Benefits amp Opportunities for Developers and Communiti es James R DeLisle PhD February 5 2008 Presentation Overview Sustainable Real Estate Value Proposition Most Fitting Use Holistic Approaches ID: 486320
Download Presentation The PPT/PDF document "What Is Sustainable Development?" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
What Is Sustainable Development?
Benefits
& Opportunities for Developers and Communiti
es
James R. DeLisle, Ph.D.
February 5, 2008Slide2
Presentation Overview
Sustainable Real Estate
Value Proposition
Most Fitting Use
Holistic Approaches
Alternative Metrics
Sustainable Real Estate Movement
Nature: Structural shift, with cyclical risks
Need: Strong emotion, less empirical
Issues
Risks
Barriers
OpportunitiesSlide3
Overview
Key Questions
What is Sustainable Real Estate?
What are Green Buildings?
What, When, Where Why and How go Green?
Our Challenges in Moving Toward
Sustainabilty
Growing right with economic, environmental, ethical and social challenges
Responding to challenges of Global Warming and environmental degradation
Striking balance between needs of current and future generations
Developing customized, collaborative, inclusive values
Ensuring effectiveness and efficiency
Approaching the issue from a holistic perspectiveSlide4
Sustainable Real Estate
Definition of
Sustainable Real Estate
The use of scarce real estate in an efficient, economic, equitable and socially responsible manner that provides an acceptable –if not optimal– fit between users of space and the space that is produced that has an existing and enduring effective demand and balances the needs of current and future generations.
Evaluative Criteria
Efficient, economic, equitable and socially responsible uses
Achieves goodness-of-fit between users and space
Satisfies current and future demand for space
Balances needs of current and future generationsSlide5
The Real Estate Sustainability Spectrum
What are the three key dimensions of Real Estate?
Linkages
Environment
Static
Sustainable….
S….
E….
L….Slide6
How Look at Real Estate?
Perspectives
Dimensions
: space-time, money-time
Space-time
Money-timeSlide7
Highest and Best Use vs. Most Fitting Use
Definition
The
reasonably probable and legal use of vacant land or
improved
property, which is physically possible,
appropriately
supported, financially feasible, and
that results
in the highest value” as of the date of the
appraisal.
Criteria
Legal
Physically possible
Reasonably probableFinancially feasibleMaximize
valueMost Fitting Use“
Satisficing or Optimizing” vs. Maximizing ValueSlide8
Interdisciplinary Approach to Sustainability
Time
$
Portfolio Mgmt.
Asset Mgmt.
Leasing
Tenant Improvements
Tenant Relations
Property Mgmt.
Accounting/Reporting
Engineering
Financial Mgmt.
Construction Mgmt.
Quality Controls
Project Mgmt.
Architectural Oversight
Cost Mgmt.
Construction Financing
Inspections
Pre-leasing
Releases
Final Inspection
or
Sourcing if Existing
Feasibility
Marketability
Appraisal
Engineering
Architectural
Environmental
Legal
Cost Estimation
Negotiations
Hold/Sell Analysis
Marketing
Valuation
Buyer Selection
Broker Management
Negotiations
Closing
Planning
Acquisition/Production
Operation
Disposition/RedevelopSlide9
Real Estate Valuation Model
Cost
Value
Income
*
Return
Return = Income/Value
Value = Income/Return
Income = Value * ReturnSlide10
Frontdoor Model Toward Sustainable Real Estate
Land
Hard & Soft Costs
TRCm
TRCm
NIr
* Wcc
/ NIR
GIrSlide11
Backdoor Model Toward Sustainable Real Estate
Land
Hard & Soft Costs
TRCj
TRCj
NIm
* Wcc
/ NIR
GIm
RCRSlide12
Green Building and Project Finance
TRCm
NIr
* Wcc
/ NIR
GIr
Site
Selection
Materials
& Labor
Financing
Risk/Return
Hurdle
Operating
Efficiency
Lease
Structure:
Who
Captures?
D/ESlide13
Sustainable Real Estate Value
Value:
cost
of
materials
costs
of
construction
cost
of
financingcost of fees
Incomegross incomenet level, patternReturn
absolute vs. risk-adjustedattribution to income vs. valueSlide14
Sustainability: Irretrievable Commitments
Land Value
Improvement
Cost
TRCj
NOIn
Wcc
NOIe
Wcc
TRCje
Demolition & Lost Income
Improvement
Cost
* Wcc
NOI gapSlide15
Sustainable Business Models
Function: ( Quantity
of
Business + Cost
of
Business + Quality
of
Business + Continuity
of
Life)
(NOI)
(NOI)
(NOI)
(NOI)
(NOI)Slide16
Green: What it is & What’s Driving It?
Background
Historical
Cyclical phenomenon tied to energy costs
Lessons Learned
Recent
Global Warming Catalyst tied to environment
Social Responsibility
Urban Environmental Issues
Energy Depletion
Greenhouse Gases
Climate change
Stormwater Control
Urban Heat Island EffectTransportation: Congestion and PollutionSlide17
Green: Where’s it Going?
The Green movement is a Temporary Phenomenon…
500 + Corporate & Institutional Investors
Major Interest Groups/Catalysts
US Green Building Council (USGBC)
Mayors 2030 Challenge
CSR: Corporate Social Responsibility
SRI: Socially Responsible Investing
RPI: Responsible Property Investing
Green Finance Consortium
Property Insurance
Corporate RE ExecutivesSlide18
Green Buildings: Diffusion of Innovation
Rising Energy
Costs
Profit/Return Rising Requirements
Degree of Green
Growth
Maturity
Decline
Global
Warming
Innovation
Corporate
Social
Responsibility
Growth in Membership
in USGBCSlide19
Green Communities: Competitive Positioning?
http://www.sustainlane.com/us-city-rankings/seattle.jspSlide20
Other Drivers toward Sustainability
Corporate Social Responsibility
Socially Responsible Investing
Green Building Finance Consortium
Graaskamp on Social Responsibility:
Man is the only animal that builds his terrarium about him as he goes and real estate is the business of building that terrarium. So we have a tremendous ethical content, tremendous social purpose. The student is looking for a field in which entrepreneurship and a way of life can be integrated into social purpose. We like to argue that the entrepreneurship of tomorrow is going to be the individual who can inventively implement social policy. Slide21
Corporate Real Estate: Value Creation
Optimize
Minimize
Tactical
Strategic
Maximize
Situational
Enduring
Enhancing
RE Costs
PerspectiveSlide22
Why are companies Going Green
Costs of Goods
Business Activity
Gross Revenues
Real Estate Costs
Labor
Profit
Time
Profit
Corporate Business Model
Corporate Social ResponsibilitySlide23
Green Cost Savings
Green Cost Savings
Context
Energy = 30% of operating costs
Operating costs = 39% of real estate costs
Real estate costs = 10-15% of business costs
20% energy savings = .2-.6% of business costs
Energy =
30%Slide24
How Green? LEED Certification
LEED: What it is?
Leadership in Energy and Environmental Design (LEED) Green Building Rating System™
Benchmark for the design, construction, and operation of high performance green buildings
LEED Categories
LEED CI: Commercial Interiors
LEED CS: Core & Shell
LEED EB: Existing Buildings
LEED NC: New ConstructionSlide25
LEED New Construction
Innovation in Design 5
Sustainable Sites 14
Materials & Resources 13
Energy & Atmosphere 17
Water efficiency 5
Indoor
Environmental Quality 15
Exceptional Performance in Achieved LEED-NC Credit
Innovation in other Green Building Categories
Reuse existing building/sites
Protect natural and agricultural area
Reduce need for automobile use
Protect and/or restore natural sites
Develop only appropriate sites
Use materials with less environmental impact
Reduce & manage waste
Reduce amount of materials needed
Establish energy efficiency and system performance
Optimize energy efficiency
Encourage renewables and alternative energy sources
Support ozone protection protocols
Reduce quantity of water needed for building
Reduce municipal water supply and treatment burden
Establish good air quality
Eliminate, reduce and manage the resources of indoor air pollution
Ensure thermal comfort and systems controllability
Provide for occupant connection to the outdoor environment
Geddes, EDA W NVSlide26
Other Approaches to Sustainability
ABGR: Australian Building Greenhouse Rating, AUS 2005
BASIX: Building Sustainability Index, NSW 2004
BEPAC: Building Environmental Performance Assessment Criteria, Canada 1993
BREEAM: Building Research Establishment Environmental Assessment Method, UK 1990
CASBEE: Comprehensive Assessment System for Building Environmental Efficiency, Japan 2004
CEPAS: Comprehensive Environmental Performance Assessment Scheme, HK 2001
EMGB: Evaluation Manual for Green Buildings: Taiwan 1998
Energy Star: USEPA & DOE Rating on Energy Efficiency & Indoor
Env
.
EPGB: Environmental Performance Guide for Building, NSW
GHEM: Green Home Evaluation Manual, China 2001GreenStar
: Green Building Council, AUSHKBEAM: Hong Kong Building Environmental Assessment Method, HK 1996NABERS: National Australian Building Environmental Rating System, AUS 2001SBAT: Sustainable Building Assessment Tool: South Africa
Ding, Grace 2007Slide27
Primary Research: LEED Market PenetrationSlide28
LEED Platinum: New Construction Example
Total
Number
= 35Slide29
Market Share by Type by LEED RatingSlide30
Existing Building : Share with Points/Category
Efficiency
Energy & Atmosphere
Materials & Resources
Indoor Environmental
Quality
Innovation & Design Process
Sustainable SitesSlide31
Distribution of LEED Certification by Level
LEED
Share:
Rating by TypeSlide32
Geographic Dispersion by Type of Green ActivitySlide33
Sustainable Building Assessment Tool (SBAT-1)
Gibberd
, J 2003Slide34
Responsible Property Investing (RPI)
Overview
Nature: going
beyond
compliance with minimum legal
requirements
Goal:
better
manage the risks and opportunities associated with environmental, social, and governance issues in property investing
.
Rationale:
reduce risk and pursue opportunities while addressing the challenging issues facing present and future generations.
Scope
A
variety of efforts to address ecological integrity, community development, and human fulfillment in the course of profitable real estate
investing.Level: Portfolio, asset, or property managementSlide35
Drivers and Barriers to RPI
Concern
for risk and return
4.6
Opportunities to
outperform 4.3
Business advantage
4.2
Moral responsibility
4.1
Voluntary
codes of behavior
3.9
Internal leadership
3.9
Cost avoidance
3.9
Customers
3.7
Employee recruitment/retention
3.2
Investors
3.1
Peer activity 2.8
Stakeholder pressure 2.7
Insufficient financial performance 3.9
Insufficient tenant demand 3.7
Lack of products to invest in 3.4 Lack of information 3.3
Incompatible with fiduciary duty 3.2
Legal Restrictions
2.7
Internal resistance 2.4
Drivers Behind RPI
Barriers to RPI
Source:
RESPONSIBLE PROPERTY INVESTING: A Survey of American ExecutivesGary
Pivo, 2007 Slide36
Green Building Finance Consortium
Founding Members
National Association of Realtors
BOMA International
CB Richard Ellis
City of Seattle
Kennedy Associates Real Estate Counsel
Cherokee Investment Partners
Swinerton
Builders, Inc.
Davis Langdon
EPA
EnergyStar
Division
Northwest Energy Efficiency AllianceRevival Partners
Collaborating Groups
The Appraisal InstituteRoyal Institute of Chartered SurveyorsCoreNet Global
American Institute of ArchitectsWorld Business Council for Sustainable DevelopmentCommission for Environmental Cooperation
Vancouver Valuation AccordU.S. Green Building CouncilHigh Performance Building Protocol Committee
Lawrence Berkeley National LaboratoriesASHRAE 189P High Performance Building Standards Slide37
GBFC Mission/Challenge
Structure
Independent organization
Collaborative
Approach
Mission/Challenge
Enable Private Sector Investment
Appropriate
recognition of the “value” of Green Building
Investment
Development of Property Specific Process
Focus on risk assessment – downside and upside
Greater emphasis on existing buildingsSlide38
Underwriting Sustainable Buildings: GBFC
Underwriting Question
Are the benefits of investment sufficient to compensate for the risks undertaken?”
Standard
Fiduciary purpose, not tactical or strategic
Independent (3
rd
party) testing of investment assumptions
Approach
Value is incorporated, but the focus is risk
Underwrite to specific investment criteria
Return Hurdles
Risk TolerancesSlide39
Institutional Investors vs. Corp. on Statements
on GreenSlide40
Investors & Corp Respondents: Green DecisionsSlide41
Biggest Barriers: Corp vs. Inst. Investors
Efficacy and Cost-effectiveness
The party paying not one benefiting
Building payback is short-term
Office space is a commodity product
Hold periods too short to justify
Knowledge
Too many unknowns
Lack of long term benchmarking
Lack of demand by clients/tenants
Lack of research & public education
Commitment
Retrofitting existing isn’t justified
Tenants don't know or care When tenants decide, developers will followEducation
Requires new methods/educationEducating the public on the pros and consCost/benefit analysis
Institutional Investors
Costs, costs
Perception of higher costs
Must be financially feasible
Knowledge of benefits to various parties
Lack of knowledge
Lack of incentives
Investor buy-in
Investor interest
Costs then education
Education of publicSlide42
Greatest Opportunities: Corp vs. Inst. Investor
Education
Consistent, fact based, education
Education of managers & investors
Identifying "low hanging fruit"
Competitive Advantage
First mover advantage
Better work environment; productivity
Marketing as customers demand green
Spatial Impacts
Improved performance and operations
More comfortable building & operationEnvironmental BenefitsSustainability & ecology effects
Reduce resources; energy savingsCarbon reduction, waste reduction
Institutional Investors
Image
Self-sustaining, renewable energy
Good PR, leadership
Marketing, Market Advantage
Good public policyLower operating costs
Cost savings
Increased productivity
Actually improve air
Doing the right thing
Environmental benefits
Reduce carbonSlide43
Research Issues: Corporate vs. Inst. Investors
Performance
How measure benefits?
Do studies show operational savings?
Factual data on effects, net costs
What added costs, new and existing
Lessons Learned
What mistakes have you seen
Keep open mind and not one answer for all
How change traditional way of doing things?
Education
Who teaches skills, materials and techniques?
Beyond materials & energy, what works?
Does green give competitive advantage?ApproachesBeyond LEEDS; RPI & energy star?
How create more incentives?
NCREIF
What is real benefit?
How much does it really cost?
What is payback period?Benchmarking; how measure?
What interests of clients?
How be cost competitive?
How improve social benefits?
What are clients interests?
Who is going to lead?
How quantify and justify?
What trade-offsHow affect value?Slide44
Biggest Risks: Corporate vs. Inst. Investor
Complexity
Too complicated, too fast
Continuing to ignore existing buildings
Efficacy
Projected savings not recaptured
Higher costs more to maintain in long run
Tenants or users don't like the product
Too much hype, too fast; bogus case studies
Uncertainty
Not knowing what the economic effect is
Unproven technologies that don’t work
Unexpected side effects, such as air quality
Market AcceptanceNot Getting public buy-in/losing support
Developers spend & tenants don’t respondInterventions Institutionalized
Being forced with unintended consequencesMovement entrenched in building codes
Institutional Investor
Too much, too soon
Not catch on; too complex
Failure of untried products
Negative performance impacts
Surge in new construction
Discussion out of hand
Too much, too soonNew technology
Lack of tenant interest
Temporary phenomenon
Excessive
gov interventionsToo knee-jerk, high-handedSlide45
Summary
Sustainable Real Estate Movement
Nature: Structural
shift, with cyclical risks
Need: Strong
emotion, less empirical
Sustainable Real Estate
Value Proposition
Most Fitting Use
Holistic Approaches
Alternative Metrics
IssuesRisksBarriersOpportunities