Going green gaining ground in property valuation
By Steven J. Schleider, MAI, LEED-AP BD + C
President, Metropolitan Valuation Services
Back in the day, which wasn’t that long ago, everyone thought going green was the right thing to do, even if we didn’t quite know what to do or how to do it.
Whether going green provided benefits in addition to good corporate citizenship was, at that point, unknown.
With corporations adopting a sustainability policy, enter corporate real estate executives who manage the real estate activities of corporations whose core business is not real estate.
Many productivity and cost studies later, the benefits of going green and adopting sustainability practices became clearer.
Though requiring expenditures, which savvy property owners view not as short-term capital expenses but as long-term investments, there was a growing body of hard evidence that going green enhanced property value as well as provided a property owner with a competitive marketing strategy to attract high quality tenants at higher rents and increase retention.
Appraisers are taught to reflect the thought and actions of real estate investors in their analyses of what a property is worth. By buying and selling real estate, market participants dictate pricing paid for properties.
Simply stated, appraisers need to understand the “why” behind investment decisions by real estate investment sectors which rely upon appraisal reports to finance new construction, major renovation projects and property purchases.
Thus, the challenge for the appraiser is both the why of and how to value green and sustainable buildings.
Obviously, the value of, for example, carpeting made solely from recycled tires is not relevant. While employee health and happiness can greatly enhance the bottom line of the company that employs them, it is irrelevant to the value of the building they work in.
Lower operating costs through sustainability practices are, of course, another matter. A number of new laws now require mandatory reports that result in ratings. As one example, Local Law 84, Benchmarking Energy and Water Use, provides hard data for building valuation by tracking and assessing energy and water use of buildings relative to comparable buildings.
Going green has gained a lot of ground since its only initial benefit was good corporate citizenship. It’s become a corporate operating philosophy, a means of increasing productivity, a marketing strategy for building owners, a gold mine for manufacturers of sustainable products and materials, energy brokers and sustainability consultants and, having come of age, is now being addressed by educational institutions as an important area for study.
Appraisers, who have the job of valuing green/sustainable real estate, a relatively new and complex area of analysis, look to organizations like The Green Building Certification Institute, Green Building Research Institute and, the Appraisal Institute for that education.
Partnering with other enterprises, the Appraisal Institute has also taken a leadership position with regard to providing guidance on energy costs and energy performance, ways to finance $150 billion per year in energy efficiency projects that yield double-digit financial returns, endorsed the federal Sensible Accounting to Value Energy (SAVE) Act and was among the sponsors of the Vancouver Valuation Accord that addresses the interrelationship of sustainability and valuation.
As New York City’s only commercial property appraiser with a LEED-AP, making me somewhat of a pioneer in green valuation, I can say with both experience and authority that going green can increase property value. I also predict that it is only a matter of time before lenders require that their due diligence underwriting consider financing risks associated with non-green assets and appraisers must be prepared to meet that challenge.
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