As published in Scotsman Guide's Commercial Edition, September 2009.
Strategic energy management is the backbone of any green-building portfolio, and energy-efficiency is the most cost-effective green strategy available to building operators. For mortgage professionals, understanding energy management is a powerful tool when clients are considering investing in a multifamily asset that claims to be green.
"Green" does not necessarily mean high-performing; even a building that is designed or retrofitted to green standards will underperform if it is not operated efficiently. Likewise, a building not originally designed with efficiency in mind can be operated to a high standard.
A building that operates at maximum energy-efficiency not only will have lower operating costs each year, but its systems also likely will need less maintenance and will have longer life expectancies. In addition, if property-managers track their building's energy performance, they are more likely to be diligent over other important issues -- a good sign the building is a well-maintained, high-performing asset.
By looking at a green building's energy performance closely, mortgage brokers can assess its viability and seek to increase borrower return on investment, benefiting all involved parties. Understanding when a multifamily asset is performing as efficiently as possible has numerous benefits to lenders and brokers, including:
Avoiding the "brown" discount. Various studies have pointed to a green premium in office buildings. Although they don't substantiate scientifically proven cause-and-effect relationships, these studies pose an interesting theory in the marketplace. As green buildings become mainstream, investors, tenants, buyers and others will expect all buildings to have sustainable features, to be energy-efficient and to perform at a high level financially. In other words, today's green buildings are tomorrow's new standard. Regardless of whether green buildings deliver a premium, their non-green (aka, "brown") counterparts likely will be discounted in the market.
Staying ahead of regulation. Numerous bills and regulations that address climate-change targets have been proposed at the federal level, and many specifically address energy-efficiency in buildings or call for strict, new national energy codes. Whatever the mechanisms -- e.g., carbon taxes, cap-and-trade, energy-performance disclosure, etc. -- builders and owners likely will have to account for their properties' carbon emissions, which are a direct product of the energy they consume. In addition, local jurisdictions are increasingly enacting green-building policies.
Finding incentives. For new construction projects, building greener and more energy-efficient multifamily communities can lead to numerous benefits from municipalities, including expedited permitting, reduced permitting fees, tax breaks and increased density. Several incentives also are in place for existing buildings.
Increasing asset value. As energy costs continue to increase, any reduction in energy consumption will impact the bottom line. Decreasing consumption increases net operating income (NOI), which in turn can increase asset value.
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