green finance for affordable housing

The best deal for investors, communities and the planet.

Green Finance for Affordable HousingGreen Finance for

Affordable Housing

BrightTALK WebcastWednesday, June 17, 2009

BrightTALK WebcastWednesday, June 17, 2009

Lisa Michelle GalleyLisa Michelle Galley

2June 17, 2009 BrightTALK: Green Finance for Affordable Housing

About Galley Eco Capital

Transaction Range

• Real Estate $20mm+ / Portfolio’s welcome

Capabilities• Financial services and management consulting

for green projects. Business intelligence, designing funding programs, financial modeling and transaction assistance.

Sectors • Sustainable Real Estate & Renewable Energy

Markets • Nationwide

Structures• Investment Programs, Hybrid Debt/Equity

Structures, Energy-Savings Financing Structures.


Presentation Outline1. Introduction to Green Finance

2. The Pillars of Green Finance

• Benchmarking

• Underwriting

• Strategic Funding

• Integration

3. How’s your Program Working?


Do you include green finance tools or techniques in your existing program right now?

Introduction to Green Finance: Survey Question


A system of public and private market financial mechanisms that promote sustainable real

estate.

Rewards Resource

Value

Integrative

Intentional

Green Finance


How is Green Finance Different?

• Short to mid-term financial outcomes

• First costs• Income & Expenses• Simple Payback• NPV• ROI / IRR

• Socially responsible expectations & sustainability outcomes

• Life Cycle Cost Analysis• Income & Expenses• Savings• Avoided costs• ROI / IRR / NPV• Simple & VAR Paybacks

Traditional Green


Why Green Finance is Important for Affordable Housing

• Building environmental and economic value for low-income households

• “For low income individuals, the real inflation rate is 7%-10% p.a. due to their greater exposure to food and energy price increases combined.”

Ken Rosen, Rosen Consulting


1. Introduction to Green Finance


• Benchmarking

• Underwriting

• Structuring Incentives

• Integration



Are you utilizing a benchmarking standard across your entire portfolio, for both existing assets and new construction?

Benchmarking: Survey Question

10 June 17, 2009 BrightTALK: Green Finance for Affordable

Housing

What is Benchmarking?• Process of comparing your properties’ energy and environmental

performance against third-party, agreed upon standard of sustainability and energy efficiency.

• Improves asset competitiveness- transparency and adherence to industry established best practices.

• Establishes environmental/energy efficiency performance goals for affordable housing

• Establishes recognizable value for stakeholders: o Capital sources o Local governmento Tenants

• Green ratings criteria marketplace is maturing: number of options for both new construction and existing residential projects


Housing

Common Elements of any Benchmarking Standard

•Energy Usage•Water Consumption•Waste


Benchmarking StandardsLEED for Homes (US Green Building Council)• New construction: single family and multifamily

properties up to 4 floors (midrise pilot currently in testing)

• Initiative for affordable housing• 8 rating categories (location/linkages, water efficiency,

energy & atmosphere, etc)• 18 performance prerequisites• 4 rating levels

GreenPoint RATED (Build it Green)• New construction and existing single family and

multifamily properties• 5 rating categories• California based rating system


Benchmarking Standards

• LEED For Homes: Energy performance is at least 15-20 percent better than a comparable home built to code. The average pilot LEED Home offered utility savings of 40 percent.(Source: Health Homes Institute)

• GreenPoint RATED: Energy performance mustexceed Title 24, California’s energy code, by at least 15 percent; recycle at least 50 percent of construction and demolition waste.(Source: Build It Green)


Housing

Benchmarking Standards:ENERGY STAR for Multifamily

• Operated by the US Environmental Protection Agency (EPA)

• ENERGY STAR qualified new homes are 15% more energy efficient than homes built to the 2004 International Residential Code (IRC), and are typically 20–30% more efficient than standard homes.

• Multifamily buildings can be qualified under ENERGY STAR for New Homes:

– Multifamily (up to 3 floors): Qualified– Multifamily (4 - 5 floors): Can qualify if each unit has

separate heating, cooling, and hot water systems.

– Multifamily (high-rise): Program under development, currently available in New York, Wisconsin, and Oregon.




• Benchmarking

• Underwriting


• Integration



Are you utilizing conventional underwriting metrics to calculate your ROI from sustainable real estate projects?

Green Underwriting: Survey Question


Green Underwriting: Mixed-Use Case Study


Green Cash Flow Factors

• Energy Cost Savings

• Faster absorption• Rental premiums• Enhanced

retention• Lower discount

rate

• Increased property taxes for superior market value.

Positives Negatives


Applying Green Finance to Affordable Housing


Isolate primary NOI impacts from green design

Operating Expenses

Greater Efficiency

Common area electricity

Common area gas Common area water Common area sewer Unit electricity

Income Better Marketability

Lease-up absorption Tenant retention Residential electricity allowance reduces total cost of occupancy.


Catalogue secondary project opportunities & risk mitigants

Transit Oriented Development (R.E. Quality)• Car-sharing / public transit access• Neighborhood amenities

Community Risk Mitigation (Wins Permitting Preference; avoids carbon tax)• Reduced carbon footprint• Fewer single occupancy vehicles• Housing of at risk population: affordable

senior rental apartments


• 72 affordable senior rental apartments, over 70,000 square feet of grocery-anchored retail space, and a 90-room boutique hotel. •Near net-zero energy, mixed-use urban project.•LEED ND Pilot Project, targeting LEED™-NC Platinum certification.• 160 kW Solar Photovoltaic System• Geothermal Heating/Cooling

Mixed-Use Case Study (Northern California)


Results •Reduced energy and water use•On-site generation of electricity andheating/cooling capacity•Potentially higher than market rents•Faster lease-up •Lower operating costs•Financial incentives lower construction

costs

•Walkable urban environment

•Carbon neutral

Green Finance:Mixed-Use Case Study

A sustainable investment strategy enhances value and hedges against risk (financial, market, operating, regulatory)

Future proofing your Investments


Year 1 reduction: $24,500

Annual electricity cost (per NRSF)

Annual gas cost (per NRSF) Annual water & sewer cost (per NRSF)

Year 1 reduction: $5,500 Year 1 reduction: $17,000

Total year 1 reduction (common areas): $47,000

Owner case: operating expense reductions (common

areas)

$0.50

$0.15$-

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

IREM Average Shiloh SustainableVillage

Mixed-Use Case Study

$0.40

$0.24

$-

$0.10

$0.20

$0.30

$0.40

$0.50



$0.20

$0.12

$-

$0.05

$0.10

$0.15

$0.20

$0.25




Mixed-Use Case Study: Green Value Proposition

0.15%

0.96%

1.42%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

IRR (5 Year)

IRR Incr

eas

e

Tenant retention

Utility savings

Accelerated

absorption

Total IRR Improvement: 2.53%

-$

$0.38

$0.58

$-

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

NOI

$ Im

pro

vem

ent/

SF

Tenant retention

Utility savings

Total NOI Increase: $.96/SF


Year 1 tenant savings (all units): $36,000

Tenant case: electricity savingsAnnual Electricity Use (per unit) Annual Electricity Cost (per unit)

Annual reduction (per unit): 4,000 kWh Year 1 savings (per unit): $500

5,700

1,700

-

1,000

2,000

3,000

4,000

5,000

6,000

PG&E Estimate(Conventional)

Shiloh SustainableVillage


$715

$215

$-$100$200

$300$400$500$600

$700$800

PG&E Estimate(Conventional)

Shiloh SustainableVillage



Housing

California Utility Allowance Calculator (CUAC)

•A new tool that creates an energy consumption model for affordable housing projects applying for Low-Income Housing Tax Credits (LIHTC).

•More accurately estimates project utility costs.

•Tool Location: http://www.gosolarcalifornia.org/affordable_housing/cuac.html




• Benchmarking

• Underwriting

• Structuring Funding

• Integration



Are you comprehensively sourcing and mapping funding opportunities across the capital supply chain?

Financial Incentives for Green Building: Survey

Question


Financial Incentives for Green Building: A Missed Opportunity

Source: National Real Estate Investor 2007 Green Building Survey


Financial Incentives for Green Affordable Housing:

Sources


Comprehensively Source Funding


Strategic Funding Supply Chain




• Benchmarking

• Underwriting


• Integration



Is your team good at creating synergies between ‘all of the above’?

Financial Integration: Survey Question

Competitive Green Finance Program

A multi-disciplinary team with joint responsibility for positive performance.

Benchmark audit lists and reporting.Documented underwriting protocol

tailored for green economic performance (resident business case).

Updated Strategic Funding Map addressing total supply chain.

Green O&M





• Benchmarking

• Underwriting

• Structuring

• Integration



Checklist for Improving your Green Finance

Program1. I know which of my project’s green features can

help to improve net operating income.

2. We are capturing the maximum amount of financial incentives available for our projects.

3. We are aware of the emerging debt and equity underwriting standards for sustainable real estate and are able to show property performance based on these new standards.

4. We are building and/or retrofitting green based upon a third party rating system (ie, the USGBC LEED rating system)


Checklist for Improving your Green Finance

Program5. We are able to design and build green at nearly the same cost as conventional construction.

6. We understand what types of financial tools and metrics to use when underwriting green real estate.

7. We know how federal, state and local regulatory changes are affecting our property portfolio and future development activities.

8. We have implemented best practice risk management reviews to reduce the financial risks within our portfolio.


Green Finance Services, Resources, Training

Galley Eco Capital

Lisa Michelle GalleyManaging Principal

(415) 655 [email protected]: http://www.galleyecocapital.comBLOG:

http://www.galleyecocapital.com/our-green-journey

green finance for affordable housing

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