BUILDING ENERGY - Spring 2018 - 22

FEATURE: VALUING HIGH PERFORMANCE BUILDINGS

HIGH PERFORMANCE BUILDING
VALUATION TECHNIQUES
BE PROACTIVE AND PROVIDE SOLID EXPENSE SAVING
DOCUMENTATION TO GET A FAIR VALUATION

T

he appraisal and financing process
for owners of high performance (HP)
real estate that has been upgraded
BY JAMES F. FINLAY
with energy generation (like solar PV),
MRICS, WITH SUPPORT
energy efficiency (EE) or other design
FROM BRUCE WILEY
features can be disappointing if the upgrades
are not sufficiently recognized in the appraisal.
This article will give an overview of the process
PEER REVIEWED BY
BRIAN BUTLER
and recommend "dos and don'ts" to get the best
chance at a fair valuation. Savings via lower
utility costs is often what motivates an owner
to invest in building performance upgrades,
so proving these savings to the appraiser is
paramount. My focus will be on commercial/
investment real estate, but many comments also
apply to residential (1-4 units) property.
DIFFERENTIATE BETWEEN "MARKET
VALUE" AND "INVESTMENT VALUE"
The word "value" to investors and appraisers
is like the word "cheese" to Wisconsinites.
There are lots of versions and to proceed safely,
clarity is needed. "Market value" is a statutory
definition for appraisal reports used with bank
loans and is the "value in exchange" to the next
typical buyer. "Investment value" on the other
hand is specific to an individual owner and
property and is used by investors in feasibility
studies. It includes short term benefits like
accelerated depreciation, income tax deductions
or the reputation value of "green" to the
business/occupant. The difference between
market value and investment value can be
significant because they use
different assumptions.
EARLY DELIVERY OF DOCUMENTS
AND INFORMATION
The key to a credible valuation hangs
substantially on the quantity and quality of data
provided by the owner documenting net annual
savings. Ideally, the appraisal process mimics
the actions used by typical buyers and sellers to
determine a fair price. An owner should prepare
22 * BUILDINGENERGY VOL. 37 NO. 1 | SPRING 2018

for an appraisal as they would for the building
sale. Thinking that the "appraiser can figure it
out" is like selling a car and assuming the car
buyer will "figure out" that you spent $5,800
on a new transmission three weeks ago. Owners
should recognize their unique knowledge of their
property and pass it on, embracing the "help
them help you" credo.
ACTORS IN THE "MORTGAGE CHAIN"
There are many handoffs and participants
involved between the initial loan application
and a loan getting funded. The process is highly
regulated and policy driven, putting atypical loan
collateral at a disadvantage - but ultimately,
banks do want to lend money. So the property
owner needs to make it easy for those in the
mortgage chain to understand the advantages
of HP easily and quickly. The good news is that
valuing HP building features involves no "new"
or "creative" valuation techniques; it is just old
school, sharp pencil cash flow with a data
density twist.
THE PROPERTY OWNER - IT'S ALL ABOUT
THE DATA
Documenting utility cost savings can involve
many pages, so for quick digestion by those in
the mortgage chain, include a cover page "quick
read" list briefly summarizing upgrades with the
when, what, cost and, ideally, the net annual
expense saving per item. It is also helpful to list
titles of supporting documents such as an energy
audit, solar PV installation contract and financial/
payback analysis, LEED 1 point list, recent utility
bills or the payback analysis of an LED lighting
retrofit. In this approach, the key number is the
annual net dollar savings for use (after appraiser
verification). Also important are any expenditures
that prospective buyers would recognize as
desirable, that lower the overall property risk
even if it's difficult to demonstrate an annual
net income impact, like durability, resilience or
improved interior environmental quality.



Table of Contents for the Digital Edition of BUILDING ENERGY - Spring 2018

From the Executive Director
From the Board Chair
Product Choices for High-Performing Building: Materials Matter
Designing Solar for High-Density Areas
High Performance Building Valuation Techniques
Starting with the End in Mind: Enhanced Turnover for Efficient Building Operations
Behavior Based Strategies and Organizational Change in Commercial & Public Buildings: The Human Component of Energy Efficiency
Commercial HVAC Retrofits That Work
Stretch Codes Emerge as a High Impact Strategy For Energy Savings
Scale it Up: Monitoring-Based Demand-Side Operations for NYC Agencies
The Retrofit Revolution
Index to Advertisers
BUILDING ENERGY - Spring 2018 - intro
BUILDING ENERGY - Spring 2018 - cover1
BUILDING ENERGY - Spring 2018 - cover2
BUILDING ENERGY - Spring 2018 - 3
BUILDING ENERGY - Spring 2018 - 4
BUILDING ENERGY - Spring 2018 - 5
BUILDING ENERGY - Spring 2018 - From the Executive Director
BUILDING ENERGY - Spring 2018 - 7
BUILDING ENERGY - Spring 2018 - 8
BUILDING ENERGY - Spring 2018 - 9
BUILDING ENERGY - Spring 2018 - From the Board Chair
BUILDING ENERGY - Spring 2018 - 11
BUILDING ENERGY - Spring 2018 - Product Choices for High-Performing Building: Materials Matter
BUILDING ENERGY - Spring 2018 - 13
BUILDING ENERGY - Spring 2018 - 14
BUILDING ENERGY - Spring 2018 - 15
BUILDING ENERGY - Spring 2018 - 16
BUILDING ENERGY - Spring 2018 - 17
BUILDING ENERGY - Spring 2018 - Designing Solar for High-Density Areas
BUILDING ENERGY - Spring 2018 - 19
BUILDING ENERGY - Spring 2018 - 20
BUILDING ENERGY - Spring 2018 - 21
BUILDING ENERGY - Spring 2018 - High Performance Building Valuation Techniques
BUILDING ENERGY - Spring 2018 - 23
BUILDING ENERGY - Spring 2018 - 24
BUILDING ENERGY - Spring 2018 - 25
BUILDING ENERGY - Spring 2018 - Starting with the End in Mind: Enhanced Turnover for Efficient Building Operations
BUILDING ENERGY - Spring 2018 - 27
BUILDING ENERGY - Spring 2018 - 28
BUILDING ENERGY - Spring 2018 - 29
BUILDING ENERGY - Spring 2018 - 30
BUILDING ENERGY - Spring 2018 - Behavior Based Strategies and Organizational Change in Commercial & Public Buildings: The Human Component of Energy Efficiency
BUILDING ENERGY - Spring 2018 - 32
BUILDING ENERGY - Spring 2018 - 33
BUILDING ENERGY - Spring 2018 - 34
BUILDING ENERGY - Spring 2018 - 35
BUILDING ENERGY - Spring 2018 - Commercial HVAC Retrofits That Work
BUILDING ENERGY - Spring 2018 - 37
BUILDING ENERGY - Spring 2018 - 38
BUILDING ENERGY - Spring 2018 - 39
BUILDING ENERGY - Spring 2018 - 40
BUILDING ENERGY - Spring 2018 - Stretch Codes Emerge as a High Impact Strategy For Energy Savings
BUILDING ENERGY - Spring 2018 - 42
BUILDING ENERGY - Spring 2018 - 43
BUILDING ENERGY - Spring 2018 - 44
BUILDING ENERGY - Spring 2018 - Scale it Up: Monitoring-Based Demand-Side Operations for NYC Agencies
BUILDING ENERGY - Spring 2018 - 46
BUILDING ENERGY - Spring 2018 - 47
BUILDING ENERGY - Spring 2018 - 48
BUILDING ENERGY - Spring 2018 - 49
BUILDING ENERGY - Spring 2018 - 50
BUILDING ENERGY - Spring 2018 - The Retrofit Revolution
BUILDING ENERGY - Spring 2018 - insert1
BUILDING ENERGY - Spring 2018 - insert2
BUILDING ENERGY - Spring 2018 - 52
BUILDING ENERGY - Spring 2018 - 53
BUILDING ENERGY - Spring 2018 - 54
BUILDING ENERGY - Spring 2018 - 55
BUILDING ENERGY - Spring 2018 - 56
BUILDING ENERGY - Spring 2018 - 57
BUILDING ENERGY - Spring 2018 - 58
BUILDING ENERGY - Spring 2018 - 59
BUILDING ENERGY - Spring 2018 - Index to Advertisers
BUILDING ENERGY - Spring 2018 - 61
BUILDING ENERGY - Spring 2018 - 62
BUILDING ENERGY - Spring 2018 - cover3
BUILDING ENERGY - Spring 2018 - cover4
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