3 Lightning & Illumination ○ Q-1-4 Air Quality ○ Q-2-1 Service Ability ○ ○ Q-2-2 Durability & Reliability ○ ○ Q-2-3 Flexibility & Adaptability ○ ○ Q-3 Outdoor Environment on site ○ LR-1 Energy ○ ○ LR-2 Resources & Materials ○ LR-3 Off-site Environment ○ Sustainability Ranking ○
  14. 14. Activities 2 Sustainable Real Estate Appraisal <ul><li>Investigations for the planned building and the site where environmental value-added components are considered. </li></ul><ul><li>Analyses of price forming factors from environmental points of view </li></ul><ul><li>Comparison with conventional real estate </li></ul>
  15. 15. Activities 3 Consulting for Sustainable Construction <ul><li>The advice offered concerns energy conservation, landscape-friendly features, longer building lifespans, use of recycling systems, etc. </li></ul><ul><li>The Architecture Consulting Department established in June 2006 </li></ul>
  16. 16. Preferential interest rate loans for the purchase of environmentally friendly houses Preferential housing loan rates which are based on the “CASBEE Kawasaki” and the Apartment Environmental Efficiency Label Program of the Tokyo Metropolitan Government Activities 4 Preferential Loan Rate for Environmentally Friendly Houses
  17. 17. Activities 5 Energy Conservation Promotion Mechanism (LLP Structure) [Owner] Pays the energy costs for common areas (set baseline ) [Owner] Profit/loss dividend based on common area cost reduction amount (members’ levy) [Tenant] Pays the energy costs for specific areas (set baseline) [Tenant] Profit/loss dividend based on specific area cost reduction amount (members’ levy) ESCO businesses Energy conservation for buildings (guarantee a fixed percentage of energy conservation) Financial institutions Financing for energy conservation construction business Energy Management LLP (limited liability/ pass-through taxation)
  18. 18. Activities 6 Support for Contaminated Land Purchase and Revival Fund Contaminated property Eco-Land-Fund Green Earth Co., Ltd. (manager) Land Solution, Inc 1. Entrustment 3. Investment 4. Transfer of trust beneficiary right Investors (including Sumitomo Trust) Sumitomo Trust 2. Trust beneficiary right Sumitomo Trust (sale of property) 5. Purification of property 6. Transfer of trust beneficiary right (sale of property) Seller 7. Dividend 4. Loan Buyer Cleaned-up property
  19. 19. Activities 7 On the way to launching a  “Japanese Sustainable Real Estate Fund.&quot; Meeting the Standard of Environment Efficiency e.g. B + or better CASBEE score is prerequisite & For example… - CASBEE S rating buildings - Over 50% of Energy Efficiency Ratio - Ultra long-term houses - Contributing to preserving Biodiversity Highlighted sustainability
  20. 20. We present specific products and services of Sumitomo Trust’s Eco Trustution, which provide solutions to ecological problems by using the functions of trusts. Eco Trust Solution + + Eco Trustution The concept of Eco Trustution
  21. 21. Global Warming Brown Field Others Preferential Interest Loans for Environmentally Friendly Housing Environmentally Friendly Project Finance SRI Financial Scheme to Promote CSR Procurement Eco-Land-Fund Investment Development of Financial Schemes for Promoting Energy Conservation in Tenant Buildings Establishing a Mechanism for the Promotion of Environmental Consciousness Real Estate (Buildings) Environmental Consciousness Construction Consulting Emission Rights Trusts Environmentally Friendly Project Finance Waste Disposal Retail Financial Services Wholesale Financial Services Eco Trustution Products and Services Commercialized products Products under development Appraisal of Biodiversity (Utilizing Habitat Evaluation Procedure) Crisis of Biodiversity
  22. 22. The Sumitomo Trust’s homepage on Green Real Estate http://www.sumitomotrust.co.jp/csr/innovation/real-estate/01english.html

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