Green Value: The Sustainable Business Case BCBEC AGM Chris Corps 22 September, 2009
Old Town, Montréal
Old Town, Montréal
Basilique Notre Dame, Montréal
Old Town, Montréal
Old Town, Montréal
Transamerica Tower, San Francisco
Marché Bonsecours, Montréal Hyatt Embarcadero, San Francisco
Railway Museum, San Francisco
Bank of England, London, UK
Counting Green The Role of Valuation
Green Value Initiated 2004, published November 2005 Literature & best practice review Reviewed green building value aspects Subsequent studies now improving analysis, better data now available "There is a relationship between the market value of a real estate asset, its green features and related performance."
Green Value Summary Sponsors: RICS BC Hydro Canada Green Building Council English Partnerships (UK) Greater Vancouver Regional District Green Buildings BC Natural Resources Canada RealPac Others: CMHC, City of Vancouver 18 project reviews in: San Francisco, California Minneapolis, Minnesota Oberlin, Ohio New York City, New York New Westminster, Vancouver, Victoria, BC Kitchener, Ottawa & Toronto, Ontario Montreal, Quebec 6 UK projects Team Cushman Wakefield LePage, Busby Perkins + Will, BuildGreen, DTZ (UK)
Green Value: The Main Value Benefits 1. Lower operation/maintenance costs 2. Energy & resource savings 3. Grants, subsidies, inducements etc. 4. Attract tenants faster (i.e. absorption) 5. Higher rents, investment/sale value 6. Lower turnover/vacancy 7. Reduced fitting-out costs (i.e. TI's) 8. Lower internal move costs (i.e. churn) 9. Increased productivity 10. Faster, better public process 11. Improved risk, marketability Vancouver Island Technology Park, BC
Examples of Green Value Pennsylvania Power and Light conversion's power savings: Traditional energy saving: 4.1 yrs payback, 24% ROI Green Value: 69 days payback, 540% ROI Difference: largely productivity benefits Reno Post Office upgrade: Improved productivity gains paid for the $500,000 renovation in under a year Annual energy savings a 'free bonus' Mountain Equipment Co-op, op, Montreal
Green Cost Savings: What's in Operating Costs Janitorial Electricity Energy: 30% Treatment & environmental systems Utility & central systems Oil Gas Water Sewage External building % Electricity 19.5% Oil 0.3% Gas 5.9% Water 2.8% Sewage 1.0% External building 4.2% Interior systems 27.3% Roads & grounds 4.1% Utility & central systems 6.2% Treatment & environmental systems 3.3% Janitorial 25.5% Roads & grounds Data courtesy of: Interior systems International Facilities Management Institute
Green Cost Savings: How Big are Operating Costs Average Operating Costs 39% Average net Rent Average Operating Costs NEW WEST of which 30% is energy Average net Rent 61% Data courtesy of: SURREY NORTH SHORE RICHMOND BURNABY BROADWAY CORRIDOR $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 DOWNTOWN VANCOUVER
Green Cost Savings: The Total Costs of Business SO: If If energy is is a small percentage of of the costs of of operating a typical business Where's the beef? CONTEXT Energy = 30% of operating costs Operating costs = 39% of real estate costs Real estate costs = 10-15% of business costs 20% energy savings = 0.2-0.6% of business costs Figures are typical & vary depending on location and other factors Data courtesy of:
Peak Oil, Climate Change: Exxon's 2003 Economic and Energy Outlook MBDOE 160 World Demand 120 World Production Gap? 80 40 Existing Field Decline ~ 4-6%? 0 1980 1985 1990 1995 2000 2005 2010 2015
$140 Peak Oil, Climate Change: Impact of Energy Inflation Average fuel inflation rate General inflation Real fuel inflation rate Home heating fuel 8.06% 1.90% 6.16% Gas at the pump 4.73% 1.90% 2.83% Electricity Index 0.93% 1.90% -0.97% Natural gas 4.66% 1.90% 2.76% $120 $100 $80 $60 $40 $20 Natural gas Electricity Index $0 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Peak Oil, Climate Change: Governance Issues Climate change is shifting policies, legislative framework Policy and legislation e.g. New York Regulations e.g. energy labels Financial assistance e.g. US residential construction finance
The Vancouver Valuation Accord: An Agreement to Change Accord Case Studies www.vancouveraccord.org
Accord Aspects Valuation standards review and adjustment Professional Enhancement Profession increasingly being asked to change Professional Training and Development to include sustainability issues and factors Evidence of where sustainability has impacted asset and property value Academic/Educational Capacity Development
Buildings, Value & Resilience The ability to withstand the impacts of change What change? Climate change Fossil fuel depletion & inflation Major factors More water, less water, more heat, less heat Flood, sea rise, storms, wind, fire, snow Supply chain management (energy, transportation, risk) Manitoba Hydro, Winnipeg
High Performance Green Building: What's it Worth? Buildings in Portland, Seattle, Vancouver 650 West Georgia Street, Vancouver A/C & energy retrofit, 19% ROI validated BUT with Green Lease, potential for 197% ROI through leveraging rental capitalisation Impact Attractive for landlords AND benefit to tenants NOT business as usual L/T relationship partnership not adversarial Correct appraisal is central
High Performance Green Building: Vancouver Centre Retrofit Analysis Assumptions (Vancouver Centre - Class A office) Building size sq ft 472,422 Finance rate 5.00% Green savings psf pa $0.51psfpa Green savings total pa $240,935pa Life cycle 12.00yrs Yield (Cap rate) 6% Years Purchase (1/yield) 16.66666667 Energy retrofit costs psf $4.32psf Energy retrofit costs -$2,040,863 Rent (excluding utility costs) psf -$29.00psf Rent paid to landlord -$13,700,238pa Utility costs psf -$2.61psf Renovation Renovation capital costs -$2,040,863pa Renovation finance over life cycle -$219,296pa Renovation savings $240,935pa Renovation profit(loss) pa $21,639pa Traditional "simple payback" analysis 8.47yrs Maximum breakeven interest rate 7.08%
High Performance Green Building: Vancouver Centre Retrofit Analysis Value analysis Before After Tenant Tenant's utility payments -$1,233,021pa -$992,086pa Rental increase -$240,935pa Tenant's total occupancy costs -$14,933,259pa -$14,933,259pa Landlord Landlord's gross rent $13,700,238pa $13,941,173pa Less: cost of finance -$219,296pa Landlord's net rent $13,700,238pa $13,721,877pa Landlord's increase in net income $21,639pa Increase in capital value, after debt service $360,647 Capitalised value after debt service $228,337,300 $228,697,947 Retrofit value as % of building value 0.16% Profit Capital investment -$2,040,863 Capitalised gross annual return on investment $240,935pa Gross increase in capital value $4,015,587 ROI before debt service 196.8% Capitalised value after debt finance $360,647 ROI after debt service 17.7%
Potential Benefits Reduce GHGs by 25-33% Measure What You Value, Value What You Measure Water Water Energy Energy GHGs GHGs Materials Materials Power the equivalent of 10% of homes Heat the equivalent of 30% of homes Run the equivalent of 10% of cars Recover, recycle and reuse clean water Flexible, scalable, local, incremental, Just-in-Time Least expensive or potentially profitable Reduces risk Liquid Liquid Waste Waste Solid Solid Waste Waste Capital Capital costs costs Operating Operating costs costs Life Life cycle cycle James Bay IRM Retrofit, Illustrative Schematic Fidelis Resource Group, 2008 Transfer Transfer pricing pricing "Residual" "Residual"
LCC LCA LCV Life Cycle Costing Cost assessed over life cycle Life Cycle Assessment Broaden, include cost savings Life Cycle Valuation Broadest Include value to occupier, owner, perhaps society, community Include residual/reversion Adjust for finance Reconcile finance & asset life Best net assessment
Asset & Sustainability Metrics 1 The Triple Bottom Line is not just for wimps Economic/financial benefit Risk & long term asset performance Extended math includes Resources Energy, water, air/gas, materials, waste, money, others Report all inputs & outputs over the entire life cycle and beyond Count human performance
Asset & Sustainability Metrics 2 Life cycle valuation Capital and operating Within and beyond system boundaries Impact of transfer pricing / profit share Life cycle considerations Life cycle valuation, not just cost savings GHGs etc Include reversionary value CO 2 e measurement/pricing Rising impact of water DCF Gradual reconsideration of discounting & initial yield
resource group Further information from: www.resources.com Copyright Fidelis Resource Group Inc., 2009