1. World Sustainable Building Conference – Helsinki 2011
Integrating sustainability considerations into
decision making processes of the Real Estate
industry :
a case study of valuing sustainability aspects of an
existing building
Frank Hovorka - Caisse des Dépôts et Consignations
Vinh-Nghi Tiet - ICADE REIM Deutschland GmbH
1

2. World Sustainable Building Conference – Helsinki 2011
What is it about?
Many Factors influence
investment decisions in
Real Estate, especially in
commercial Real Estate
 Location
 Type of use
 Tenancy
 Rent levels
 Lease duration
 Building standards and Equipments
 Market
The Asset Value factors in all
those aspects into one Key
Indicator
2

3. World Sustainable Building Conference – Helsinki 2011
What is it about?
Are Sustainability
considerations taken into
account in valuing a
building? If yes, what is
« sustainability » worth?
 Are Sustainability considerations taken into
account in valuing a building?
 If yes, what is « sustainability » worth?
 Are investment decisions sustainable?
 Can a long-term investment strategy also
lead to a short-term increase of value for an
investor?
 How much is a Green Certificate (LEED,
DGNB, BREEAM, HQE…) worth?
There is no consensus for
now and many debates
3

4. World Sustainable Building Conference – Helsinki 2011
What is it about?
A case study to illustrate how
sustainable decision
making could look like
 A case study on an 22.000 m2 office
building in Berlin built in the 1930s, with
heavy refurbishment needs.
 Integrating results of Life-Cycle
environmental and costing assessment of
decisions
 Different refurbishment scenarios were
considered with different time scales
 Assumptions were made on the resulting
evolution of significant parameters of the
existing building valuation
Among the different valuation
tools, the Discounted Cash
Flow method was chosen
4

5. World Sustainable Building Conference – Helsinki 2011
Numerical tools
GHG Emissions  Life Cycle Analysis
 A cradle-to-grave analysis over 50 years
 Consideration of energy savings, fabrication, repairs
Based on DGNB
Total expenses  Life Cycle Costing methodology
 Dito LCA
 No distinction between investor and user
Valuation:  Discounted Cash Flows
(other methods available: sales comparison approach etc.)
N
CFn CFN +1
NPV = ∑ +
n =1 (1 + r ) r−g
n
Exit value
5

6. World Sustainable Building Conference – Helsinki 2011
Integrating sustainability features into
valuation methods: Example DCF-Method
6
Source T. LUTZKENDORF

7. World Sustainable Building Conference – Helsinki 2011
Scenarios and assumptions
Begin of works
2010 2020
Type of renovation
Progressive obsolescence of the asset (steady-state scenario) Scenario
no investment costs NP
no energy savings (non plausible)
Cosmetic repair with no improvement of physical properties
F 150€ repairs per window every ten years, repairs spread on 3years Scenario 0
 no savings
o
Windows replacement improving energy efficiency from U= 3 to 1,1
c W/m²K), made on-site with tenant staying in the rental area, hardened FSC
u Scenario
certified wood. Scenario 1
1-2
s  1250€/unit, realization spread over 4 years
Savings: -25% of final energy consumption (100 → 75 kWh/m²)
High-performance replacement (made on-site as in scenario above )
2000€/unit in current prices but with sinking investment costs (1800€ in Scenario
Scenario 2
2020) 2-2
savings: -31% of final energy consumption (100 → 69 kWh/m²)
7

8. World Sustainable Building Conference – Helsinki 2011
Scenarios and assumptions
Occupancy scenario Rental scenario
More ambitious refurbishments lead More ambitious refurbishments lead
to ... to ...
•... reduced vacancy periods •... A decrease of the ancillary costs
between leases for the tenant
•... Longer leases •At first no increase of the rent, rent
•Higher maximum occupation increase only at lease renewal or
new lease
Vacancy rate of the building Rent increase scheme
Vacancy between leases: 6  3 months
8
Mean lease duration 7  8 months

9. World Sustainable Building Conference – Helsinki 2011
Scenarios and assumptions
*obtained from the
existing valuation
report
**used to determine residual
value at the exit year (Gordon
Growth Model).
Vn = CFn+1
(discount - growth)
9

10. World Sustainable Building Conference – Helsinki 2011
Results: Life Cycle Environmental assessment
Life Cycle Analysis – CO2 emissions (in tCO2-eq) linked to a window over 50 years
10

11. World Sustainable Building Conference – Helsinki 2011
Results: Life-Cycle Costs
Life Cycle Costing. Cumulative discounted investment and energy expenses linked to a window
over 50 years (in €)
11

12. World Sustainable Building Conference – Helsinki 2011
Results: Discounted Cash Flows
Comparison scenario 0 / scenario 1
Cash flows - (future values in €/year) Rents (€/m².mth)
Statistical variation
of the parameters
Montecarlo
simulation
12

13. World Sustainable Building Conference – Helsinki 2011
Results
Sc1:
Increased value 2.563.504 €
Required investments over 50 years 1.705.000 €
13

14. World Sustainable Building Conference – Helsinki 2011
Authors
Frank Hovorka
Director Sustainable Real Estate - MRICS
Caisse des Dépôts et Consignations, France
frank.hovorka@caissedesdepots.fr
Vinh-Nghi Tiet
Director Sustainability and Development
ICADE REIM Deutschland GmbH, Germany
DGNB Auditor – LEED Green Associate
vinh-nghi.tiet@icade.eu
Vinh-Nghi Tiet - ICADE REIM Deutschland GmbH