Green finance workshops to sharpen your competitive edge

A few days ago, we announced the kick-off of a series of workshops focusing on green finance and investment issues via our newsletter, Pacesetter (sign up here). We are posting it here, to update those blog readers who get their news via RSS feed and might not have signed up for our monthly newsletter, yet.

The US Green Building Council Northern California Chapter and law firm, Hanson Bridgett, have generously co-sponsored the seminar series, titled The Competitive Edge: Financial Tools for Green Building Investment.

Why the Competitive Edge?

We want to help you add more value to your marketplace. We’re convinced that there is a real need in the industry to understand how to approach analyzing the value-add of green strategies within real estate investments. So we worked with the US Green Building Council Northern California Chapter and Hanson Bridgett to organize courses that address the core of those issues:

• how to use the LEED rating system when analyzing project cash flows (and move beyond first costs)
• common investment analysis issues and tools for retrofits
• an approach for structuring the investment review of new and existing green buildings
• how A/E/C professionals can learn common investment analysis processes and terms to improve communication with property owners about design, construction, and budget issues.
• what to consider when assembling a portfolio or fund of green investment properties.

We believe that green finance and investment techniques represent the next level of skills that real estate professionals need to stay current with changes in the real estate market place. ‘

Since sustainable design can change the economics of a building, and there are many ways to go about creating a green building, finance and investment professionals need to know a good, and efficient, process for incorporating this information into their decision making.

Below are a complete list of courses as well as links to registration. Also, you can sign up and join our Pacesetter list, which will contain updates on these courses, too.

Competitive Edge Course Summary

• Course 1, “Investment Analysis of Green Buildings”, (March 3, 2010 - Register now) covers green investment underwriting skills that help professionals to quickly use the USGBC’s LEED-rating system in their decision-making. Full day seminar.
• Course 2, “Financial Considerations of Existing Building Retrofits”, (April 7, 2010) addresses the financial considerations related to energy efficiency retrofits, so that professionals can integrate the additional decision-making tools and analysis for making buildings more energy efficient. Full day seminar.
• Course 3, “Understanding and Communicating the Financial Case for A/E/C Professionals”, (April 28, 2010) gives architects, engineers and sustainability consultants an overview of the real estate investment analysis process, stressing how to use this information to ‘go beyond first costs’ in their conversations with owners about their green design and construction choices. Half day seminar.
• Course 4, “Raising the Bar: Green Investment Fund Strategies”, (May, 2010 - date to be announced) walks the real estate senior executive through the business and legal aspects of assembling a portfolio of green property investments so that they can create more strategic advantages for their firms via creating pools of green building investments for the real estate market.

Instructors: I’m pleased to be co-teaching these courses with David Longinotti, Partner at Hanson Bridgett.  Dave’s bio can be read here. You can check out my bio here.

To facilitate the best interaction, please note that seating is limited for all courses. Got any questions? Feel free to write us or call us at +1 (415) 655-6668. We’d love to see you there!

Let’s meet at the Sustainable Industries Economic Forum

I am thrilled to be participating in the upcoming Sustainable Industries Economic Forum here in San Francisco!

Are you coming?

I will be part of a premiere panel including Paul Hawken and Phillip Michael Williams. We will discuss triple-bottom line investing in these challenging economic times.

Special request –> send me your burning questions and perspectives on the state of green finance and sustainability, and I’ll cover them at the Forum.

The current situation is a perfect storm that feeds off economic worry and unprecedented opportunity within green building and energy efficiency. That leaves lots of folks wondering, “what’s it going to take?” to move sustainability forward.

Send me a note or write a comment on this post about your thoughts, and I’ll try to work your perspective into the mix.  I look forward to the dialogue.

Event Details

November 19, 2009

St. Regis Hotel, San Francisco

8am - 11:30am

You can sign up for the event here

Please join us for what is sure to be an enlightening and insightful event as we look to foster creative solutions for our evolving markets.

Related reading:

• SI article featuring Lisa Michelle Galley

Things you might want to know:

• Do you like this post? We’d love to hear your comments and suggestions.
• You can contact us to discuss or initiate a project here.
• You can get Our Green Journey by email or via RSS.
• Sometimes you can see what we’re doing on Twitter.
• Photo credit: Two Unions on istockphoto
  

German funds step up sustainability screening for decision making

If you only read about US real estate investors, you might have the opinion that the real estate community is still undecided on the topic of embracing green building.

One stack of articles will quote investors talking up their green building programs.

In an equally thick stack of quotes, they complain about green building or energy efficiency costs.

In Germany, however, investors are more outspoken — favoring increased green and energy efficiency screening and investment criteria.

According to Germany’s Handelsblatt, European real estate investors are quoted as increasing their screening procedures and criteria for green buildings and energy efficiency. Per the Handelsblatt (our translation):

German open-end real estate funds are increasingly applying social and environmental criteria to their investment decision making. These criteria are also playing a growing role in portfolio management procedures.

Five funds are quoted as discussing their use of green and energy efficient criteria within their investment decision making: Pramerica, UBS, Union Investment Real Estate, Axa Real Estate and Commerz Real.

What are the funds reported activities?

• Union Real Estate utilizes a sustainability screen at acquisition. Existing buildings which do not meet their minimum energy efficiency criteria are rejected.
• UBS uses different checklists for suppliers, tenants, project acquisition, leases and building performance to monitor and enforce sustainability standards.
• Pramerica Real Estate’s investment policy within its TMW World Funds has been adjusted so that sustainability screening is conducted for all new investments as well as on the existing portfolio. Due to the fact that there really aren’t enough green buildings in existence for investment, they also check non-green investments at acquisition to make sure that they can be greened once they are in ownership.
• Axa Real Estate had its own sustainability ratings system developed and is currently testing its portfolio.
• Commerz Real reports that sustainability criteria has an increasing influence on investment decisions, since they notice that more tenants desire renting within green buildings.

While you might encounter US investors without a firm sustainability policy, it appears that if you wish to do business with German investors, you had better have your (or their) green investment checklist ready.

This is particularly interesting because several of these funds have had successful capital raises. With US real estate (and the dollar) getting cheaper, it will be interesting to see what happens when these foreign investors start looking to the US for good deals — with their sustainability criteria in hand.

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This green finance approach makes your initiatives more successful

When you are putting together a green finance strategy, what are the key pieces of the puzzle?

When we compare the climate change and energy efficiency strategies that public and private bodies have created to date, we’re seeing lots of them calling for new incentives to pay for climate change and energy saving initiatives (answering the “how much”, “what” and “why” strategy questions), but almost none of them answering the “which”, “when” and “how” questions on the financial support they call for. By the latter phrase, we mean ‘which kinds financial mechanisms and products’ work best with ‘which technology and energy savings initiatives’ at ‘what point in time of the carbon reduction time frame’?

Those are very tough questions, we know. However, the failure to embed those particular answers about financing any strategy leads to the tragic irony that we now see in many jurisdictions: experts say energy efficiency offers huge business potential, billions of dollars and euros in incentives are authorized, with billions more in the pipeline, but everybody’s still scratching their heads about how to access the funds and put them to good use. Without clearly acknowledging and differentiating finance’s varied impacts across a sustainable strategy’s time line, lots of good plans are assured ineffectiveness by fragmented, uncoordinated financial support.

It’s almost as if sustainability might be starving in a grocery store full of food.

Now here’s an interesting model we have come across that, in our humble opinion, does a neat  job framing the coordination of financing mechanisms so that sustainable finance can better deliver what’s intended: provide the right kinds of funding for the right types of initiatives and technologies at the right points in time over the life of the carbon emissions reduction strategy. We see the individual points of this framework in many strategies, but this model elegantly organizes those disparate pieces into a coordinated approach to sustainable finance.

A Green Finance Approach from the European Commission

From our work in the European Union, we’ve seen the European Commission’s recent announcement of their plans to invest EUR 50 billion (USD 73.5 billion) into low carbon technologies over the next 10 years. This really caught our attention because the Commission’s strategies are among the few which include a detailed framework, called an ‘impact assessment’ for deciding on the right combination of financing structures to pay for identified groups of technologies and mechanisms needed to achieve greenhouse gas emissions reductions targets.

So if you wanted to apply a similar process to assessing finance within your own green investment and/or energy efficiency platform, how would you do it?

1) Lay out your most likely individual finance options. Financial policy options were first derived independently of the underlying technical applications. Starting with the ‘business as usual investments and institutional arrangements’ and proceeding along a continuum to ‘the creation of new investment vehicles along with specific institutional arrangements’, they were each evaluated for individual strengths and weaknesses.

2) Group your initiative/technology investments around key characteristics. In the case of the European Commission, strategic planning involves technologies/initiatives that were grouped into different timing buckets based upon how close they were to market competitiveness. You can do this for all kinds of initiatives, too. We can imagine that investors in green and/or energy efficient real estate might not think in terms of the technology groupings. However, if you see your sustainable real estate portfolio as being geographic and technical groupings of properties, leases, regulations and technologies over time, then you will have taken the crucial first step to removing the confusion of fragmented incentives and other ineffectual financing moves.

3) Clearly define assessment criteria for each finance option to be adopted. In the case of the European Commission, the finance policies considered were evaluated in terms of mobilization, suitability, flexibility and effectiveness. By the way, we think these particular criteria could be useful in a broad array of cases.

We’ll let you read the document to learn about the particular finance policies that the European Commission came up with, since we’re more focused here on their framework’s broader application.

The results of their approach highlights the need to maximize sustainable value creation through better, up front coordination and structuring of finance policies and initiatives.  One way that their recommendations are better as a result of this framework is that they are able to distinguish up front between instances where simply more funding was needed, such as for energy efficiency, and those areas where different types of funding and/or institutional arrangements would be more appropriate.

We hope this discussion gives you a good starting point for structuring and coordinating your own green finance and investment options, so that your own portfolio and programs are more successful.

Send us any stories you have to share on that front, since this is a topic that we are very passionate about.

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Things you might want to know:

• Do you like this post? We’d love to hear your comments and suggestions.
• You can contact us to discuss or initiate a project here.
• You can get Our Green Journey by email or via RSS.
• Sometimes you can see what we’re doing on Twitter.
• Photo credit: chromatika on istockphoto

Bioregionalism & Green Finance: “It’s the (sustainable) economy, stupid”

At least, that’s what Luke Lowings seems to be saying, in his review of Pooran Dersai’s new book, One Planet Communities. And he’s not making a bad point. It’s time that a solid discussion of finance accompany visionary development.

Dersai’s new book espouses “practical bioregionalism” — focusing on architectural principles for building a whole community — as opposed to just the sustainability of individual buildings. He argues for applying principles of bioregionalism to create sustainable communities (definition of bioregionalism here).

Lowings’ main complaint about One Planet Communities is that its heavy focus on building sustainable communities ignores the parallel task of creating a sustainable economy to support them.  My brow furrowed as I realized that, if this was Lowings’ chief complaint, then he’s probably very depressed about everything he reads on sustainable buildings. To date, not many have been able to lay out a cohesive set of principles and practice for the kind of finance that truly supports sustainable communities at a regional level. So I feel Lowings’ unfairly picks on Dersai about a general problem in the market, not for any particular failing on Dersai’s part.

Financial Infrastructure Needs to Support Sustainable Communities

Nonetheless, Lowings still has a good point –> the current availability of financial tools and resources for green real estate developers and investors is more of a swap meet than a market. It does not offer the depth and breadth of organized infrastructure that bioregions can rely upon.

• Recently, there have been a glut of new studies and tools dealing with narrowly defined pieces of individual building-related financial problems — green lease clauses, detailing paybacks on specific retrofit measures, and the potential value-add of third party certification to individual green buildings.

• On the funding side, the owner’s discovery and selection process requires trudging through a a swamp of new incentives, stimulus funding plus the byzantine tax and regulatory requirements that accompany them. To come up with a green business case on their own, they have to hopscotch around, stitching together those new green funding sources with their traditional capital relationships. Repeat that whole process again, for every single building they intend to green.

• It’s no wonder that nearly 70% of the participants who attended one of our recent webinars, indicated that they were not applying for or using any sort of incentives whatsoever. Why not? Too confusing to figure out!

The final wrinkle relates back to our post last week on green building valuation. In order for finance to support sustainable communities, the investment real estate community will have to be able to assign a value to amenities such as community farms and more schools. There would have to be a cultural shift towards more long-term economic stability as opposed to above-inflation rental growth. From today’s standpoint, that is a very tall order.

Bioregions don’t fit neatly into industry accepted conventions of primary and secondary real estate markets. Real estate fundamentals are driven by global and national market forces, not just regional ones. Capital markets these days cannot exist exclusively within a fenced-off business territory.

So I think that the sustainability movement has to acknowledge a certain level of hype that is accompanying the bioregion vision and incorporate a sober view of global demographics and economics in their economic planning.

Case Study: The Preserve - an official candidate “One Planet Community”

Can bioregionalism completely address some of the ills we see within our communities? Hmmm…. maybe.

GlobeSt.com has put out the word on A.G. Spanos’ announcement of a $2 billion “environmentally and economically sustainable” community that will generate 12,000 jobs and over $15 million in annual revenue for Stockton, CA”.

This community, called ‘The Preserve’, is also endorsed under review for endorsement by the One Planet Community, which gave is considering the endorsement in exchange for the development subscribing to its ten principles that address public transit, economics,natural habitats, energy and water, jobs, education and well being.

Two things come to mind as I read this announcement:

#1: Stockton, California has a foreclosure rate of 15% vs California’s 9.5% and the US rate of 6.72%.

# 2: The Stockton, CA metropolitan statistical area posts unemployment of 15.5%. It is ranked 359 out of the total 372 MSA’s tracked by the Bureau of Labor Statistics.

Which leads to my main question:

Can installing a bioregion heal an ailing city?

Seriously.  With stats like those above, can the City of Stockton truly afford to support a brand new 1,800 acre community — whose tax benefits won’t be fully evident for many years to come?

My long career of lending other people’s money into many MSA’s has taught me to be cautious when I hear about multi-billion-dollar new developments going into distressed communities — green or not. The US real estate industry is littered with tales of failed revitalization efforts tied to grand master-planned schemes, which absorbed huge amounts of a suffering town’s resources, but actually took a very long time to return relatively little to the residents who needed the relief.

The complete terms of the Preserve development are not yet known, so the jury’s out on the ways in which Stockton will be impacted. But real estate financing history suggests that these kinds of deals only make sense to the developer if they are getting the land at a very low price (or for free) and the city is contributing advantageous financing terms (big infrastructure bonds, etc).

The city hopes for larger tax revenues from the new businesses and residents in years to come after everything is built. Any rewards for the residents won’t be evident for years — after all, houses don’t make long-term jobs. It works the other way around.

Lots of cities forget that. They also forget that, in 15-20 years when the promised development is fully operational,  the real estate cycle will be in a much different place than when they signed the deal.

Bioregionalism principles can certainly play a key role in stabilizing Stockton’s economic outlook, but I bet that the City of Stockton could probably accelerate healing of its distress with a large scale, pragmatic energy efficiency financing program for its existing building stock as well as existing businesses to reduce cost of operations, spur green collar jobs and prevent further bleeding of existing jobs. Stockton appears to have a deal in the works with utility, PG&E, but I’m talking about a bigger, farther reaching kind of program which would encompass other forms of green finance beyond that supplied by the public utility.

Long-term healthy jobs and an educated workforce are the DNA of every healthy real estate market — not to mention, sustainable communities. With all due respect to The Preserve, I don’t think that every city  needs to necessarily go through the long, expensive process of building big new green communities to get there. And I always have lots of questions when ailing cities start agreeing to these projects, since they are usually in the worst position to really reap the benefits.

The good news is that, “swap meet” aside, there are great green finance options available that, when properly structured, can support cities like Stockton to implement either energy efficiency, new green development, or both. The key is to focus on these options very early in the process and, as Luke Lowings suggested, to make sure that sustainable finance doesn’t take a back seat to sustainable community building.

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Things you might want to know:

• We’d love to hear your comments and suggestions.
• You can get Our Green Journey by email.
• You can contact Galley Eco Capital to discuss or initiate a project here.
• Sometimes you can see what we’re doing on Twitter.
• Photo credit: Stockton, CA Boom Town by Joguldi (Flickr).

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