New Paper Highlights Decision Approach on Green Property Valuation

 

How can professionals approach valuing green buildings, when there is still a lack of performance data?

Lots of folks accuse appraisers of being roadblocks to advancing green real estate because many still don’t provide any recognition for the higher value of sustainably designed projects in their valuations.

Check out a new report, “High Performance Building: What’s It Worth?” by the Cascadia Green Building Council, Vancouver Valuation Accord and Cushman Wakefield.

Co-authored by appraiser and thought leader Theddi Wright Chappell of Cushman Wakefield (covered previously here), this paper provides leadership on this problem via an appraiser’s professional insight into three sustainably built projects.

The authors acknowledge hurdles to green property appraisal up front: modern valuation methodology, like investment and lending as a whole, is solely focused on “economic considerations”.

In their words, “neither the methodology that is practiced by the valuation profession nor the methodology that is typically used by the investment community or major lending institutions includes specific considerations of social or environmental factors. It is largely assumed these are reflected in the price or rent paid in the market”.

They reviewed three LEED-certified buildings in detail, pointing out areas on each project where sustainable design strengthened the property’s marketability and operations, with strong connections to positive valuation support.

The connection between design and its possible value-add was highlighted via comments like the following:

- “experienced a comparatively quick absorption period”

- “high or moderately high” tenant satisfaction feedback

- “higher than average level of occupancy”

- “achieved competitive rents”

Particularly useful, is their presentation of questions that can accompany a particular valuation approach (cost, sale or income), designed to help the valuer incorporate a deeper analysis of sustainable design impacts on the project. These questions will be useful to anyone underwriting a potential investment into a green building. One example:

[For the Income Approach]: Was the building commissioned? Commissioning could impact assumptions relative to both operational and performance risk.

This particular paper’s value (excuse the pun) is in showing the many deciders out there that the lack of long years of economic performance data on green buildings need not be an impediment to increasing financing, investing and appraising green buildings.

By adopting the right review approach, anyone underwriting a project can learn to uncover and analyse the pertinent issues, which can lead to a more accurate investment decision.

Take a look at the paper and let us know your thoughts.