capital markets partnership 1 10 09

Capital Markets Partnership Copyright 2008

Sustainable Investment InitiativeGreen & Climate Neutral Buildings Reduced Risk & Higher Valued CollateralGreen Mortgages Cheaper Cost of Capital / Increased LiquiditySustainable Building Securities Certified Sustainable Product InvestmentGreen Building Underwriting Standards

Improve quality of life

FSC Certified Wood Stops Illegal Logging & Irreversible Dangerous Climate Change


Sustainable Investment Initiative

Green Building Financing Program

San Diego Pilot

- $1B mixed use complex- LEED Platinum +- CMP Green Value Score: 77- Section on Bond Offering Official Statement documenting higher value.

San Francisco Pilot

- Existing building refinance to minimum Green Value Score- City, BOMA & CBRE Partners- Cheaper cost of capital pursued

Seattle Pilot

- LEED Gold $300M complex- Public / Private / Mixed Use - Section on Bond Offering Official Statement documenting higher value.


Sustainable Investment Initiative

Green Building Financing ProgramSustainable Building Security- $500M Pool through Freddie Mac- Green buildings qualified by Underwriting Standard CMP Green Value Scores- Section on Bond Offering Official Statement documenting higher value.

California AB 811 Model Resolution

- $200B market - Minimum Green Value Score- Leveraging local government financing with investment bank and investor funds- Cheaper cost of capital pursued


Capital Markets Partnership – Partial List

City of San Francisco

City of Chicago

City of Dallas

City of Denver

City of Miami

City of New York

City of Oakland

City of San Jose

City of Santa Monica

City of Seattle


Capital Markets Partnership

CMP Officers, Chairman, Hon. Gavin Newsom, San Francisco Mayor, USCM

SustainableInvestment

ProtocolOperating

Group

Green Building Underwriting

Standards Committee

Sustainable Investment &

Finance Committee

GHG / Carbon Credit

Monetization Sub-Committee

Education Sub-Committee

Standards Equivalenc

y Sub-Committee

Standards Adoption Sub-Committee

Sustainable Protocol& Underwriting Standards

• Due Diligence Framework

• Green Building Industry Value Rating System©

• $3.2T Institutional Investor Survey

• Business Case (Peer Review)

• Standards Development

• Executive Briefings (Peer Review)

• Consensus Standards Approval

• Green Building Financing

• Product Development

• Market Adoption



CMP Officers

Green Building Underwriting Standards Committee

EMERGENCY Consensus Standards Launched in April 2008 by JPMorgan Chase, Wells Fargo Wachovia

Unanimously Approved September 2, 2008

OfficersWade Crowfoot, Director, Climate Change Initiatives, San Francisco Mayor Gavin NewsomSteve Hoffmann, President, Hoffmann & AssociatesRich Pietrafesa, Managing Director, Destiny USATomek Rondio, President, Mortgage GreenMichael Schneider, Vice President, Marxa KuboMario Silvestri, Vice President, Wells Fargo Ken Willis, Vice President & Director, Federal Home Loan Bank of BostonDan Winters, Managing Principal, Evolution Partners


Develop / Finance / Occupy Green Buildings


What is “Green” in the Real Estate Industry?

1. Best business practices– Maximize efficiency aspects in construction /

operations– Minimize waste and costs– Capture ‘free’ inputs from natural

environment– Increased architect / engineer / contractor

coordination

2. Mark of high-quality construction and asset value via several third-party verification processes

3. A product differentiation marker based on:

– Energy and water cost savings – IEQ and associated health benefits– Amenities– Asset quality (perceived / real)


Why Are Investors / Companies Going “Green”? It’s just business……

1. Operational cost efficiency

2. Risk reduction

3. Best management practices

4. Employee productivity

5. ‘Halo effect’


CFO Research Services / Jones Lang LaSalle ReportMarch 2008Top Sustainability Priorities• Improve energy efficiency• Reduce carbon footprint• Reduce environmental impact of

operations• Manage risk

Barriers – CFO / Executive Reponders

• Lack of decision framework / tool• Inability to measure effect on

shareholder value / investor returns• Not integrated into financial

management and control systems

Respondent Quote“As more efficient measuring tools are created and utilized, finance’s role in sustainability efforts will be greatly enhanced.”

Survey Metrics:175 responses – senior finance executives95% from companies w/ over $500MM revenue


Economic Benefits

Projected*Projected* 70% US Commercial Green 70% US Commercial Green Building Market PenetrationBuilding Market Penetration**

Energy Savings & Daylighting: Energy Savings & Daylighting: $36 $36 Billion/yrBillion/yrConstruction Waste Reduction: Construction Waste Reduction: $6.7 B/yr $6.7 B/yr Water Pollution Savings from Water Conservation: $20 B/yrWater Pollution Savings from Water Conservation: $20 B/yrEnergy Savings from appliances & Lighting: $24 B/yrEnergy Savings from appliances & Lighting: $24 B/yrAdded Value from Increased Occupant Productivity Added Value from Increased Occupant Productivity

(5%), IAQ & Reduced Absenteeism: $632 B/yr(5%), IAQ & Reduced Absenteeism: $632 B/yr

Health Care Savings Health Care Savings $75 B/yr $75 B/yr

Emission Reductions’ Market Value:Emission Reductions’ Market Value: $ 1.1 B/yr$ 1.1 B/yr

Total Total $795 Billion/yr. value $795 Billion/yr. value addedadded

* * 1. 1. Leonardo Academy / MTS Projections 2003, Surgeon General 2006 (certified Leonardo Academy / MTS Projections 2003, Surgeon General 2006 (certified bdgs).bdgs).

2. 2. Green retail buildings will also accrue increased retail sales. Green retail buildings will also accrue increased retail sales. 3. Excludes overwhelming benefits from avoided climate damages, & originator 3. Excludes overwhelming benefits from avoided climate damages, & originator

profits. profits. 4. Dollar benefits are $200B/yr. for UK, $200B/yr. for rest of Western Europe, $87B/yr.4. Dollar benefits are $200B/yr. for UK, $200B/yr. for rest of Western Europe, $87B/yr. for Canada & $80B/yr. for Australia. MBS is $4 trillion global industry (SEC 2003). for Canada & $80B/yr. for Australia. MBS is $4 trillion global industry (SEC 2003).


Before it’s too late



US Conference of Mayors Support ResolutionJune 2008


UK – Stern Review – Nov ‘06

• Report analyzes economic global impacts of climate change– “Business as Usual” vs. global innovation and market-based intervention

– QUOTE: “Climate change…greatest and widest ranging market failure ever seen…”

• Relates costs/risks on economic, environmental, and social scales– Floods / Storms

– Agriculture Yields

– Fresh Water Access

– Disease

• Bush White House 2008 Climate Report Concurs with these Impacts

– Mass Human and Species Migration

– Species Extinction

– Heat Waves / Cooling / Doughts

PROJECTED GLOBAL WARMING ECONOMIC IMPACT - Up to 20% of Global GDP


ElectricityTransportation

Heating

Allocation of 6.2 GtC/yr

Electricity: 40%Fuels used directly: 60%

Underwriting Standards & SBS Global Carbon Reduction in 5-10 yrs Enhances Energy Security & Stops Imminent

Irreversible Dangerous Climate ChangeFossil fuel use in 2000 (IEA) Allocation of 6.2 GtC/yr. (Princeton)

Buildings generate most of world’s climate pollution from electricity and heating. On average, certified buildings have 50% less conventional energy & climate pollution.


LEED EB CERTIFIEDLEED EB CERTIFIED

National Geographic National Geographic SocietySociety

Headquarters, Wash., Headquarters, Wash., DCDC

The Society added $16M in value from this LEED certification from a higher appraised value, raising tenant rents, lower operating costs, increased credit rating from Moody’s, & lower interest rates on large loans secured to the building. Presentation at 2003 Congressional Green Building Luncheon by Chris Liedel, CFO, National Geographic Society.


Multiple environmental, social & economic benefits over global supply chain. Economic benefits exceed green buildings.

Maximum Credit for Certified Products With:• 100% reduction of 1000 pollutants• 100% Green-e power use & conventional energy reduction• 100% postconsumer recycled content• 100% biobased organic content w/BMPs• 100% reuse/reclamation• Social equity requirements

300 manufacturer reps are educating their customers

SMaRT Sustainable Product StandardAdopted by Leading Fortune 500 Co’s, Fireman’s Fund, US Green Building Council’s LEED, & Underwriting Standards. Covers 80% of the world’s products.



Capital Market Focus on “Green” Financially Tangible Asset Attributes

1. Energy efficiency & onsite green power

2. Water efficiency

3. Location aspects– Transit orientation– Pedestrian accessibility– Neighborhood amenities

4. Indoor environmental quality

5. Market positioning

6. Obsolescence risk– Bifurcated market – green vs. non-green (aka “brown”)


Green Building Underwriting Standards Principles

1. Easy entry / differentiate superior performance

2. Easy to analyze / simple to implement

3. Disciplined• Tangible financial impacts• Acknowledgement of intangible value

4. Utilize consensus standards / reduces risk

5. Third-party verified

6. Standard Unanimous Approval• Broad industry invitations and participation• Significant comments and amendments• ANSI consensus process


Structure – Green Building Underwriting Standards• Recognizes and incorporates existing industry

standards– Comprehensive– Transparent– Market-driven– Consensus-based

• Standards include– EPA EnergyStar– USGBC LEED Rating System– MTS Climate Neutral

• Performance based– Energy– Water– Indoor environmental quality

• Third-party verification requirement– Self-Regulation = No Regulation = Wild West

What is it? How does it work?


EPA ENERGY STAR – Overview

• Government-backed program helping businesses and individuals achieve superior energy efficiency

• Energy performance rating tools– ENERGY STAR Portfolio Manager (existing buildings)

– ENERGY STAR Target Finder (new construction)

• Scoring system of 1-100– Commercial buildings

• Bell curve based on statistically significant comparative data set• Higher score is better

– Median = 50– ENERGY STAR Certified buildings score 75 or higher

– Residential buildings• Based on energy consumption / HERS test• Lower score is better


USGBC’s LEED™ Rating SystemLeadership in Energy and Environmental Design

Environmental Responsibility Defined For Buildings • Answers question: “What exactly is an environmentally-responsible

building?”• Third party certification of environmental achievement

LEED Implementation • Point-based system• Broken into categories

Sustainable Sites 14 PointsWater Efficiency 5 PointsEnergy & Atmosphere 17 PointsMaterials & Resources 13 PointsIndoor Environmental Quality 15 PointsInnovation 5 PointsTOTAL POSSIBLE POINTS 69 Points

Certified 26-32 pointsSilver 33-38 pointsGold 39-51 pointsPlatinum52-69 points


Climate Neutral Certification

Consensus national standard

Certifies carbon neutrality

Certification process:• Audit baseline energy use

• Implement efficiency measures

• Address remaining energy use:

1. Install onsite renewable energy;

2. Purchase “Green-e” renewable energy;

3. Purchase/retire “Green-e” REC’s; and/or

4. Purchase annual emissions offsets based on the Cleaner and Greener® program requirements

• Certify by accredited 3rd party professional


Value Adjusted Score Ratio Score

ENERGYSTAR Score 40% Green Building Underwriting Standard Score 35%

LEED Rating NONE 0%

(intangible value) CERTIFIED 2% SILVER 5% GOLD 10% PLATINUM 15%

Climate Neutral Certified YES 10% NO 0%

CMP GREEN SCORE 100%

Implementation Example Capital Markets Partnership GreenValue Score Formula

Energy Star Score = 75

LEED Silver Certified

Near Mass-Transit

Energy / Water LEED Credits

Various IEQ LEED Credits 75

68

30

24

5

0

59

CMP

GREENSCORE = 59


Value Adjusted

Score Ratio Score ENERGYSTAR Score 80 40% 32

Climate Neutral Certified YES 10% 10

NO 0%

LEED RATING NONE 0% CERTIFIED 2% SILVER 5% GOLD 10% 10 PLATINUM 15% Green Building Underwriting Standard Score 74 35% 26

CMP GREEN SCORE 100% 78

Example Capital Markets Partnership Commercial GreenValue Score Application• LEED Gold certified office building• EnergyStar score = 80• Green Building Underwriting Standard score = 74 • Climate Neutral certified

= 78CMP

GREENSCORE


Why This MattersRisk Management / Transparency

Real Estate Value

1. Cash Flow

2. Timing of Cash Flow

3. Risk of Receiving Cash Flow


Risk Management • Lower operating expenses

– Energy / water price volatility– Energy / water efficiency and conservation– Energy – peak load demand– Insurance– Waste disposal– Maintenance– Capital expenditures

• Commercial - Evolving corporate green policies– Impact on tenant demand

• Potential for two-tiered market • Obsolescence risk

– Improved tenant satisfaction / retention

• Future regulatory compliance

• CO2 trading– Cost increases based on CO2 / ton used to power asset– Value capture

• Current / future tax incentives

• Building health / IAQ liability

• Informs investment consideration, capital access and pricing

Real Estate Value

1. Cash Flow




Why This MattersRisk Management / Transparency

• Lower operating expenses– Energy / water – price volatility– Energy / water – efficiency and conservation– Energy – peak load demand– Insurance– Waste disposal– Maintenance– Capital expenditures

• Evolving investor green policies / preferences– Impact on investor demand

• Potential for two-tiered market • Obsolescence risk

– Improved tenant satisfaction / retention

• Future regulatory compliance

• CO2 trading– Cost increases based on CO2 / ton used to power asset– Value capture

• Current / future tax incentives

• Building health / IAQ liability

CMP Green Value Score is a simple yet comprehensive tool informing:

• Relative investment risk• Prediction of investment performance

Leads to capital access opportunities/constraints and may affect capital pricing

Real Estate Value

1. Cash Flow




Applicability – CMP GreenValue Score

Reporting

Portfolio Management

Lending

Asset Management

Appraisal

Finance Decision

Tool

Reporting Tool (Optional)



Reporting


Lending

Asset Management

Appraisal

Finance Decision

ToolLeasing / Market PositionTI’s – Value FocusCapital Budgeting



Reporting


Lending

Asset Management

Appraisal

Finance Decision


Relative Value Indicator Focused Risk Analysis Obsolescence Signal



Reporting


Lending

Asset Management

Appraisal

Finance Decision



Buy / Hold / SellCapital Raising



Reporting


Lending

Asset Management

Appraisal

Finance Decision




ConsultantsInvestorsAnalysts



CMP GreenValue Score

Reporting


Lending

Asset Management

Appraisal

Finance Decision





ConsultantsInvestorsAnalysts


PUBLIC

DEBT

EQUITY

PRIVATE

Financial Product Development Using the CMP GreenValue Score in Practice

Pension Investors• Commingled Funds• Separate Accounts

Syndicates


PUBLIC

DEBT

EQUITY

PRIVATE



Syndicates

Commercial BanksLife CompaniesSyndicated LoansFederal Home Loan Banks• Affordable Housing• Community Investment


PUBLIC

DEBT

EQUITY

PRIVATE

REIT Analysis

Real Estate Operating Co. Analysis



Syndicates



PUBLIC

DEBT

EQUITY

PRIVATE

REIT Analysis

REOC Analysis



Syndicates

“GOE” Securities• Fannie• Freddie

Securitizations (….if any)

Covered Bonds



Investment Performance

• Increased cash flow– Revenue and expense side

• Debt Service Coverage Ratio• Loan-to-Value buffer

• Cap rate adjustments– Positive (at minimum neutral) / annual net operating

income / cost (or value) = Capitalization Rate

• Investor demand– Requires transparent

tracking/reporting– Capital attraction to risk reduction


MechanicsGreen Building Underwriting Standards

I. Information Disclosure1. Energy Star score of 1-100 (Portfolio Manager or Target Finder) 2. LEED certification and scorecard3. Climate Neutral certification4. Commissioning report (recommended)

II. Analyze LEED scorecard for specific LEED points achieved

Focus placed on a subset of specific LEED credits– Energy efficiency– Water use– Indoor environmental quality

III. Rate revenue/expense impacts of strategies employedRelative scale compared to a ‘market’ asset

-5 -4 -3 -2 -1 0 1 2 3 4 5

LOW MEDIUMMEDIUM HIGHHIGH

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Implement Full LEED Scorecard Analysis

SS-1 – Site Selection

SS-2 – Density/Connectivity

SS-4.1 – Public Transportation Access

WE-3.1/3.2 – Water Use Reduction

EA-1 – Energy Efficiency / ENERGYSTAR Score

EA-2 –On-Site Renewable Energy

EQ-1 – Outdoor Air Monitoring

EQ-2 – Ventilation Effectiveness

EQ-3.2 – IAQ Management Plan

EQ-4.1 – Adhesives / Sealants

EQ-4.2 – Paints and Coatings

EQ-4.4 – Composite Wood / Agrifiber

EQ-5 – Indoor Chemical / Pollutants

EQ-8.1/8.2 – Daylight / Views

FEATURE – Green Roof

FEATURE – Under Floor Air Distribution

INNOVATION – Integrated Design

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These LEED points are linked when performing an assessment of value

Income Analysis Summary

(Note: Up to 10 LEED Points)

-5 -4 -3 -2 -1 0 1 2 3 4 5

LOW MEDIUMMEDIUM HIGHHIGH

SS-6.1 – Stormwater

SS-7.2 – Heat Island Effect

WE-1.1/1.2 – Water Efficient Landscaping

EA-Prerequisite – Commissioning

WE-3.1/3.2 – Water Use Reduction

EA-1 – Energy Efficiency / ENERGYSTAR Score

EA-2 –On-Site Renewable Energy

EA-3 – Enhanced Commissioning

EA-5 – Measurement and Verification

MR-Prerequisite – Recycling

FEATURE – Green Roof

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(Note: Up to 10 LEED-NC Points)

EXPENSE Analysis Summary Note: DO NOT DOUBLE COUNTTHESE AREAS


Compile Score – Straightforward Analysis


Summary – Green Underwriting Standards

• Incorporate performance-based tangible attributes– Energy use /efficiency – Water use / efficiency– Location attributes– Indoor environmental quality

• Simple due diligence requirements– ENERGY STAR score– LEED scorecard– Climate Neutral Certification– Commissioning report

• Straightforward implementation

• Transparent & Consensus

• Third-party verified


Summary – GreenValue Score

• Incorporates performance-based tangible attributes– Energy– Water– Location– Indoor environmental quality

• Simple due diligence requirements– ENERGY STAR score– LEED scorecard– Climate Neutral Certification– Commissioning report

• Straightforward implementation

• Transparent


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Jan-9

7

May-

97

Sep-9

7

Jan-9

8

May-

98

Sep-9

8

Jan-9

9

May-

99

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9

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0

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00

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08

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8

NYMEX Light Sweet Crude

Crude Oil – Actual (Jan 1997 thru September 24, 2008)

World oil production flat since 2004 / China and India’s consumption surging / domestic consumption in oil producing countries increasing

Energy traders / OPEC publicly refer to the ‘proper’ price of $85 / barrel at which point OPEC reduces production to support prices


US Electricity Prices (1982 – 2006)

Source: US Department of Energy http://www.eia.doe.gov/fuelelectric.html

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Average Retail Price of Electricity, Residential Average Retail Price of Electricity, Commercial

Average Retail Price of Electricity, Industrial Average Retail Price of Electricity, Total

₵ / kwh


US Electric Power Generation Sources (2007)

49.8%

0.4%17.9%

3.0%

19.9%

2.3%6.5% 0.2%

Coal Other Gasses Natural Gas Petroleum Nuclear Solar / Wind Hydroelectric Other

Coal

Nuclear

Natural Gas

HydroSolar / Wind

Petroleum


DOE Coal Prices June 2003 to July 2006

Source: http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html

CentralAppalachia+88%

Northern Appalachia+41%

Illinois Basin38%

Uinta Basin114%

Powder River Basin100%


DOE Coal Prices June 2003 to July 2008

July Price = $149 / ton

July Price = $140 / ton

Source: http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html

+312% - Central Appalachia

+452% - Northern Appalachia

+200% - Illinois Basin

+254% - Uinta Basin

+127% - Powder River Basin


Natural Gas Spot Prices (Oct ’83 – Apr ‘08)

http://www.eia.doe.gov/oil_gas/natural_gas/info_glance/natural_gas.html

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Date

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1984

Jan-1

985

Sep-1

985

May-

1986

Jan-1

987

Sep-1

987

May-

1988

Jan-1

989

Sep-1

989

May-

1990

Jan-1

991

Sep-1

991

May-

1992

Jan-1

993

Sep-1

993

May-

1994

Jan-1

995

Sep-1

995

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1996

Jan-1

997

Sep-1

997

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1998

Jan-1

999

Sep-1

999

May-

2000

Jan-2

001

Sep-2

001

May-

2002

Jan-2

003

Sep-2

003

May-

2004

Jan-2

005

Sep-2

005

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2006

Jan-2

007

Sep-2

007

Wellhead City Gate Residential Commercial


Conventional Energy Costs Expected to Continue Increasing at 20% / yr. for 10 yrs.

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2.00

4.00

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Avg. Inflation @ 3% (Myopic) 5% / Year 8% / Year 10% / Year 15% / Year Simmons Scenario (22% / year)

BOMA '04 Avg$1.83 / SF

'05 Increase of 40%

2x

3x

4x

5x

10x

Only Scenario Based on Actual Data Concerning Global

Depletion of Oil and Natural Gas Resources


Energy Market Drivers

1990

MarketRestructuring

Aging Power Grid

Globalization Digital Economy

Emissions andClimate Change

Energy Reliability andSecurity

ResourceScarcity

1995 2000 2005-10 2010-20


1511 Wisconsin Avenue NW #200

Washington, DC 20007

[email protected]

capital markets partnership 1 10 09

Technology

green retail buildings

asset value

freddie mac green buildings

byr energy savings

shareholder value investor

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investment bank

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