From a financial standpoint, green buildings can be a boon for borrowers and lenders
By Greg Murphy, vice president, Nova Consulting Group
For several years, property-developers, -owners and -managers
have recognized the environmental
and financial benefits associated with environmentally sustainable buildings. Adopting sustainability as a quantifiable element
into commercial mortgage underwriting
standards only recently has gained momentum, however. New guidelines may act as the
bridge between environmentally sustainable
development and credit-risk management.
This past September, the Capital Markets Partnership (CMP), a nonprofit
collaboration of real estate investors, municipalities, investment banks and other financial institutions, adopted the American
National Standard Institute’s Green Building Underwriting Standard. This standard
aims to quantify the additional value that
sustainable construction and property management and operations offer. It is intended
as an overlay to existing core underwriting
criteria and to reveal the value in risk reduction for debt and equity participants.
In fact, appropriate evaluation of these
high-performance buildings may become
just as valuable a base component of high-performance, sustainable mortgages as existing underwriting metrics.
The CMP has ensured that a property’s
sustainability rating considers environmental benefits and the tangible financial return
that these elements yield to property-owners and managers — as well as the risk reduction for prospective mortgage lenders
and secondary-market investors. Brokers
are in a good position to help their clients
find buildings that meet these standards, as
well as lenders that consider these guidelines as part of their underwriting process.
The Green Building Underwriting Standard is derived from three sources:
1. The U.S. Green Building
Council’s Leadership in Energy and
Environmental Design (LEED) program;
2. The Environmental Protection
Agency’s (EPA) Energy Star energy-
performance-rating system; and
3. Carbon-neutral certification.
Synthesized into a single calculation,
the result is the green-value score of one to
100. Because LEED-rated and carbon-neu-tral-certified buildings comprise a small
percentage of all buildings in the United
States, the Energy Star score — applicable
to nearly all buildings — is emphasized.
Used alone, the Energy Star rating —
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also scored from one to 100 — can provide
valuable information about a building’s
energy consumption and efficiencies. A
score of 50, for instance, indicates that the
building’s energy efficiency is better than
50 percent of all similar buildings nationwide. Similarly, a score of 75 indicates that
the building performs better than 75 percent of all comparable buildings.
Buildings with a rating of 75 or greater
can receive the Energy Star label. According
to the EPA, as many as 500 out of the 4,100
commercial buildings that have earned the
Energy Star label use 50-percent less energy
than conventional buildings. This reduction
provides added control of operating costs,
in effect insulating the building from future
In addition to the private sector’s voluntary
efforts, state and federal legislation also may
foster adoption of sustainability analysis.
For example, California Assembly Bill
No. 1103 requires public utilities to establish and maintain the ability to upload the
past 12 months of utility-bill data to the
EPA Energy Star Portfolio Manager, the
EPA’s Web-based calculator used to calculate the rating. The legislation also requires
all sellers of nonresidential properties in
California to include this data in their disclosure packages to prospective buyers, lessees and lenders by this coming January.
Similarly, the District of Columbia’s
Clean and Affordable Energy Act of 2008
mandates that all owners of commercial
properties greater than 250,000 square feet
must comply with Energy Star benchmarking and disclosure starting this year. Most
buildings in the district should be phased
Continued on Page 30
Greg Murphy, a Leadership in Energy and
(LEED)-accredited professional and registered
in California, is vice president of Nova Consulting
Group, an environmental and engineering
consulting firm specializing in real estate due
diligence. Throughout his career, Murphy has
participated in more than 8,000 environmental
site assessments, subsurface investigations,
property-condition assessments and seismic
evaluations. Reach him at his San Francisco
office at (415) 377-2431 or greg.murphy@
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