Use these metrics to measure your portfolio’s triple bottom line performance

Get this new research on metrics that helps you measure property triple bottom line performance.

We are pleased to share a new report titled, Metrics for Responsible Property Investing: Developing and Maintaining a High-Performance Portfolio.

You can download the report here.

This research was co-authored by Jean Rogers of Arup, David Wood of the Responsible Property Investing Center and myself. This is a working draft for comment that was presented today (4 November 2009) to a joint session of ULI’s Responsible Property Investing and Sustainable Development Councils.

Why do we need metrics for triple bottom line investing?

Our survey of the industry indicated that the spread of triple bottom line investing was being hampered by the fact that most currently available real estate sustainability reporting came from investors who would green a couple of showcase buildings in their portfolios.  This lack of transparency leaves the broader real estate industry and capital markets with several pressing problems:

• They cannot determine if sustainability performance on the portfolio is improving over time.
• They do not know how the portfolio’s green performance compares with the portfolio’s of other investors.
• There is no way to judge sustainability risks hidden within any portfolio.

Drafting and road-testing proposed metrics with the Bay Area Council and TIAA-CREF

After developing a set of metrics that would represent the ten RPI principles in action, we worked with the Bay Area Council Family of Funds and TIAA-CREF to road test them, to obtain real world feedback from actual investor users.

Bay Area Council Family of Funds tested the metrics on recent acquisitions to see how the metrics might be useful during the property acquisition process.

TIAA-CREF tested the metrics on a portfolio of properties they own, to determine how the metrics could possibly assist them with asset management activities.

Both investors were also at today’s ULI session and provided in depth comments on the use of the metrics and their recommendations.

Key takeaways

Here are a few of our findings based upon investor feedback about their use of the metrics:

• RPI metrics do provide a tangible link to asset and portfolio value by pointing to possible decreases in operating expenses and/or increases in rental revenue.
• The use of RPI metrics can assist with opportunity finding: a key objective of due diligence during  acquisition.
• The use of RPI metrics can help drive social responsibility within the portfolio, instead of just monitoring it after the fact.

We need your help!

This report is currently a working draft for comment. It was submitted to members of the Sustainable Development and Responsible Property Investing Councils for their review and comment. We would also appreciate hearing the comments and questions of real estate investors and practitioners within the Green Journey community.

Let us know your thoughts about these proposed metrics. Also feel free to forward this report to anyone in your network whose practice might benefit from the information.

We look forward to hearing from you and will keep you updated on this effort as it evolves.

You can download the report here.

Related reading:

• We’ve covered the emergence of responsible property investing many times before.
• You can also view a short presentation on the basics of responsible property investing here.

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Compare retrofit financing options with this resource

(This post is part 1 of a 2 part post on retrofit financing mechanisms.)

These slides are for a talk I gave at GSMI’s recent conference on sustainable retrofits (if you have trouble seeing the slides, you can download the presentation here). I put it together to help anyone walk through a quick comparison of a mid-sized investor’s financing options for her portfolio of properties. Several members of the audience emailed me later saying that they thought the information was helpful, so I decided to share it with the Green Journey community as well.

The presentation takes you through the side by side comparison of tax-lien financing, energy performance contracting and on-bill financing, to answer the question “which is the best deal?” All of those three are also compared to self-financing and using conventional bank debt.

Takeaways

• Small energy saving improvements at the property level can significantly impact the portfolio’s financial and environmental performance: The study portfolio consists of small, owner-occupied retail buildings with similar layouts and building mechanical equipment. While the portfolio is relatively large in terms of number of properties (62), the total portfolio square footage is less than 220,000 square feet. For this portfolio, small measures at each property can add $155,000 in annual portfolio cash flow, and increase portfolio value by nearly $2M. The estimated annual reduction in GHG emissions (1,719 tons of CO2) from these energy efficiency measures is equivalent to removing 314 passenger vehicles from the road, or providing the total energy use for 156 homes.

• Emerging financing mechanisms such as tax-lien and on-bill financing can significantly ease the pain of upfront retrofit costs. It became clear that these two emerging funding mechanisms were the most advantageous for this portfolio because the owner would be able to pay for energy efficiency measures with very little or no up-front capital from the property owner.

• Energy performance contracting is best for public buildings: While ESCO financing can be a relevant source of capital for financing/leasing costly building system equipment, ESCOs are not the best funding source for financing comprehensive energy efficiency retrofits for small and medium size structures. Energy performance contracting (EPC), a financing technique that uses cost savings from reduced energy consumption to repay the cost of installing energy conservation measures in a building, is currently best suited for Federal and MUSH (municipal, university, school, and hospital) buildings.

How tax-lien and on-bill financing work

While both tax-lien and on-bill financing are still not as widespread, there are a  number of pilot programs across the country. With the government’s increase in funding for energy efficiency, we expect both forms of finance to become more widely available for property owners.

The American Public Power Association lays out a good definition for both these mechanisms:

On-Bill Financing: “a mechanism whereby the utility finances energy efficiency upgrades and the property owner pays off the costs overtime through a charge on their monthly utility bill. If the program is designed properly, the monthly loan payment is usually equal to or less than the cost savings, and so the property owner should not see their monthly utility bill increase.  Tariff‐based on‐bill financing, one variation, allows the loan to stay “with the meter.” In the event that the property is sold, the repayment obligation transfers to the new property owner/new beneficiary of the upgrades. This model allows for a longer payment term and can decrease monthly payments. Renters may also be able to participate in tariff based financing because they only pay for the measures, while they benefit from them.” San Diego Gas & Electric offers on-bill financing.

Tax-Lien Financing,  which is the funding mechanism used by Energy Efficiency Financing Districts, (otherwise referred to as Municipal Energy Financing, Property Assessed Clean Energy (PACE), Sustainable Finance Districts, and a host of other terms), is  a mechanism that allows property owners seeking to make major energy efficiency investments to opt‐in to a special tax or assessment district (or local improvement district). Property owners borrow money to finance energy efficiency improvements and/or renewable energy equipment, and repay overtime through a line item on their property tax bill.

The loan repayment obligation is attached to the property, not the individual, and if the property is sold before the end of the repayment period, the remaining obligation transfers to the new owner. Authorization from the municipal and/or state legislature may be required to enable special tax assessments for tax-lien financing.

The Sonoma County Energy Independence Program and the Berkeley FIRST Solar Financing Program are examples of tax-lien financing.

In our next post, we’ll talk about the comparative advantages of each as well as some tips on best practices for organizing energy efficiency financing for your portfolio.

Stay tuned for Part 2!

Read more on this topic

• Climate Benefit Districts, powered by green finance
• Sonoma County Funds first AB811 Loan
• $100 Million Energy Efficiency & Water Conservation Loan Program for Sonoma County

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Get plugged in:

• Like this post? We’d love to hear your comments and suggestions.
• View more presentations from Galley Eco Capital.
• You can contact us to discuss or initiate a project here.
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• Sometimes you can see what we’re doing on Twitter.

Let’s Talk about Your Leadership - OWA Event Invite

Meeting Details Here

Sustainability is flowing into every business silo and flooding the built environment. It is re-writing the official rules on what (and who) matters as well as how we keep score.  This triggers deeper questions:

Is sustainability challenging how we collaborate professionally and conduct our careers? How? What’s your plan of action?

I am pleased to join Kira Gould, co-author of Women in Green and one of Sustainable Industries’ First Ladies of Sustainability, as she moderates a discussion with several other industry pacesetters in engineering, architecture, education, finance and construction to talk about how sustainability is redefining leadership and creating new ways of working for many of us across diverse sectors.

Note that this is not a “women only” event. The forum will explore how both men and women are being affected by and can benefit from tackling sustainability and leadership-related issues in their lives and careers.

You will meet and hear views from the following pro’s (on the photo above from left to right, top to bottom):

• Lisa Michelle Galley, CEO of Galley Eco Capital
• Kira Gould, Co-Author of Women in Green
• Laura Rodormer, Sustainability Consultant
• Marsha Maytum, Architect
• Gail Brager, Engineer/Educator
• Anni Tilt, Designer

For my part, I see a couple of the deeper issues that are making headway into commercial real estate finance and investment:

- Convergence of disparate disciplines: We are now seeing “integrated everything”. Finance, too — possibly with cool, but unexpected implications. What’s up with that?

- Where to activism? The greening of business is supposedly taking consciousness and fist-raising to the cubicle and conference room. In some quarters, its almost fashionable to be an activist at work. But not everywhere. So what’s business activism look like (hint: my finance and investment friends, this could be your moment…)

For extra credit, you can read Kira’s recent commentary about this in Sustainable Industries.

And please join us and contribute your leadership to the conversation.

Meeting Details Here

Need more information about green finance? Read other stories from our blog here!

On the Mandatory Greening of Existing Buildings + EcoTuesday Reminder

Did  you catch that hint about possible mandatory measures to require the greening of existing buildings?

In case you missed it, the Examiner put out the word that Mayor Gavin Newsom and San Francisco Supervisor Eric Mar will introduce legislation this week which, when passed, would authorize San Francisco’s own version of an energy efficiency financing district.

Called a “green loan” plan in the article, the loan fund would allow homeowners to receive loans to make environmental improvements to their properties and then pay back the money through extra property taxes.

But you have to read that overwhelmingly positive article a little slower, to absorb the hint buried in a couple of innocent sentences several paragraphs in.

The article focuses on how the upcoming energy efficiency and renewable energy financing plan builds on momentum created by San Francisco’s mandatory green building codes, and also hints at the City’s future actions on greening existing buildings:

Newsom has already pledged to tighten those rules to apply to existing buildings. This latest green idea may provide a way to finance improvements that could soon become mandatory.

Are mandatory energy efficiency requirements really a good idea?

Professionals throughout green building construction, retrofits and public policy have been wringing their hands on the topic of mandatory energy efficiency standards for existing buildings. Many green building colleagues and supporters want mandatory measures to address the problem of owners with “energy hog” buildings, who simply ignore the impact of their wasteful operations on the community.

There are also concerns about mandatory energy efficiency measures unfairly impacting smaller or much older projects, since the owners in both cases might only accomplish the most limited actions to address energy efficiency problems. Essentially, retrofitting these buildings might be too cost prohibitive for those owners.

Finally, the real estate trade associations and other professional bodies have been trying to send tough signals against any form of mandatory anything when it comes to building operations. Fighting any type of cost or administrative burden  on owners at any opportunity.

Then there’s the flip side.

We also speak regularly with owners who introduce energy efficiency and green O&M to their existing buildings — only to have tenants blatantly ignore them. They express hope that, in a market with mandatory energy efficiency measures, they can more easily obtain tenant cooperation on O&M, plus they think they will look like heroes to their equity capital partners — who now struggle over how to assess and transmit some form of energy efficiency standards across behemoth national property portfolios run by thousands of local managers and JV operating partners.

The Green Journey Take?

While the retrofit cost concerns of small and very old properties are real, legislation can be crafted which addresses the potential energy efficiency limitations within their projects. They can, and should, get a fair deal.

As for the rest of the industry — we think that mandatory energy efficiency standards — with an appropriate, accessible, cost-effective financing mechanism — can provide real opportunity for competitive owners who “get it”, and need not be as problematic as some groups fear.

What do you think?

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Reminder

Let’s meet next week re: Green Finance for Communities, Campuses & Power

I noticed that several Green Journey readers are already signed up for my upcoming talk at EcoTuesday, next Tuesday, 28 July.

Exciting! You’ll all finally get to meet each other!

I’m talking green finance and how it’s changing our communities, flowing through our science and innovation parks and accelerating the growth of clean energy. And most importantly, how green finance trends can help our businesses and help us to help others.

Are you coming out?

I look forward to connecting with old friends and meeting a few new ones.

Most importantly –> We never accomplish anything alone. A summer cocktail hour is a great time to thank friends and colleagues who inspire us and to encourage them to continue the excellent work they do in transforming our communities and country.

Meeting Details

Date: 28 July 2009

Time: 6:30pm

Location: The W Hotel, 181 Third Street, San Francisco

Sign up here!

Lisa Michelle Galley profiled as a “First Lady of Sustainability”

Yours truly has been featured along with fourteen other women in Sustainable Industries March ‘09 issue, within their profiles of the “First Ladies of Sustainability”.

Sustainable Industries sets the stage for the profiles as follows:

The sustainable business community, like any industry group, is a sum of its parts. Gender aside, the leaders in the space have spent years trying to convince stakeholders of the vast importance of adhering to triple-bottom-line economics.

Creating a shift in the way business is done and how success is measured takes an unconventional approach. Many of the women leaders that Sustainable Industries spoke with for this article attributed their success to their willingness to take chances and blaze uncharted territory.

Whether analyzing the financial risks of green building projects or assessing the marketability of a cleantech startup, creating the tools to help companies increase their energy efficiency or crafting the framework for a sustainable business curriculum, these women have laid the groundwork for systems that will be used for years to come.

For my part, its a great honor to be rubbing shoulders with some of sustainability’s Jedi Masters: Andrea Traber, Karla Bell, and Lynn Simon,  all of whom are deep experts on driving market transformation — and on a large scale.

Andrea is president of the Board of our US Green Building Council Northern California Chapter and director with international juggernaut KEMA.  Karla is advancing carbon reducing technologies on a global scale.  Lynn literally helped found the US Green Building Council.

One of the things that I learned early in my career is that when you are looking for a job, go and search for a boss you like.  Later, I figured out that if you are looking to make a difference in the world — go and find a teacher.

I’ve been quite fortunate to be in a business community with so many women like these who fearlessly advocate for community, country and planet, are respected experts in their disciplines and generously share what they know.

You can read the full article profiling all of the “First Ladies of Sustainability” here.

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