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7/25/2016
1
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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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
IMT’s Commercial Lender Survey
Methodology
• Interviewees mostly senior level
IMT’s Commercial Lender Survey
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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
IMT’s Commercial Lender Survey
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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Summary of Conclusions
3.46%
2% & 5%
2.91%Mean Median
19 of 32
Summary of Conclusions
90 Years Old
9 Years Old
92 Years Old
Structure Age Range:4 – 107 Years Old
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Summary of Conclusions
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
Study Challenges - Resolved
http://www.usgbc.org/projects/
Energy reports, green score sheets, nor certifications were attached to the MLS Listing
LimitedGreen Details
Study Challenges - Resolved
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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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https://www.appraisalinstitute.org/assets/1/29/AI‐BCAP_Flyer.pdf
AI Joint Efforts
https://www.appraisalinstitute.org/assets/1/29/AI‐BCAP_Flyer.pdf
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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