valuing high-performance buildings: commercial case ......valuing high-performance buildings:...

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Valuing High-Performance Buildings: Commercial Case Studies and a Residential Study

Leonard Kolstad, LEED Green AssociateSandra K. Adomatis, SRA, LEED Green Associate

AI Connect 2016 – Charlotte, NC

July 27, 20168:00am to 10:00am

How do high-performance features impact property value?

IMT and the Appraisal Institute published two guides

For Owners For Lenders

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Increase Owner Net Operating Income (NOI)

1) Reduced Operating Expenses

• Lower utility bills

• Lease type important

• Reduced maintenance costs

• Increased durability

http://magnifierenginesystemconsumerreview.com/

Relative Importance of Energy

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Increase Owner Net Operating Income (NOI)

2) Increased Revenue

• Higher rents – tenants willing to pay premium for high-performance spaces

• Greater occupancy – reduced revenue loss from vacant spaces

• Tenant retention – reduced revenue loss from tenant turnover

Market Evidence

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Market Evidence

Translating NOI into Property Value

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Market Evidence

Ideal Process

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Commercial Case Studies

• Taking the focus off Class A

Case Study 1

Efficiency Measures

• Building management system

• New central chiller

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Case Study 1

Financial Benefits

• $11,100 annual energy savings, 21% reduction

• NPV = $138,666• 5% discount rate • 3.2% electricity price escalation

• Potential cap rate adjustment

Case Study 2

Efficiency Measures

• Improved air sealing

• Insulation

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Case Study 2

Project Financials

• Annual NOI increased by approximately $14,000

• Discounted Cash Flow:• 10-year useful life for efficiency measures• 5% discount rate• 1% annual increase in gas price• NPV = $80,952

Case Study 3

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Case Study 3

Project Financials

Inspiration and Purpose

• Many specialized financing mechanisms (PACE, OBF, ESA) and lenders

• Commercial banks have potential to scale building energy efficiency, but are often on the sidelines –why is this the case?

IMT’s Commercial Lender Survey

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Methodology

• Survey of 30 commercial lenders


Methodology

• Interviewees mostly senior level


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Key Findings – Appraisal

• Most saw value of incorporating energy data into appraisal process

• Half recognized importance of hiring appraisers with experience valuing high-performance buildings

Recommendation

• Opportunity for federal banking regulators to issue guidance on appraising high-performance buildings


Industry Leadership

Appraisal Institute

• Valuation of Sustainable Buildings Professional Development Program

• IMT has sponsored multiple CE courses

• Registry of appraisers

http://www.appraisalinstitute.org/assets/1/29/AI_821_Green_Commercial_Interactive.pdf

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A Study by Appraisers

Study brought to you by:

Supported by

Institute for Market

Transformation

1707 L St. NW | Suite 1050

Washington, DC 20036

(202) 525-2883 | www.imt.org

Funded by

The District of Columbia’s

Department of Energy and

Environment

1200 First Street NE

Washington, DC 20002

(202) 535-2991 |

doee.dc.gov

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Study Participants

• Single‐Family Detached

• Row Houses• Townhouses• Condominiums – High

Rise• Boutique – Multi‐Unit

Buildings

Study of Residential Properties

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Data

Total number of sales considered

64

Number of HPH* Sales

32

Number of Non‐HPH Sales

32

Number of Pairs 32

*HPH – High Performance Homes

Data covered Feb. 2013-June 2015

• 29 of the 32 pairs show a sales price premium for green features

• 3 of the 32 pairs were inconclusive showing less than a 0.5% premium positive or negative

• 2 of the 32 pairs had owned Solar PV

• 32 pairs ranged in sale price between $317,000 and $865,000

Summary of Conclusions

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3.46%

2% & 5%

2.91%Mean Median

19 of 32


90 Years Old

9 Years Old

92 Years Old

Structure Age Range:4 – 107 Years Old

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Non – High Performance Sales

High Performance Sales

20 Days 16 Days

MarketTime

75%

Methodology Used

Paired Sales Analysis

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Income Capitalization Approach

Solar photovoltaic system valued bya discounted cash flow analysis usingPV Value®

www.pvvalue.com

Test of Reasonableness

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Energy reports, green score sheets, nor certifications were attached to the MLS Listing

MLS Listings were poorly populated to identify green features

Time

Data

LimitedGreen Details

Less than 45 days allowed for entire study

Study Challenges

Time Less than 45 days allowed for entire study

Study Challenges - Resolved

Donald Boucher, SRATamora Pappas, SRA, CRP

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MLS Listings were poorly populated to identify green features

Data


http://www.usgbc.org/projects/

Energy reports, green score sheets, nor certifications were attached to the MLS Listing

LimitedGreen Details


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Resources that make the case

International Energy Conservation Code (IECC) Changes from 2006 and forward

IECC Year Percent of Change

2006 Base Year

2009 +15%

2012 +30%

2015 +31%

Seems there is a trend here that cannot be ignored.

Appraiser Driven Study of Solar PV

And Premiums Are Most Similar to Net Cost, Somewhat Similar To Income, And Not To Gross Cost

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Empirical Assessment of the Valueof Green in Residential Real Estate

http://www.myappraisalinstitute.org/taj/default.aspx

By: Anjelita Cadena, PhD, &Thomas A. Thomson, PhD

Steps Forward to Improve Data

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States with 40 percent of building permits HERS Rated

Steps Forward to Improve Data

Data Possibilities in Future

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Hurdles for Valuation Professionals

“C”

CompetencyRequirement

USPAP Fannie Mae

Freddie Mac

FHA VA

Before CompletingAssignment

X X

Before Accepting Assignment

X X X

Residential Appraiser Competency requirements

Hurdles for Valuation Professionals

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Education Funding by IMT

https://www.appraisalinstitute.org/assets/1/29/AI‐BCAP_Flyer.pdf

AI Joint Efforts

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AI Joint Efforts


AI Joint Efforts

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AI Efforts

Energy Raters have first hand knowledge of what is behind the walls and are better equipped to complete than the owner, real estate agent, or appraiser.

• Rater• Builder• Architect• Owner• Developer

http://www.appraisalinstitute.org/assets/1/7/Interactive820.04-ResidentialGreenandEnergyEffecientAddendum.pdf

AI Efforts

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Thank You!

Contact Information

Leonard Kolstad• [email protected]• https://twitter.com/LKolstad

Sandra Adomatis• [email protected]• https://twitter.com/sadomatis

valuing high-performance buildings: commercial case ......valuing high-performance buildings:...

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