WINNING IN THE LONG RUN ?

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WINNING IN THE LONG RUN ?

• A Quantified Approach to the Uncertainty of
• Sustainable Financial Value on Real Estate
  (Working Paper 2)
• GRANTSRoyal Institution of Chartered Surveyors
  Education TrustAustrian Chamber of Commerce,
  Federation of Real Estate Professionals
• AUTHORSVis. Prof. Dr. Juerg R. Bernet, MSC MBA
  MRICSProf. Sarah Sayce, BSc PhD FRICS
  IRRVMaarten Vermeulen, MBA MSRE FRICSDI Rupert
  C. LedlBilly Clements, BSc
• KEYWORDSCommercial Real Estate Sustainability
  Metrics Risk Worth Methodology
• Milan, 25-06-2010

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AGENDA

• RATIONALE background issues aims
• CHALLENGE of a low growth economy
• BENEFITS of a sustainable performance plan
• CONCEPT of the driving systainability indicators
• FRAMEWORK of systainability metrics
• DATA SET for sustainability reporting
• MODEL for measuring the Impact of sustainability
• UNIVERSE of a first study in Europe
• WAY FORWARD searching market evidence

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Project Rationale BACKGROUND

• THEORY
• Environmental and social footprint ongoing
  risk to property portfoliosLink through to value
  line via various conduits

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Project Rationale BACKGROUND

• REALITY
• Paucity of evidence to support value
  differential (Sayce et al, 2010)Limited
  evidence emerging in US CERTIFICATION LEVEL
• No such evidence for European markets and
  portfolios
• KEY QUESTIONS
• What sustainability factors impact on property
  returns?What risks do they present?Are these
  risks priced appropriately?

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Project Rationale KEY ISSUES

• DEFINING SUSTAINABILITY
• No globally accepted definition or criteria
  setExisting empirical studies tie to
  CERTIFICATION as a surrogate (e.g. LEED)
• BUT
• Not necessarily an indication of full or
  ongoing sustainabilityAccreditation uptake in
  Europe is limitedGrading and specific CRITERIA
  not extrapolated (w/exception of Energy Star)
• Identify aspects of commonality amongst
  existing rating systems/tools

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Project Rationale KEY ISSUES

• MEASURING SUSTAINABILITY
• Data measurement and collection core to building
  sustainability CRITERIA into financial modelling
  and worth forecasts
• BUT
• Measurement practices globally remain
  limitedKey metrics (e.g. Energy) only collected
  by 19 of investors (Kok et al. 2010)
• Identify those metrics which are most commonly
  collected and held by portfolio managers

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Project Rationale AIMS

• OVERARCHING AIM
• Develop a deeper understanding of how individual
  sustainability risks are translating into market
  responses to inform investment decision making
• OBJECTIVES
• 1 To decompose existing rating systems to
  establish in particular which characteristics are
  most widely included
• 2 To establish which sustainability
  characteristics are most likely to have an impact
  on risk/return performance moving forward
• 3 To set up a mathematical model capable of
  analysing risk and returns on assets against a
  selected range of sustainability and conventional
  performance characteristics
• 4 To trial the model on actual assets to test
  whether data can in practice be collated

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The Challenge of a Low Growth Economy
RATE OF RETURN
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The Benefits of a Sustainable Performance Plan
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The Concept of Driving Sustainability Indicators
PROPERTY
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Towards a Framework of SustainabilityMetrics

• REGULATORSEC (EPBD GBP), ISO, CEN (EN15643-4)

• COUNCILSUNEP-FI/SBCI (FSMR), GRI (CRESS), WGBC,
  SBA (CMF)

SIRE
ASSESSORSBRE (BREEAM), GBCI (LEED), DGNB (DGNB),
BMVBS (BNB), AHQE (HQE)
CONSULTANTSJLL (OSCAR), IPD (ISPI), CBRE
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The Data Set for Sustainability Reporting
Source GBA (Ellison Brown 2010)
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A Model for Measuring the Impact of
Sustainability
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The Universe of a First Studyin Europe
RESEARCH PORTFOLIO
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The Way Forward Searching for Market Evidence
5) SPECIFY APPROACHdescribe methodology for
analysis of other markets 4) TEST
LIMITATIONSverify gereralisation and
restrictions and for further research 3) FIND
EVIDENCEevaluate observations of sustainablility
worth 2) DESIGN MODELevaluate the available
data with alternative model settings 1) COLLECT
DATAstructure the data base and set up the data
template
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Acknowledgements

• ACKNOWLEDMENTS .
• Royal Institution of Chartered Surveyors RICS
  Education Trust
• Austrian Chamber of Commerce, Federation of
  Real Estate Professionals
• Milan, 21-06-2010