As published in Scotsman Guide's Commercial Edition, August 2007.
Commercial mortgage brokers and lenders are in a new position today. We're no longer just engineering solutions and facilitating financing opportunities; we're also acting as catalysts for positive improvement in the environment. We find ourselves like never before in a position to influence how building projects interface with the Earth.
A confluence of factors has helped create this trend. We're increasingly aware of the impact of global warming, energy costs and water shortages. This is combining with global competition for building materials, which has sent the costs of materials such as lumber, cement and steel through the roof. As a result, a deep understanding of green-building and sustainability practices is becoming vital. "Going green" is proving to be good for investors and members of our industry.
We're not abandoning the foundation of our business, of course. Loan to values (LTVs) are still paramount. Borrowers must be solid, and deals must make sense. But information that brokers and lenders once considered esoteric is now appearing in the middle of the screen. New elements and new calculations of environmental value are being added to the investment mix. Green-building practices are providing immediate and long-term cost savings.
As a general rule, lenders now use this benchmark: The addition of 1 percent to 2 percent of building costs for green additions can result in a payback period of two to four years. Further, ongoing savings will accrue for the life of the property -- savings that translate into larger revenue streams and higher valuations.
The daunting part of encouraging developers to implement green-building techniques into their plans is helping them determine where to start. Fortunately, common sense comes into play from the outset. Encourage clients to think about savings and to calculate return on investment.
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