WS 6: Building Commissioning, -what s in it for me? Sustainability thresholds generating Value

Transcription

1 Frank HOVORKA, REHVA Vice president, UNEP FI Investment Comission co-chair, Sustainable Building Alliance Chairman WS 6: Building Commissioning, -what s in it for me? Sustainability thresholds generating Value

2 Acknowledgments Dr Yona Kamelgarn, Novethic Paris Dauphine University Prof.Thomas Lützkendorf, Karlsruhe Institute of Technology David Lorenz, Karlsruhe Institute of Technology Juho-Kusti Kajander, Boost Brothers Aalto University

3 Outline/Agenda Building performance impact Building performance assesment Data management Risk assesment Monetary valuation process

4 How to define environmental quality of buildings? Effective = Green Value Building Intrinsic Quality X Operation Utilities & Maintenance X Use Env. best Practices Time dimension : Life span and flexibility 4

5 Staff costs, including salaries and benefits, typically account for about 90% of business operating costs. Source: Health, Wellbeing & Productivity in Offices by WGBC 5

6 6 Source Valentina Fabi DRIVERS OF VALUE

7 source Valentina 7 Fabi TECHNICAL SYSTEM IMPACT

8 In the current market valuation systems benefits are not straight contemplated crucial relevance of a suitable building valuation to give useful information to investors and decision makers Why is it a crucial problem for the systems suppliers? Because fundamental challenges taking place in the market make it ripe for innovation: Integration of renewable energy Energy efficiency Improved comfort Occupants interaction HVAC benefits valuation can support the innovation 8

9 Theorizing green value Applying DCF method Source T. LUTZKENDORF9

10 Theorizing green value Definition Analyse of a building life-cycle and its HVAC system : Analyse of the life-cycle cost: Investment cost of HVAC systems and other systems Energy consumption Maintenance Replacement cycle Performance indicators: Energy consuption Water consumption Greenhouse gas emissions Waste Indoor air temperature Indoor air quality Costs linked to life cycle Performance analysis: Energy simulation Simulation of indoor conditions Simulation of the lighting Building information modelisation (BIM) => quantities Life cycle assessment (LCA) => Environmental impacts Discounted cash flow: Market Value Better indoor environement Net operating income (rent operating costs) = Capitalization rate (riskless rate + premium growth + depréciation) Energy costs Maintenance costs Replacement costs System flexibility HVAC Longer life duration of HVAC and of the other components Source : REHVA guidebook 16 10

11 Theorical model Traditional Building Low energy building (-25%) Sustainable Building Rent /m 2,a Maintenance /m 2,a Energy /m 2,a Net rent income /m 2,a Renting process rental months Free rent period rental months Churn rental months Total months rental months Rental period years Net operating income /m 2,a Capitalization rate % Value /m Change % + 2,3 % % Source : REHVA guidebook 16 11

12 List of initiatives on the integration of sustainability-related information into investment decision process and/or valuation IPD Eco Pas Europe Risk Benchmarking service to identify environmental risks for a given property and compared it with peer exposures. Data are collected according to a Valuer Sustainability Checklist developed in partnership with the RICS. This checklist is used to complete the risk analysis and compare it with peer thanks to a database with environmental data and capital values for different properties type. Sustainability and Income- Producing Property Valuation Austin, G.W North America Market value This paper provides a systematic practical procedure for evaluating sustainable property. The underlying principle is that appraisers should systematically collect building information on sustainability as well as market context information on sustainability so as to adjust traditional input parameters. The uncertainty associated with the procedure is assessed through a sensitivity analysis using Monte-Carlo simulations. RICS Sustainability and commercial property valuation. 2nde edition Sayce, S., Quinn, F Europe Market value Guidance note for valuers, updating the note n 13 published in The guidance note encourages valuers to gather information on a sustainability checklist, assess their impact on value and integrate them in value calculation if reflected by the market and provide advices to their clients on sustainability issues beyond current market integration. Integrating value and uncertainty in the energy retrofit analysis in real estate investment. Bozorgi, A Europe Worth Through an extensive literature review, interviews with real estate experts, and the author s experience with energy efficiency analytics and tools development, this paper suggests a systematic value-based assessment process to analyse full costs and benefits associated with energy retrofit options in the context of value, while clearly articulating the risk and uncertainty. The outcome of the proposed process enables users make more informed investment decisions and drives major energy retrofit investments. How to calculate and present deep retrofit value Rocky Mountain Institute. Bendewald, M., Hutchinson, H., Muldavin, S. Torbert, R 2014 USA Worth (Owner - occupier) Guide providing practical guidance for owner occupiers as to how value deep retrofits beyond the mere costs savings. They define "Deep retrofit value is the net present value of all of the benefits of a deep energy or sustainability investment." Methodologies incorporate risks analysis and considerations to properly avoid double counting. Nine discrete value elements are considered: 1. Retrofit Development Costs ; 2. Non-Energy Property Operating Costs ; 3. Retrofit Risk Mitigation; 4. Health Costs ; 5. Employee Costs ; 6. Promotions and Marketing Costs ; 7. Customer Access and Sales ; 8. Property-Derived Revenue; 9. Enterprise Risk Management/Mitigation Renovalue Renovalue consortium present Europe Worth (Owner - occupier) Training material for valuation professionals on sustainability features and their impacts on value drivers (rent, discount rate, capital expenditures, maintenance costs, etc.). The project stems in the belief that there is no automated formula to integrate sustainability into valuation process. Training valuers to account for sustainability as part of their daily assessment of buildings feature thus appears paramount. Sustainability issues in the valuation process of project developments. Fröch, G Europe Market value System to incorporate the economic benefits of sustainability into the valuation of real estate project developments. Using acatalogue of parameters, key parameters are identified for the specific project development to be valued. These parameters are then quantified by means of distribution functions and checked for interdependencies. This analysis, and with it the results of a sustainability valuation, are incorporated into the calculation of the market value and the internal rate of return. Results are communicated according to the input data through distribution functions.

13 How to build confidence? Real performance Uncertainty management Life cycle assesment Frominformation transparency to trust

14 WhatCOOPERATION about data collection Data is valuable and information? Manufacture / Production Planning / Design / Engineering 14 Construction / Commissioning / Modernisation Source: Lützkendorf and Lorenz, 2011 Facility Management Disposal & Recycling

15 kgco 2 /m Building Passport Name: Address: Year of completion: Heated floor area: Number of occupants: Design Real Year: kwh/m Maintenance Maintenance, repairs Maintenance, repairs Maintenance, repairs Energy: Renewable, building, users Energy: Renewable, building, users Energy: Renewable, building, users Maintenance, refurbishment Energy: Renewable, building, users Energy: Renewable, building, users Recycling, reuse, demolish Primary kwh/m 2 Energy Performance Certificate Designed indoor climate class: A/B/C Measured user satisfaction: % Indoor Environment Quality Maintenance, repairs, retrofit Energy: Renewable, building, users Transport Work Waste Materials Embodied: Operational: kgco 2 /m 2 kgco 2 /m 2,a Embodied: kgco 2 /m 2,a Designed carbon footprint of building - Recycling: kgco 2 /m 2 Measured kwh/m 2 Display Energy Certificate Energy kgco 2 /pers,a Annual Footprint Travel kgco 2 /pers,a Recycling of waste % Water m 3 /pers,a Landfill waste kg/pers,a

16 Holistic approach with 8 metrics Economy Lifecycle Cost (EN ) Energy Imported energy Imported primary energy Baseload power Global warming Life-cycle carbon footprint (EN 15978) Operating carbon footprint (GHG Protocol) Occupants Indoor air quality classification Share of satisfied occupants

17 Sustainability and Monetary Value of Buildings

18 BIM for FM Design Change Publish (Views) Data updates BIM Server Use

19 Sustainability-related data collected by owners and property managers A large number of sustainability information is already collected by leading companies But respective data are not yet systematically captured and processed through decision making process. 81% have some form of sustainability check in place. 56% of them use these checks during their financial decision making process. 16% are able to use the information for sustainability reporting functions. 58% do not have any form of internal management system in place. (Source: UNEP FI, 2014, Sustainability Metrics) The translation into financial ratios would ensure a better integration of sustainability information into investment decision process. 19

20 Data flow and information aggregation Aggregated decision ratio Disaggregated decision parameter Sustainability related information list - Energy performance DCF Rent per Square Meter Percentage of occupancy Operating costs Refurbishment costs Rental growth Capital growth Exit Yield? - Water performance - Transport and accessibility - Indoor air quality -Flexibility -Durability - Flooding risk -. Depreciation Lump sum adjustment? Separate risk appraisal? Integration of life cycle costs?.?

21 Sustainability related data perceived by valuers Although they increasingly collect sustainability-related information, there is no harmonised framework to integrate these data into valuations. 21

22 Monte Carlo simulations Monte Carlo simulations correspond to an iterative process to compute results from probabilised situations. For each simulation, inputs are randomly selected among a predefined laws of probability to generate an output figure that is recorded. The process is repeated a very large number of times to generate a distribution for the output. Example: (source: D. Lorenz) Distribution assumptions Market rent Discount rate Capitalisation rate 0,9 0,8 0,7 RiskTriang(10,5; 12; 13) RiskTriang(0,07; 0,08; 0,095) RiskTriang(0,06; 0,07; 0,085) Probability 0,6 0,5 0,4 0,3 0,2 0,1 0,0 10,0 10,5 11,0 11,5 12,0 Parameter Value 12,5 13,0 13,5 Probability ,065 0,070 0,075 0,080 0,085 Parameter Value 0,090 0,095 0,100 Probability ,055 0,060 0,065 0,070 0,075 Parameter Value 0,080 0,085 0,090 5,0% 90,0% 5,0% 10,933 12,646 5,0% 90,0% 5,0% 0, , ,0% 90,0% 5,0% 0, ,

23 Monte Carlo simulations 0,080 Distribution for Barwert/B41 0,070 Mean= ,060 Relative Frequency 0,050 0,040 0,030 0,020 0,010 0, Output results Values in Millions 5% 90% 5% 7, ,2857 (source: D. Lorenz) 23

24 Monte Carlo simulations Monte Carlo scenarios can also be used to compare the risk profile of different refurbishment scenarios 7,1 0,160 Distribution Comparison 0,140 0,120 Relative Frequency 0,100 0,080 0,060 0,040 0,020 0, Values in Millions 100% 7,1 14,9 (source: D. Lorenz) 24

25 Sustainable retrofit : Paris building The main benefit from green refurbishment lies in its impact on long term value. Whether on a pessimistic (depreciation of poor performing building) or on an optimistic scenario (premiums for the environmental-friendly building), green retrofit should not be only analysed through conventional paybacks period but considerations on their impact on the possible evolutions of assets value 25

26 Conclusions From the boiler room to the board room.

27 Bibliography Chegut, A., Eichholtz, P., Kok, N. (2014) Supply, Demand and the Value of Green Buildings. Urban Studies, Vol. 51, n 1, pp Eichholtz, P., Kok, N., Quigley, J. M. (2013) The economics of green building. Review of Economics and Statistics, Vol. 95, n 1, pp European commission (2013) Energy performance certificates in buildings and their impact on transaction prices and rents in selected EU countries. Final Report. DG Energy. Fuerst, F., McAllister P. (2011) Green Noise or Green Value? Measuring the Effects of Environmental Certification on Office Values. Journal of Real Estate Economic, Vol.39, n 1, pp IIGCC (2014) Trustee s Guide: Protecting value in real estate through better climate risk management. Accessible at: Kajander, J.-K., Sivunen, M., Junnila, S. (2014).Valuing Indoor Air Quality Benefits in a Healthcare Construction Project with Real Option Analysis. Buildings, Vol. 4. Kamelgarn, Y., Hovorka, F. (2013) Energy efficiency strategy at the portfolio scale of a property owner. Rehva Journal, Vol. 50, n 1, p Sayce, S., Lorenz, D., Michl, P., Quinn, F., Lützkendorf, T. (2013) RICS members survey on the uptake of VIP 13. Work in progress. World Green Business Council (2013) The Business Case for Green Building: A Review of the Costs and Benefits for Developers, Investors and Occupants. World GBC publications. World Green Business Council (2014) Health, Wellbeing and Productivity in Offices. The Next Chapter for Green Building. World GBC publications..

28 Questions? Frank HOVORKA