As sustainability moves up the investment agenda GBFC is meeting the growing demand for information via an ambitious research programme. Scott Muldavin reports

The Green Building Finance Consortium (GBFC) has made significant progress in its mission to enable private investors to underwrite sustainable property investment from a fiduciary/financial perspective since the consortium's work was last discussed in an article in IPE Real Estate's January/February 2007 edition.

Nearly a hundred presentations have been made, the website has been significantly enhanced (, many articles have been published, and participation continues in key industry collaborations to develop data, methodologies, and independent analyses of the facts.

GBFC will also be publishing six key reports in 2008. More detail on what is being done, their applicability to users, and how to access the consortium's work in the coming months is presented below.

Property specific assessment:  The consortium's focus is on the assessment of value and risk for specific property decisions. The property type, development status, location, decision-maker, and type of decision will drive the selection of analytic techniques and data. While this seems obvious, the misapplication of data and analytic methods as the industry has evolved from general strategic decisions to more specific property decisions has been a barrier to private investment.

Rapid market change: During the last six-12 months, real estate regulators, space users (tenants and owner-occupiers), and investors have radically changed their sustainability focus and intensity. Assessing these changes - their durability, applicability by property type and region, and magnitude - is the critical foundation for the underwriting and valuation methodologies being developed by the consortium.

Traditional real estate investment analysis needed:  Rapid market changes have reinforced the inadequacy of simple pay-back or return on investment analytical approaches to sustainable real estate investment decision-making. The consortium is working to integrate sustainable property considerations into more traditional valuation and underwriting methodologies which are well suited to assessing sustainable property investments.

Value linkages:  One of the key goals of the consortium is to detail the linkages between sustainable features-like daylighting or increased ventilation; sustainable outcomes-like health benefits or costs; and specific financial measures-like rent premiums, faster absorption, increased tenant retention, discount rates, and other key financial measures.

Private investment decisions: The consortium is focusing on the underwriting of private investment decisions by owner-occupiers, investors, lenders and developers, all of whom have different perspectives driving their investment decisions. Appraisers and commercial brokers, with critical roles in the investment process, are also a key focus.
Commercial real estate properties:  The consortium focuses on commercial and multifamily properties. Select single-family resources are available on the consortium's website.

The consortium will disseminate its research and findings through six foundational reports, select special reports, its website, presentations, and collaborative efforts with trade groups, professional associations, research centres, governments, and other groups working to promote independent research and analysis on sustainable property investment.

Six foundational reports are scheduled for 2008:
1. Underwriting Sustainable Property Investment
2. Underwriting Energy/Carbon Efficiency
3. Underwriting Space User Productivity
4. Underwriting Space User Health
5. Underwriting Government Regulations and
6. Underwriting Space-User Demand for

Report one will provide the foundation for underwriting from a financial perspective including both financial modelling and risk and compliance related due diligence. Guidance will be provided on the role of sustainable definitions in underwriting, cost-benefit analyses, first cost issues, integrated design, as well as a financial model to use as the basis for modification to existing underwriting and valuation practices.

The second report on energy/carbon will describe and analyse the increasingly important implications of property energy efficiency on value beyond operating cost reduction. Energy efficiency has become critical to monetising value through increased tenant and investor demand, capitalising on government incentives, and reducing risk due to changing government regulations and energy cost volatility. We will also focus on how to underwrite the risks related to the reliability and accuracy of energy/carbon use forecasts.

In the third and fourth reports on underwriting potential health and productivity benefits, the focus is on describing how to integrate knowledge about a property's potential health and productivity benefits into a comprehensive analysis of space user demand. They will evaluate the applicability of over 200 of the most cited and relevant scientific studies establishing a quantifiable basis for assessing potential health and productivity benefits and address the broader issue of the application of scientific data to property-level investment decisions.

The fifth foundational approach will focus on the process for evaluating the costs and benefits, and related value and risk implications, of government regulations and incentives for a specific property. There are hundreds of different incentives and regulations proposed and implemented and an approach has been developed to categorise the alternatives by type, so a more clear description of a process for assessing risk and value implications can be made.

The sixth report, sustainability and space user demand, will describe critical value linkages and present a practical approach to evaluating potential increases in space user demand based on traditional valuation practice for assessing tenant demand for a specific property. Techniques traditionally used by appraisers and analysts whenever there is imperfect information are described and modified to meet the needs presented by sustainable properties.

The consortium has recently revised and enhanced the research library and industry resources indices on the website and is in the process of populating the databases with substantial additional detail. The redesign has created an index, which is more intuitive for investment professionals and more specifically supports and complements the written reports planned.

Many key issues, including water, sustainable sites, product and materials issues, green leasing, commissioning, and special considerations by property type, will be addressed through the identification of key documents and resources organised to support due diligence and underwriting.

GBFC is and has been involved in important collaborative efforts addressing database development, energy research, valuation practice, and many other areas critical to financial assessment of sustainable properties with at least the following organisations: 

World Business Council for Sustainable Development Database for High Performance and Sustainable Buildings Lawrence Berkeley National Laboratory - energy and health issues CoreNet Global - energy issues Royal Institution of Chartered Surveyors - RICS European Advisory Group,etc. Appraisal Institute--methods review and training UN Sustainable Property Working Group North American Commission for Environmental Cooperation Vancouver Valuation Accord Responsible Property Investment Project Rutgers Green Building Research Center NCREIF Research Committee Commercial Building Initiative (Energy Consortium) International Youth Leadership for a Sustainable Future

The work of the consortium will be made available to the industry through the website and dissemination efforts of key consortium members and collaborators including BOMA International, National Association of Realtors, Urban Land Institute, Mortgage Bankers Association, Pension Real Estate Association, Royal Institution of Chartered Surveyors, Appraisal Institute, CoreNet Global and many other groups worldwide.

Scott Muldavin is executive director, the Green Building Finance Consortium