Valuing High-Performance Buildings: Commercial Case Studies and a Residential Study. How do high-performance features impact property value?

Transcription

1 Valuing High-Performance Buildings: Commercial Case Studies and a Residential Study Leonard Kolstad, LEED Green Associate Sandra K. Adomatis, SRA, LEED Green Associate AI Connect 2016 Charlotte, NC July 27, :00am to 10:00am How do high-performance features impact property value? IMT and the Appraisal Institute published two guides For Owners For Lenders 1

2 Increase Owner Net Operating Income (NOI) 1) Reduced Operating Expenses Lower utility bills Lease type important Reduced maintenance costs Increased durability Relative Importance of Energy 2

3 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 3

4 Market Evidence Translating NOI into Property Value 4

5 Market Evidence Ideal Process 5

6 Commercial Case Studies Taking the focus off Class A Case Study 1 Efficiency Measures Building management system New central chiller 6

7 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 7

8 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 8

9 Case Study 3 Project Financials IMT s Commercial Lender Survey 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? 9

10 IMT s Commercial Lender Survey Methodology Survey of 30 commercial lenders IMT s Commercial Lender Survey Methodology Interviewees mostly senior level 10

11 IMT s Commercial Lender Survey 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 11

12 A Study by Appraisers Study brought to you by: Supported by Institute for Market Transformation 1707 L St. NW Suite 1050 Washington, DC (202) Funded by The District of Columbia s Department of Energy and Environment 1200 First Street NE Washington, DC (202) doee.dc.gov 12

13 Study Participants Study of Residential Properties Single Family Detached Row Houses Townhouses Condominiums High Rise Boutique Multi Unit Buildings 13

14 Data covered Feb June 2015 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 Summary of Conclusions 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 14

15 Summary of Conclusions Mean 3.46% Median 2.91% 2% & 5% 19 of 32 Summary of Conclusions Structure Age Range: Years Old 90 Years Old 9 Years Old 92 Years Old 15

16 Summary of Conclusions High Performance Sales Non High Performance Sales Market Time 20 Days 16 Days Methodology Used Paired Sales Analysis 75% 16

17 Income Capitalization Approach Solar photovoltaic system valued by a discounted cash flow analysis using PV Value Test of Reasonableness 17

18 Study Challenges Time Less than 45 days allowed for entire study Data MLS Listings were poorly populated to identify green features Limited Green Details Energy reports, green score sheets, nor certifications were attached to the MLS Listing Study Challenges - Resolved Time Less than 45 days allowed for entire study Donald Boucher, SRA Tamora Pappas, SRA, CRP 18

19 Study Challenges - Resolved Data MLS Listings were poorly populated to identify green features Study Challenges - Resolved Limited Green Details Energy reports, green score sheets, nor certifications were attached to the MLS Listing 19

20 Resources that make the case International Energy Conservation Code (IECC) Changes from 2006 and forward IECC Year Percent of Change 2006 Base Year % % % 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 20

21 Empirical Assessment of the Value of Green in Residential Real Estate By: Anjelita Cadena, PhD, & Thomas A. Thomson, PhD Steps Forward to Improve Data 21

22 Steps Forward to Improve Data States with 40 percent of building permits HERS Rated Data Possibilities in Future 22

23 Hurdles for Valuation Professionals C Hurdles for Valuation Professionals Residential Appraiser Competency requirements Competency Requirement USPAP Fannie Mae Freddie Mac FHA VA Before Completing X X Assignment Before Accepting X X X Assignment 23

24 Education Funding by IMT AI Joint Efforts BCAP_Flyer.pdf 24

25 AI Joint Efforts BCAP_Flyer.pdf AI Joint Efforts assets/1/29/ai BCAP_Flyer.pdf 25

26 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 04-ResidentialGreenandEnergyEffecientAddendum.pdf AI Efforts 26

27 Thank You! Contact Information Leonard Kolstad Sandra Adomatis 27