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IGP Education
If you are a Member with research that you believe is relevant to IGP Members, please send your contribution as a WORD attachment or .pdf to info@instituteofgreenprofessionals.org. We will review the material and if appropriate, will post it on this site.
Towards an Interdisciplinary Language for Sustainable-Development Professionals
Between January 2008 and October of 2008 the Institute of Green Professionals engaged hundreds of professionals and academics throughout the globe in the development of a consensus document on what basic elements of sustainable development are needed for individuals working and teaching in professional specialties of architecture, land-use planning, landscape architecture, engineering, real property valuation, accounting, and law. This document is included herein as a .pdf file.
Green Building Finance Consortium
The Green Building Finance Consortium (GBFC) is a group of leading corporations, real estate companies, and trade groups who have joined together to address the need for independent research and analysis of investment in Green or energy efficient buildings. The mission of GBFC is to enable the private real estate sector—corporations, investors, lenders, and developers—to appropriately recognize the value and risk of investment in Green Buildings. To accomplish this mission, GBFC will develop the underwriting practices, tools and valuations methodologies required to assess, from a fiduciary perspective, investment or lending on Green buildings, and widely communicate the results of our work.
View the GBFC Overview here.
THE FOLLOWING IS AN EXCERPT FROM A WORKING PAPER
FACTORS FOR APPRAISERS TO CONSIDER: LINKS BETWEEN
SUSTAINABILTY CHARACTERISTICS AND REAL PROPERTY VALUE
BY GRANT AUSTIN, MAI, MMRS, M.S., MRICS
December 2008©
Relevant citations in the paper will include the work of Terry Boyd, Sarah Sayce, Scott Muldavin, Georgia Myers, Thomas Lützkendorf, and David Lorenz.
| Sustainability Factor |
Rationale for a Value Impact |
Comments to Valuers/Appraisers |
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FACTORS THAT MAY IMPACT A PRO FORMA INCOME/EXPENSE ITEM AND/OR OTHER VALUATION CONSIDERATIONS
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USGBC LEED or other certification
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Objective analysis of energy efficiency, water use reduction, and indoor environmental quality.
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Be cautious not to double-count this characteristic with other features that are included within the certification. This requires the valuer/appraiser to be familiar with the elements considered within the certification.
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National Green Building Investment Underwriting Standards
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Subjective rating of identified green building attributes.
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Be cautious not to double-count this characteristic with other features that are included within the CMP Green Score. This requires the valuer/appraiser to be familiar with the elements considered within the scoring system.
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Building adaptability across different uses and users
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A building that is highly adaptable will depreciate more slowly, have less need for tenant updating/renovation, delayed modifications to an alternate use, and increased cash flow.
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This factor is not unique to buildings with sustainability features.
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Adequacy of on-site parking
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Parking restrictions may be used as a traffic congestion control measure. Buildings with on-site parking may depreciate more slowly, have higher rents and occupancy and a competitive
advantage.
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Indoor environmental quality including effectiveness of ventilation, reduction in VOCs, and chemical/pollutant control
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Higher air quality increases occupant satisfaction, productivity and health, thus increasing rental rate, likelihood of tenant retention, occupancy, rental growth, and market competitiveness.
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Requires expert report(s), and may require a subjective adjustment when considered with all the sustainability characteristics of the property.
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Indoor air quality mangement plan based on either a full-building flush out or an air testing plan per US EPA protocols
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Screening for hazardous content incl. mold and mildew increases indoor air quality which increases occupant satisfaction, productivity and health which in turn increases tenant retention, ocucpancy, rental growth, and market competitiveness.
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Requires expert report(s), and may require a subjective adjustment when considered with all the sustainability characteristics of the property.
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Providing daylight and unobstructed views to the outside
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Increases occupant satisfaction, and likelihood of tenant retention. Potential for reduced energy costs.
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The energy expense is alreacy included in the expense category. The tenant satisfaction factor may require a subjective adjustment when considered with all the sustainability characteristics of the property.
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Under-floor air distribution
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Reduced tenant buildout and reconfiguration expense. Increased occupant satisfaction due to temperature control in individual workstations may impact rent, tenant retention, rental growth, and market competitiveness.
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This is considered in the pro forma and when analyzing the operating expense ratios of comparables in the SCA. The tenant satisfaction factor may require a subjective adjustment when considered with all the sustainability characteristics of the property.
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Urban infill location
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Urban locations outperform suburban locations over the long term, faster absorption, increased demand.
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This is considered in a location adjustment in the SCA, land value in the CA, and pro forma factors in the DCF such as market rent, V&C loss, renewal probability, etc.
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Flood elevation/proximity to wetlands/water
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Reduced flooding potential, storm-related hazards, and lower insurance expense
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1. Verify and estimate insurance expense.
2. Compare properties with/without flood elevation risk for possible adjustments.
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Public transportation access
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Location premium due to transit-oriented development, increased commute choices, increased site access, and slower depreciaton because it is convenient.
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This is considered in a location adjustment in the SCA, land value and depreciation in the CA, and pro forma factors in the DCF such as market rent, V&C loss, renewal probability, etc.
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Tax incentives
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Various government bodies are providing tax incentives for green-building.
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Incentives could impact the cost of new construction.
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FACTORS DIRECTLY IMPACTING A PRO FORMA EXPENSE ITEM
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Whole systems integrative planning during the life cycle of the building (e.g., Building Information Modeling)
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Reduces costs during planning and construction phases and increases operational efficiency which may lower payroll and administrative expenses.
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Energy consumption
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Lower occupancy cost therefore higher NNN rent as an offset for lower operating expenses, reduced tenant exposure to future energy price volatility that may relate to probability of tenant renewal, higher occupancy, and market competitiveness.
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On-site renewable energy
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Same as energy consumption factor
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Lower water consumption due to building technologies and strategies that may include high-efficiency fixtures, waterless urinals, occupant sensors on wash basins, reusing stormwater/greywater for non-potable applications.
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Lower water expense.
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Stormwater management that captures and reuses stormwater in greywater plumbing systems, cooling towers, and/or landscape irrigation
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Decreased sewer costs
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Recycling program for paper, cardboard, glass plastic, metal, LED light bulbs, batteries, and used electronic equipment
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Decreased trash removal costs, possible increased revenue from sale of some recycling items, increased expense of recycling some items.
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Green roof
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Lower energy expense, higher maintenance expense.
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Green roof that is a habitable tenant amenity.
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Lower energy expense, higher maintenance expense, amenity for occupants that may increase rent.
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Reduction of Heat Island impacts via the use of alternate/cool pavements, lightly colored and more reflective roof and vegetation to intercept solar radiation
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The reduction of heat conducting into the building reduces energy use, and cool pavements reduce the lower ambient temperature, which, in turn, further reduces energy use. Also may impact repairs and maintenance, insurance expense and replacement reserves.
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Water efficient landscaping
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Reduced water costs and landscape maintenance costs.
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Green cleaning
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Reduced energy expense due to cleaning during the daylight hours.
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Insurance
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Some insurance carriers have discounted rates for certified green buildings or buildings with certain green features.
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Real estate tax
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Some areas offer tax incentives for green buildings.
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Management fee
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Typically based upon Effective Gross Income, this item may be impacted by increased PGI and less VCL.
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Expenses during leaseup to achieve stabilized occupancy
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Marketing and sales expenses may be reduced due to shorter absorption time, and a competitive advantage that allows for fewer/less TIs or tenant concessions.
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| Real estate commisson on sale and end of holding period in a DCF analysis |
Sales Commission may be negotiated downward due to greater demand for this property type, a marketing advantage and shorter marketing time. |
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OTHER FACTORS THAT IMPACT VALUE
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Capitalization and or discount rate
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There are several additional factors that could result in a modified capitalization and or discount rate for sustainable buildings, such as:
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1. Increased investor demand driven by investor's internal CSR objectives.
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2. Increased investor demand for properties with positive risk characteristics.
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3. Marketwide acknowledgement of the financial benefits of sustainable buildings.
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4. Introduction of subsidies or tax benefits for green construction/renovation.
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5. Introduction of CO2 certificate trading schemes.
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6. Marketwide acknowledgement of the occupant health/productivity/absenteeism benefits of sustainable buildings.
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7. Changes in market participants' perceptions in favor of sustainable buildings.
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