Green Business Case - BCBEC€¦ · Green Buildings BC Natural Resources Canada RealPac Others:...
Transcript of Green Business Case - BCBEC€¦ · Green Buildings BC Natural Resources Canada RealPac Others:...
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Green Value: The Sustainable Business Case
BCBEC AGM Chris Corps
22 September, 2009
fidelisOld Town, Montréal
fidelisOld Town, Montréal
fidelisBasilique Notre Dame, Montréal
fidelisOld Town, Montréal
fidelisOld Town, Montréal
fidelisTransamerica Tower, San Francisco
fidelisMarché Bonsecours, Montréal Hyatt Embarcadero, San Francisco
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Counting Green
The Role of Valuation
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Green Value
Initiated 2004, published November 2005
Literature & best practice reviewReviewed green building value aspectsSubsequent 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."
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Green Value Summary
Sponsors:RICSBC HydroCanada Green Building CouncilEnglish Partnerships (UK)Greater Vancouver Regional DistrictGreen Buildings BCNatural Resources CanadaRealPacOthers: CMHC, City of Vancouver
TeamCushman Wakefield LePage, Busby Perkins + Will, BuildGreen, DTZ (UK)
18 project reviews in:San Francisco, CaliforniaMinneapolis, MinnesotaOberlin, OhioNew York City, New YorkNew Westminster, Vancouver, Victoria, BCKitchener, Ottawa & Toronto, OntarioMontreal, Quebec6 UK projects
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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
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Examples of Green Value
Pennsylvania Power and Light conversion's power savings:
Traditional energy saving: 4.1 yrs payback, 24% ROIGreen Value: 69 days payback, 540% ROIDifference: largely productivity benefits
Reno Post Office upgrade:Improved productivity gains paid for the $500,000 renovation in under a yearAnnual energy savings a 'free bonus'
Mountain Equipment CoMountain Equipment Co--op, Montrealop, Montreal
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Green Cost Savings: What's in Operating Costs
%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%
External building
Roads & grounds
Utility & central systems
Janitorial
Treatment & environmental systems
Sewage
Water
Gas
Oil
Electricity
Interior systems
Data courtesy of:
International Facilities Management Institute
Energy: 30%Energy: 30%
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Green Cost Savings: How Big are Operating Costs
$0.0
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DOWNTOWN VANCOUVER
BROADWAY C
ORRIDOR
BURNABY
RICHMOND
NORTH SHORE
SURREY
NEW WEST Average net Rent
Average Operating Costs
Data courtesy of:
Average net Rent61%
Average Operating Costs39%
…of which 30% is energy……of which 30% is energyof which 30% is energy
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Green Cost Savings: The Total Costs of Business
CONTEXTEnergy = 30% of operating costsOperating costs = 39% of real estate costsReal estate costs = 10-15% of business costs20% energy savings = 0.2-0.6% of business costs
Figures are typical & vary depending on location and other factors
Data courtesy of:
SO: If energy is a small percentage of the costs of operating a typical business… Where's the beef?
SO: If energy is a small percentage of the costs of operating a typical business…Where's the beef?
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Peak Oil, Climate Change: Exxon's 2003 Economic and Energy Outlook
MBDOE
0
40
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160 World Demand
Existing Field Decline ~ 4-6%
Gap
1980 1985 1990 1995 2005 201520102000
WorldProduction ??
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$40
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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
Natural gas
Electricity Index
Peak Oil, Climate Change: Impact of Energy Inflation Average fuel
inflation rateGeneral 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%
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Peak Oil, Climate Change: Governance Issues
Climate change is shifting policies, legislative framework
Policy and legislation e.g. New YorkRegulations e.g. energy labelsFinancial assistance e.g. US residential construction finance
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The Vancouver Valuation Accord: An Agreement to Change
www.vancouveraccord.org
Accord Case Studies
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Accord Aspects
Valuation standards review and adjustment
Professional EnhancementProfession increasingly being asked to changeProfessional Training and Development to include sustainability issues and factorsEvidence of where sustainability has impacted asset and property value
Academic/Educational Capacity Development
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Buildings, Value & Resilience
The ability to withstand the impacts of change
What change?Climate changeFossil fuel depletion & inflation
Major factorsMore water, less water, more heat, less heatFlood, sea rise, storms, wind, fire, snowSupply chain management (energy, transportation, risk)
Manitoba Hydro, Winnipeg
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High Performance Green Building: What's it Worth?
Buildings in Portland, Seattle, Vancouver
650 West Georgia Street, VancouverA/C & energy retrofit, 19% ROI validatedBUT with Green Lease, potential for 197% ROI through leveraging rental capitalisation
ImpactAttractive for landlords AND benefit to tenantsNOT business as usual L/T relationship –partnership not adversarialCorrect appraisal is central
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High Performance Green Building: Vancouver Centre Retrofit Analysis
Assumptions (Vancouver Centre - Class A off ice)Building size sq ft 472,422Finance rate 5.00%Green savings psf pa $0.51psfpaGreen savings total pa $240,935paLife cycle 12.00yrsYield (Cap rate) 6%Years Purchase (1/yield) 16.66666667Energy retrofit costs psf $4.32psfEnergy retrofit costs -$2,040,863Rent (excluding utility costs) psf -$29.00psfRent paid to landlord -$13,700,238paUtility costs psf -$2.61psfRenovationRenovation capital costs -$2,040,863pa
Renovation finance over life cycle -$219,296paRenovation savings $240,935paRenovation profit(loss) pa $21,639paTraditional "simple payback" analysis 8.47yrsMaximum breakeven interest rate 7.08%
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High Performance Green Building: Vancouver Centre Retrofit Analysis
Value analysisBefore After
TenantTenant's utility payments -$1,233,021pa -$992,086paRental increase -$240,935paTenant's total occupancy costs -$14,933,259pa -$14,933,259pa
LandlordLandlord's gross rent $13,700,238pa $13,941,173pa
Less: cost of finance -$219,296paLandlord's net rent $13,700,238pa $13,721,877paLandlord's increase in net income $21,639paIncrease in capital value, after debt service $360,647Capitalised value after debt service $228,337,300 $228,697,947Retrofit value as % of building value 0.16%
ProfitCapital investment -$2,040,863Capitalised gross annual return on investment $240,935paGross increase in capital value $4,015,587ROI before debt service 196.8%Capitalised value after debt f inance $360,647ROI after debt service 17.7%
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James Bay IRM Retrofit, Illustrative Schematic
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Life cycleLife cycle
Transfer pricingTransfer pricing
"Residual""Residual"
Operating costsOperating costs
Capital costsCapital costs
Measure What You Value, Value What You Measure
Solid WasteSolid Waste
Liquid WasteLiquid Waste
EnergyEnergy
WaterWater
MaterialsMaterials
GHGsGHGs
Reduce GHGs by 25- 33%
Power the equivalent of 10% of homes
Heat the equivalent of 30% of homes
Run the equivalent of 10% of cars
Recover, recycle and re- use clean water
Flexible, scalable, local, incremental, Just-in-Time
Least expensive or potentially profitable
Reduces risk
Potential Benefits
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LCC ≈
LCA ≠
LCV
Life Cycle CostingCost assessed over life cycle
Life Cycle AssessmentBroaden, include cost savings
Life Cycle ValuationBroadestInclude value – to occupier, owner, perhaps society, communityInclude residual/reversionAdjust for finance
• Reconcile finance & asset life
Best net assessment
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Asset & Sustainability Metrics 1
The Triple Bottom Line is not just for wimps
Economic/financial benefitRisk & long term asset performance
Extended math includesResources
• Energy, water, air/gas, materials, waste, money, others
Report all inputs & outputs over the entire life cycle and beyondCount human performance
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Asset & Sustainability Metrics 2
Life cycle valuationCapital and operatingWithin and beyond system boundaries
• Impact of transfer pricing / profit shareLife cycle considerations
• Life cycle valuation, not just cost savings• Include reversionary value
GHGs etcCO2e measurement/pricingRising impact of water
DCFGradual reconsideration of discounting & initial yield
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