Environmental Valuation & Cost-Benefit News

Link: http://www.greenbuildingfc.com/Documents/Value%20Beyond%20Cost%20Savings--Final.pdf

Value Beyond Cost Savings: How to Underwrite Sustainable Property, a new book by the Green Building Finance Consortium Executive Director Scott Muldavin, details how to value and underwrite sustainable properties.

The book can be downloaded for free at http://www.greenbuildingfc.com/Documents/Value%20Beyond%20Cost%20Savings--Final.pdf as a public service of the Consortium. A hardbound book is also available for $35.00 USD plus shipping.

Due to its unique combination of capital markets and sustainability [information] ..., Value Beyond Cost Savings provides those with money the methods and practices necessary to assess the value and risk of sustainable property investment, while providing those seeking money an insider’s view on how capital providers value property and make investment decisions.

The Consortium’s publications are complimented by dynamic web-based research resources including a uniquely indexed searchable Research Library, specialized Industry Links, insightful Presentations and important Additional Readings.

The Green Building Finance Consortium (GBFC) is a research and education initiative founded and led by Scott Muldavin, President of The Muldavin Company, Inc., to enable better financially based sustainable property decision-making. Additional detail on the Consortium and its Advisory Board and Members is provided in the “About GBFC” section of the website.

Importantly, the Consortium is financed independent of green building product or professional organizations, relying on funding from The Muldavin Company Inc. and Consortium Members. Members are leading real estate companies, governments, non-governmental organizations and industry trade associations including BOMA International, the Mortgage Bankers Association, the Pension Real Estate Association, the National Association of Realtors, and the Urban Land Institute.

Table of Contents
Chapter I. Introduction 1
A. Consortium’s Mission 2
B. Overview of Value Beyond Cost Savings: How to Underwrite Sustainable Properties 2
C. Applying the Book’s Findings and Conclusions 7
D. Conclusions 8
Chapter II. Sustainable Property Investment Decisions 9
A. Introduction 9
B. Level of Investment Decision 10
C. Organizational Context 11
D. Investor Type 12
E. Investment Type 13
F. Property Type 14
G. Geography/ Other Factors 14
H. Conclusions 15
Chapter III. Evaluating Property Sustainability 16
A. Introduction 16
B. What is a Sustainable Property? 17
C. Sustainable Property Features 18
D. Measuring a Property’s Sustainability 22
E. How Sustainable Property Certifications Affect Value 27
F. Key Research Comparing Sustainable Rating Systems 29
G. Conclusions 30
Chapter IV. Sustainable Property Performance 31
A. Introduction 31
B. GBFC Sustainable Property Performance Framework 32
C. Process Performance 34
D. Feature Performance 48
E. Building Performance 59
F. Market Performance 75
G. Financial Performance 93
H. Conclusions 95
Chapter V. Sustainable Property Financial Analysis 97
A. Introduction 97
B. Summary Conclusions 98
C. Step 1: Select Financial Model 100
D. Step 2: Evaluate Property Sustainability 106
E. Step 3: Assess Costs/Benefits of Sustainability 106
F. Step 4: Evaluate Financial Implications of Costs/Benefits 113
G. Step 5: Determine Financial Model Inputs 123
H. Step 6: Risk Analysis and Presentation (RAP) 131
I. Valuing Sustainable Properties 136
J. Conclusions 145
Chapter VI. Sustainable Property Underwriting Guidelines 146
A. Introduction 146
B. Underwriting Perspectives by Investor Type 148
C. Key Differences in Sustainable Property Underwriting 149
D. Underwriting Service Providers 158
E. Underwriting Energy/Carbon Reduction Investment 161
F. Underwriting Space User Demand 172
G. Existing Building Underwriting Guidelines 177
H. New/Retrofit Building Guidelines 180
I. Conclusions 182
Appendices 183
Appendix A: GBFC Research Library Index: Annotated Outline 183
Appendix B: Detailed Table of Contents of Expanded Chapters 202
Appendix C: GBFC Sustainable Property Performance Framework 208
Appendix D: Space User and Investor Sustainability Surveys 209
Appendix E: Foundation Background and Theoretical Research, Sustainable Property Valuation, Chronological List 212
Appendix F: Sustainable Property Financial Analysis Alternatives 216
Appendix G: GBFC Sustainable Property Cost-Benefit Checklist 254
Appendix H: Discounted Cash Flow Analysis 292
Appendix I: Space User Property Underwriting Checklist 305
...
Commissioning for existing buildings ... is a systematic process for investigating, analyzing, and optimizing the performance of building systems by improving their operation and maintenance to ensure their continued performance over time. This process helps make the building systems perform interactively to meet the owner’s current facility requirements.

The value of commissioning was confirmed in a July 2009 study by Evan Mills: “Building Commissioning: A Golden Opportunity for Reducing Energy Costs and Greenhouse Gas Emissions”. Based on data from 37 commissioning providers representing 643 buildings comprising 99 million sq. ft. of floor space from 26 states, the study reported the following key findings for commissioning:
• Median commissioning costs: $0.30 and $1.16 per square foot for existing buildings and new construction, respectively (and 0.4% of total construction costs for new buildings).
• Median whole-building energy savings: 16% (existing) and 13% (new).
• Median payback times: 1.1 (existing) and 4.2 years (new).
• Median benefit-cost ratios: 4.5 years (existing) and 1.1 years (new).
• Cash-on-cash returns: 91% (existing) and 23% (new).
• Projects employing a comprehensive approach to commissioning attained nearly twice the overall median level of savings.
• Non-energy benefits are extensive and often offset part or all of the commissioning cost.

Carnegie Mellon also reports positive findings on commissioning:
• CMU’s BIDS™ has identified seven retro-commissioning case studies indicating an average annual savings of 8.1% in total building energy consumption. These seven studies demonstrate that retro commissioning results in annual energy cost savings of approximately $0.15 per square foot.
• While the benefits of commissioning will diminish over an average of four years, the initiative is more than paid for in the first year of savings, and the four-year net present value of the savings averages $0.64 per square foot.
• CMU’s BIDS™ has also identified four building case studies that demonstrate an average of 17.4% total building energy savings annually due to continuous commissioning. These four studies demonstrate that continuous commissioning yields average annual savings of $0.30 per square foot for energy alone, with facility management and failure costs not yet quantified.
...
In November 2009, Davis Langdon completed a Cost Study for the Urban Green Council, which found that LEED certified high rises came in at an average cost of $440 per square foot compared to $436 per square foot for non-LEED projects. On commercial interiors, the cost of $191 per square feet was actually $6 dollars lower than for non-LEED projects. This study was based on construction costs for 38 high-rise multi-family buildings and 25 commercial interiors in New York City.
...
The GSA Adaptable Workplace Lab showed that using easily reconfigured furniture can save 90 percent of reconfiguration costs, and reduce reconfiguration time from days to hours. In another example, the Pennsylvania Department of Environmental Protection reduced average churn costs from $2,500 to $250 per workstation by using more flexible building and furniture systems in their high-performance green buildings.
...
The Economics of LEED for Existing Buildings,” Leonardo Academy Inc., April 21, 2008 ... survey data was gathered in 2006-2007. The survey was sent to the owners or managers of 53 LEED-EB certified buildings and 23 of them returned the survey. ... The following key conclusions were extracted directly from the report:43
• The costs for LEED-EB implementation and certification varied significantly from building to building. The total costs were a mean of $2.71 per square foot, with a median of $2.31 per square foot. The results did not follow expectations of higher costs for higher certification levels, but this may be due to the very small sample size available.
• In all the categories of operating costs, more than 50% of the LEED-EB buildings had expenses less than the BOMA average for the region. Total expenses per square foot of the LEED-EB buildings were less than the BOMA average for seven of the eleven buildings (64%).
• Total operating expenses in LEED-EB certified buildings had a median of $6.07 per square foot, 13% less than the $6.97 average for BOMA buildings.
...
by Scott Muldavin, Executive Director, Green Building Finance Consortium
Green Building Finance Consortium www.greenbuildingfc.com
2010