Vancouver Valuation Accord Value & Sustainability: Standards - - PowerPoint PPT Presentation

• Vancouver Valuation Accord

Value & Sustainability: Standards & Examples

Peter Clark Chris Corps 21st May 2009

• Changing Values
• The environment is changing how business

works

• The world is using new ways to define value,

profit & performance, e.g.:

Elkington's 'Triple Bottom Line' Hawkens' 'Restoration Economy' Global Reporting Initiative Principles for Responsible Investment The London Principles EU Emission Trading Scheme

• The Vancouver Valuation Accord

• Vancouver Valuation Accord's Purpose
• Highlighting the importance of

sustainability to economic prosperity and social cohesion

• Describing the nature of linkages

between valuation and sustainability

• Profiling how sustainability factors can

add value to property

• Emphasizing the importance of the rigor
• f valuation and the professional

capacity of Valuers

• Identifying opportunities for valuation and

sustainability practitioners to work together to advance understanding.

• Accord Signatories
• The Hon. Gordon Campbell, Premier of British Columbia
• Bob Elton, President & Chief Executive Officer, BC Hydro
• Brian Fellows, President & COO, Workplace Solutions Inc (WSI)
• Chris Corps, Principal, Asset Strategics Ltd.; Past Chair of RICS
• Sandy Wiggins, Chair, US Green Building Council
• Kevin Hydes, Vice President, Stantec Consulting Ltd.
• Jim Amorin, Vice President, Appraisal Institute
• George Maurice, Vice President, Appraisal Institute of Canada
• Thomas Mueller, President & CEO, Green Building Council
• Louis Armstrong, CEO, Royal Institution of Chartered Surveyors
• Philip Parnell, Partner, Drivers Jonas
• Stephen Williams, Partner, Williams Murdoch
• Clemencia Parra, Director, UPAV
• Graham Hill, Mayor, Town of View Royal
• Peter Clark, The Appraisal Foundation

• Accord Case Studies
• Purpose

Independent, peer reviewed examples analysing the link between sustainability and value Establish understanding, inform both professionals and non-professionals

• n value & sustainability
• Seven initial studies

More to follow

• Common Points of Understanding
• The mechanisms and precepts of

Valuation are critical to business transactions, worldwide

• Valuers and appraisers are required

to provide independent professional rigor to the process of valuation

• Valuation professionals are governed

by standards, practices, expectations and statutes that vary by location

• The study of integrating sustainability

factors into valuation and appraisal is ‘breaking new ground’

• There is a lot that is to be learned by

many valuers about sustainability

• Issues of Convergence:

Key Areas for Collaboration

• Organizational Collaboration:

Cooperation between disciplines, Valuation organizations, educational institutions, sustainability experts.

• Application of Sustainability in

Valuation: What sustainability actions make the most difference under various market conditions on value: this study might include analyzing markets in various parts of the world.

• ‘Value of Valuation’: A holistic and

collaborative approach where valuation and sustainability represent a “sum that is greater than the parts”

• Accord Aspects
• Standards review and adjustment
• Professional Enhancement

Profession adds value beyond competing disciplines Professional Training and Development to include sustainability issues and factors Evidence of where sustainability has impacted asset and property value.

• Academic/Educational Capacity

Development

• Where Next?
• Improve knowledge, analysis & reporting

More business cases Assess value of sustainability: what works & what doesn’t Training & education – academic & practitioner

• Move to adjust standards

RICS – September, 2009

• 2010 Accord conference

• Sustainable Valuation

Thinking Green?

• Green Value
• Analyse the value of sustainability

Three countries, two continents Multiple uses

• Initiated 2004, published November 2005

Literature & best practice review Reviewed green building value aspects Subsequent studies now improving analysis, better data now available

• "There is a relationship between the market value
• f a real estate asset, its green features and

related performance."

• Green Value Summary
• Sponsors:
• RICS
• BC Hydro
• Canada Green Building Council
• English Partnerships (UK)
• Greater Vancouver Regional District
• Green Buildings BC
• Natural Resources Canada
• RealPac
• Others: CMHC, City of Vancouver
• Team
• Cushman Wakefield LePage, Busby

Perkins + Will, BuildGreen, DTZ (UK)

• 18 project reviews in:
• San Francisco, California
• Minneapolis, Minnesota
• Oberlin, Ohio
• New York City, New York
• New Westminster, Vancouver, Victoria,

BC

• Kitchener, Ottawa & Toronto, Ontario
• Montreal, Quebec
• 6 UK projects

• Green Value:

The Main Value Benefits

1. Lower operation/maintenance costs 2. Energy & resource savings 3. Grants, subsidies, inducements etc. 4. Attract tenants faster (i.e. absorption) 5. Higher rents, investment/sale value 6. Lower turnover/vacancy 7. Reduced fitting-out costs (i.e. TI's) 8. Lower internal move costs (i.e. churn) 9. Increased productivity

• 10. Faster, better public process
• 11. Improved risk, marketability

Vancouver Island Technology Park, BC

• Examples of Green Value
• Pennsylvania Power and Light conversion's

power savings:

Traditional energy saving: 4.1 yrs payback, 24% ROI Green Value: 69 days payback, 540% ROI Difference: largely productivity benefits

• Reno Post Office upgrade:

Improved productivity gains paid for the $500,000 renovation in under a year Annual energy savings a 'free bonus'

Mountain Equipment Co Mountain Equipment Co-

• op, Montreal
• p, Montreal

• Example: Dockside Green

Creek discharge from treatment plant, Dockside Green

26 June, 2008

• Value (per hectare)

$2000 $4000 Source: Millennium Ecosystem Assessment; Sathirathai and Barbier 2001

Timber and Non- timber products ($90) Fishery nursery ($70) Coastal Protection Value (~$3,840) Mangrove Shrimp Farm Less: subsidies (-$1,700) Less: Pollution Costs (-$230) Less: Restoration (-$8,240) Net: $2,000 (Gross $17,900 less costs of $15,900) Private Public Mangrove: $91 $+1,000 - $+3,600 Shrimp Farm: $2000 $-5,400 - $+200 Private Public Mangrove: $91 $+1,000 - $+3,600 Shrimp Farm: $2000 $-5,400 - $+200

• A Shrimp vs. Mangrove Analysis:

"Holistic" Value [Public Interest Value]

• What is IRM?

Integrated Resource Management

Sustainable valuation rethink of infrastructure using “Value First”

A new approach to water, waste and energy management

Turns waste from a cost into a potential profit Generates energy Reduces or eliminates waste Supports healthy ecosystems

Reduce GHGs by 25-33% Power the equivalent of 10% of homes Heat the equivalent of 30% of homes Run the equivalent of 10% of cars Recover, recycle and re-use clean water Flexible, scalable, local, incremental, Just-in-Time Least expensive or potentially profitable Reduces risk

• IRM Flow Diagram

• What This Looks Like:

Traditional Waste Process, Limited Recovery

Graphic Courtesy Victoria Times Colonist

• What This Looks Like:

IRM Process, Optimised Value & Recovery

Graphic Courtesy Victoria Times Colonist

• Business Case Summary

Example: Victoria, BC

Annual Gross Revenues (2007)

District heating 35% GHG Credits 12% Tipping fees 11% Green electricity 7% Green fuel 28% Water 2% District cooling 5%

Based on Capital Regional District model : local results will vary

106% Cash-on-cash return $554m NPV @ 8.0% 9.64% ROI (APR) $64.7m Projected net annual profit (loss), stabilized

• $53.0m

Projected annual costs, stabilized $114m Operating revenues

• $671m

Total cost to implement

Key Assumptions

• Inflation @ 1.9%pa, real discount rate 8%pa, construction

inflation assumed at 10%pa

• Fuel & heating at 15% discount from 2007 rates, energy & fuel

inflation assumed below Stats Canada historic data

• Water assumed once-through recycling
• More details & scenarios on request

• Evaluation Criteria

Liquid Waste Sewer Collection System Solid Waste Drinking Water TOTAL

GHGs Reduced ? ? ? ? ? Electricity Produced ? ? ? ? ? Heat Produced ? ? ? ? ? Biofuels Produced ? ? ? ? Potable Water Consumed ? ? Reclaimed Water Produced ? ? Waste Reduced ? ? ? Nutrients Produced ? ? ? Revenues ? ? ? ? ? Taxpayer Costs - Capital ? ? ? ? ? Taxpayer Costs - Ongoing ? ? ? ? ?

• Carbon Footprint & Externalities
• IRM prices externalities, e.g. GHGs

Market model, real money Excludes carbon tax, includes carbon offsets and credits at $30/tonne

• Example: 25-33% reduction in GHGs,

below 1990 levels

More resilient & fiscally responsible

• Suitable for Carbon trading

Lower GHGs, highly verifiable Minimises potential for carbon tax

• Green Lease
• Study of 650 West Georgia Street a/c & energy

retrofit

• Claim: 19% ROI validated
• BUT with green lease, potential for 197% ROI

through leveraging rental capitalisation

• Impact

Attractive for landlords AND benefit to tenants NOT business as usual L/T relationship – partnership not adversarial Correct appraisal is central Publication: Sumer 2009

• Options Analysis

Options Analysis

Highest & Best Use & Value

Demand Supply

Highest & Best Use & Value Analysis

Permits Permits Risk Risk Absorption Absorption Finance Finance Life cycle Life cycle Yield Yield Technology Technology Rent/sale Rent/sale Density Density $ Operating $ Operating $ Capital $ Capital Resources Resources

• Measurement:

profitable?

• Carbon

Carbon Energy Energy Water Water Sustainability Sustainability

• Green Valuation :

Mandated by UK Government

Source: Green Book, Appraisal and Evaluation in Central Government !" !"

• #

• Shadow Carbon Price Example : Composting

Step 1: Quantify the impact on greenhouse gas emissions giving the figures in tonnes of carbon dioxide equivalent Step 2: Calculate the correct schedule of the Shadow Price of Carbon to use and set it alongside the quantities of greenhouse gases saved Step 3: Multiply each year’s quantity of greenhouse gas emissions abated/emitted (expressed in CO2e) by that year’s Shadow Price of Carbon Step 4: Use these monetised greenhouse gas values in your cost- benefit analysis

Item name Composting Item emits/lowers (value in tonnes/yr) 200.00 tonnes/yr. GHG emission or reduction? GHG Emission GHG Type Methane (CH4) Item duration (yrs) 20 yrs. Commencement as at (yr) 2010 Item PV

• $3,067,401

Item gross total

• $4,546,215

CO2 equivalent factor 21 CO2 equivalent 4,200 tonnes CO2 at base year $54.12 GHGs start before base price year Base Shadow Carbon Price value $51.00 Base Shadow Carbon Price year 2007 Discount rate 5.00% Shadow Carbon Price inflation value 2.00%

• Asset & Sustainability Metrics 1
• Triple bottom line

Economics/financial Ecological/environmental Social

• TBL plus…

Resources

• Energy
• Water
• Air
• Materials
• Waste
• Others

• Asset & Sustainability Metrics 2
• Include program costs, revenues,

benefits, issues

• Life cycle valuation

Capital Life cycle O&M Residual/reversionary value (not cost)

• GHGs

CO2e measurement

• DCF

Change in international approaches

• Further information from:

www.vancouveraccord.org