©2009 Sustainably Built & Boulder Green Properties
The ECOnomics of Green!Putting a value on your green investment…!
A BGBG Brown Bag Presentation by!
Adam Stenftenagel!Sustainably Built!
&!
Stu Galvis!Boulder Green Properties!
©2009 Sustainably Built & Boulder Green Properties
Defining the Lingo!
• Payback!• Return On Investment (ROI)!• Modified Internal Rate of Return (MIRR)!• Lifetime Cost!• Perceived Value!• Market Value!• Appraised Value!
©2009 Sustainably Built & Boulder Green Properties
Payback!Payback is simply the number of years it takes for the
energy savings from an improvement to equal the upfront cost.!
Simple Payback: Cost ÷ Savings = Payback (in years)!
Modified Payback: This method incorporates an estimate of increasing energy prices, discount rates, and other factors to determine a more realistic value of the savings. !
©2009 Sustainably Built & Boulder Green Properties
Return On Investment!ROI is simply a measure of cash produced by an upfront
investment. We can look at ROI in many different ways, but the easiest method is the Benefit/Cost Ratio or Savings to Investment Ratio (SIR).!
SIR takes the total energy savings over the lifetime of the improvement (Present Value) divided by the upfront cost of the investment. This calculation may or may not include increases in energy prices or inflation rates.!
©2009 Sustainably Built & Boulder Green Properties
Modified Internal Rate of Return (MIRR)!The Modified Internal Rate of Return can be used to
compare an investment in energy savings to a financial investment such as a savings account or money market. !
If I invest $1000 in a bank account at 5% interest for 30 years, the value would be $4,321.!
If I invest $1000 in attic insulation, my savings after 30 years could be $6,073 which would equate to an interest rate of 6.2% if I were to put the money in a bank instead, and thus the MIRR is 6.2%.!
©2009 Sustainably Built & Boulder Green Properties
Lifetime Cost!The Lifetime Cost of an energy investment would
include the upfront cost of the improvement plus the total predicted energy costs for a specific time period. !
Depending on the period of time chosen, one energy efficiency measure could be more or less expensive than another measure. !
©2009 Sustainably Built & Boulder Green Properties
Lifetime Cost!
$12,500
$17,500
$22,500
$27,500
$32,500
$37,500
$42,500
3" Closed Cell Foam + 4.5” Cellulose
2" Closed Cell Foam +3.5" Cellulose
5.5" Dense Pack Cellulose
4.5” spray cellulose +3.5”
R‐13 BaD
2" Closed Cell Foam +3.5" Cellulose
4.5” spray cellulose +3.5”
R‐13 BaD (degraded)
5.5" Icynene 5.5" Cellulose (BASE)
Life%me Costs
30 Year Total Cost
15 Year Total Cost
7 Year Total Cost
Upfront Cost
©2009 Sustainably Built & Boulder Green Properties
Main Entry: 1 Perceived Value Pronunciation: \pәr-’sēv’d ‘val-(,)yü\ Function: noun Date: circa 1905
1: : Perceived value is a consolidated measure: either the difference between the perceived benefits that a product delivers and its perceived price, or the ratio of the perceived benefits and the perceived price.
Stu’s Pick: a. N. an emotionally based, factually unfounded, and often inaccurate sense of value specific to individual parties.!
©2009 Sustainably Built & Boulder Green Properties
Main Entry: 1 Fair Market Value Pronunciation: \’fer mär-kәt ‘val-(,)yü\ Function: noun Date: circa 1901
1: : a price at which buyers and sellers with a reasonable knowledge of pertinent facts and not acting under any compulsion are willing to do business
Stu’s Pick: a. N. What buyers in today’s market are willing to pay for.!
©2009 Sustainably Built & Boulder Green Properties
Main Entry: 1 Appraised Value Pronunciation: \ә-’prāz’d ‘val-(,)yü\ Function: noun Date: circa 1901
1: : The assessed value of real property in the opinion of a qualified appraiser. Often based on the sales comparison approach or the cost of replacement.
Stu’s Pick: a. N. The monetary figure on a specialized board closest to which the appraisers dart lands.!
©2009 Sustainably Built & Boulder Green Properties
The Chain of Value!
Must perceive value!
Buyer! Realtor!
Must communicate
value!
Appraiser!
Must be convinced of
value!
Underwriter!
Listens to the appraiser!
©2009 Sustainably Built & Boulder Green Properties
According to the Appraisal Institute:!
$1 : $20!
©2009 Sustainably Built & Boulder Green Properties
OR!
PITI+EW = PITI+EW!
=!
©2009 Sustainably Built & Boulder Green Properties
The Geos Example!Cash Flow Neutral, Net-Zero Energy Homes!
$45,000 incremental
improvements!
$248 incremental mortgage Increase monthly!
$200 saved energy costs!
$46 tax savings!
=!
Incremental monthly cash flows of Geos improvements!
©2009 Sustainably Built & Boulder Green Properties
Perceived Value !Cahners Residential Group (2000 – 2001): more than two-thirds would pay an additional $2,500-$5,000 (up front) for green features. An additional 20% would pay as much as $10,000 extra (in up front costs). !
NAR (2003): 96% of home-buyers are willing to pay more (in up front costs) for a home with green features. ! American LIVES (2002): half of the respondents said they were willing to pay extra for healthy building materials. !
©2009 Sustainably Built & Boulder Green Properties
©2009 Sustainably Built & Boulder Green Properties
1. Homeowners are happier with their new green homes and are eager to recommend buying green to others.!
2. 85% of “green” homeowners stated that they were extremely happy with their new home versus their previous one.!
The Findings:!
©2009 Sustainably Built & Boulder Green Properties
3. 63% stated that lower operating and maintenance costs were the key motivation.!
4. Nearly half said that environmental concerns & family health were motivators.!
The Findings:!
©2009 Sustainably Built & Boulder Green Properties
Appraised Value – The CMA!
• Only works if there are 3 similar properties sold in the past 6 months in the same neighborhood.!
• Appraisers need to know how to make adjustments for Energy Efficiency – Cost Neutrality!
©2009 Sustainably Built & Boulder Green Properties
1. Most appraisers haven’t encountered sustainable buildings yet!
2. It will take 5-10 yrs for the data to be fully collected & processed!
5. Sustainable buildings perform differently!
3. Data gathering problem in commercial: less than 50 of almost 700 green buildings were built for investment purposes. Public buildings and corporations are rarely appraised. !
4. Appraisers need to be educated on green buildings, systems and terminology, and understand clients’ goals!
6. During the past 25 years, appraisal has been all financial analysis. Now its building performance.!
Excuses, Excuses !
©2009 Sustainably Built & Boulder Green Properties
1. “Any benefits must reasonably affect market value.”!
2. Appraisal framework won’t change, appraisers need to enhance knowledge of key sustainable features & their benefits. !
3. Appraisers can employ the methods they currently employ when comps are limited.!
4. Enough data and resources exist today to value sustainable buildings!
5. Valuing Green Buildings – a new one day seminar by the Appraisal Institute to be released this fall!
6. It’s on the form!!!!!!!
Solutions, Solutions !
©2009 Sustainably Built & Boulder Green Properties
OR!
PITI+EW = PITI+EW!
=!
©2009 Sustainably Built & Boulder Green Properties
"Appraisers are becoming “much more part of the strategy, making…decisions rather than just providing numbers.” Particularly early on in the process to provide cost-benefit analyses.!
Theddi Wright-Chappell, AI sustainability czarina!
©2009 Sustainably Built & Boulder Green Properties
More & Better Lending: EEMs!
• Finance up to 15% for EE retrofits!
• Lower mortgage interest rate!
• Reduced closing costs!
• Utility payments covered!
• More financing options!
©2009 Sustainably Built & Boulder Green Properties
The Chain of Value!
Must perceive value!
Buyer! Realtor!
Must communicate
value!
Appraiser!
Must be convinced
of value!
Underwriter!
Listens to the appraiser!
©2009 Sustainably Built & Boulder Green Properties
Value – Functional Obsolescence!
When a property’s value decreases due to its poor design, style or lack of modern facilities!
• GreenPoints compliance!
• Any future building regulations!
• Future standards for comfort, quality, durability, carbon reduction, etc.!
©2009 Sustainably Built & Boulder Green Properties
Typical Existing 2000 SqFt Home in Boulder!(Same Improvements as in EEM Report)!
Case Study!
©2009 Sustainably Built & Boulder Green Properties
Typical Existing 2000 SqFt Home in Boulder!(Same Improvements as in EEM Report)!
Case Study!
©2009 Sustainably Built & Boulder Green Properties
Case Study!
©2009 Sustainably Built & Boulder Green Properties
Case Study!
©2009 Sustainably Built & Boulder Green Properties
©2009 Sustainably Built & Boulder Green Properties
Energy Costs!
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Residen%al Electricy Cost for Colorado
©2009 Sustainably Built & Boulder Green Properties
Energy Costs!
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Natural Gas Cost for Colorado
©2009 Sustainably Built & Boulder Green Properties
Typical Existing 2000 SqFt Home in Boulder!(Same Improvements as in EEM Report)!
Case Study!
©2009 Sustainably Built & Boulder Green Properties
Typical Existing 2000 SqFt Home in Boulder!(Same Improvements as in EEM Report)!
Case Study!
©2009 Sustainably Built & Boulder Green Properties
Geos Neighborhood Net-Zero Energy Home (3%)!
Case Study!
©2009 Sustainably Built & Boulder Green Properties
Geos Neighborhood Net-Zero Energy Home (6%)!
Case Study!
©2009 Sustainably Built & Boulder Green Properties
Optimiser!
©2009 Sustainably Built & Boulder Green Properties
Optimiser!
©2009 Sustainably Built & Boulder Green Properties
Optimiser!
©2009 Sustainably Built & Boulder Green Properties
Optimiser!
©2009 Sustainably Built & Boulder Green Properties
Optimiser!
©2009 Sustainably Built & Boulder Green Properties
Optimiser!
©2009 Sustainably Built & Boulder Green Properties
Externalities!A study was performed in Ontario where the government
pays for both power generation and health care system. !A direct correlation was performed between increased
health costs due to the existing coal fired power plant.!
Direct cost to generate electricity with coal: $37/MWh!Associated health care costs for that energy: $164/MWh.!
Complete study available at: www.energy.gov.on.ca!
or!
©2009 Sustainably Built & Boulder Green Properties
Human Value!We use the tools presented today as a method to
determine the financial benefits of green. But really, what’s the value of comfort, health, safety, & protecting the environment?!
What’s the payback of an iPod, a new " " " """furniture, or a new car? !
What’s the value of your family’s health?!
©2009 Sustainably Built & Boulder Green Properties
Questions?
Stu Galvis!303-441-7469!
[email protected]!www.BoulderGreen.com!
Adam Stenftenagel!303-447-0237!
[email protected]!www.SustainablyBuilt.com!
Special thanks to Andy Bardwell and the Optimiser Team!!