This document summarizes a study investigating the market value of high performance green buildings. It provides context on the study's goals of bridging understanding between design/building and financial/investment communities. It also introduces the three case study buildings - Alley24 East in Seattle, 200 Market Place in Portland, and Vancouver Centre in Vancouver - and previews some of the key findings around operational savings, tenant satisfaction, and rents. The document aims to help different professionals understand how sustainable features may impact asset value.

1. HigH Performance green Building:
WHat’s it WortH?
investigating the market Value of
High Performance green Buildings
VANCOUVER
VALUATION
ACCORD

2. HIGH PERFORMANCE GREEN BUILDING
What’s it Worth?
May 2009
this study was made possible by the generous support of the following funders: contents
INtRODUCtION ................................................................................... 3
Intended Audiences and Goals ................................................................................ 3
terminology – Sustainability and High Performance Green Building .................... 4
Background ............................................................................................................. 5
Consultants/Authors ............................................................................................... 5
Methodology ............................................................................................................ 6
Project team Summary of Key Findings ....................................................................................... 7
Primary authors High Performance Green/Sustainable Buildings and the LEED System ............... 9
theddi Wright chappell, Managing Director, Cushman Wakefield Washington Valuation Services, Capital Growth of the High Performance Green Building Sector ..................................... 0
Markets Group, National Practice Leader, Sustainability Valuation and Advisory Practice Valuation and Appraisal.........................................................................................
chris corps, Principal of Asset Strategics; Co-founder, Vancouver Valuation Accord Valuation Methodology and Approaches ............................................................... 3
Project manager New Frontier in Valuation ...................................................................................... 7
Brandon smith, Chief Operating Officer, Cascadia Region Green Building Council
ALLEy24 EASt, SEAttLE, WA ........................................................... 9
Executive Summary ............................................................................................... 9
acknoWlegements Developer ............................................................................................................... 2
the authors would also like to thank the following people for their invaluable contributions to this study. Project Description ................................................................................................ 2
Building Participants Rationale/Business Case ...................................................................................... 22
kathryn j. Baumgartner, LEED AP, Appraiser, Capital Markets Group, Cushman Wakefield, Inc. Key Green Features ............................................................................................... 23
ada m. Healey, Vice President of Real Estate, Vulcan, Inc. Post Occupancy Evaluation and tenant Satisfaction ............................................ 27
lori a. mason curran, MAI, LEED AP, Vulcan, Inc. Findings and Valuation Aspects ............................................................................ 29
john russell, President, Russell Development Co. Conclusion ............................................................................................................. 38
traci Wall, LEED AP, Property Manager, 200 Market Place Interview ................................................................................................................ 39
don Harrison, Senior Vice President, Asset Management, GWL Realty Advisors
Peter j. laforest, Manager of technical Services BC Region, Property Management, GWL Realty 200 MARKEt PLACE, PORtLAND, OR ............................................... 4
Advisors Inc.
Executive Summary ............................................................................................... 4
robert kavanagh, Vice President, Asset Management, GWL Realty Advisors
Developer ............................................................................................................... 42
Peer reviewers and advisors Project Description ................................................................................................ 42
kathryn j. Baumgartner, LEED AP, Appraiser, Capital Markets Group, Cushman Wakefield, Inc.
Rationale/Business Case ...................................................................................... 43
sandra cawley, Principal, Burgess, Cawley Sullivan Appraisers in Vancouver, BC LEED-EB Certification – 200 Market Building ...................................................... 43
Peter clark, Vancouver Valuation Accord Key High Performance Green Features ................................................................ 44
Helen goodland, Executive Director, Light House Sustainable Building Centre in Vancouver, BC Findings and Valuation Aspects ............................................................................ 47
sarah sayce, Professor, Kingston University in London, as well as her colleagues and students Conclusion ............................................................................................................. 57
Interview ................................................................................................................ 58
This report is part of a larger collaborative effort among private industry, nonprofit, and government organizations
all interested in answering one question: Are high performance green buildings really worth more than traditional VANCOUVER CENtRE, VANCOUVER, BC .......................................... 59
buildings? This report encompasses the commercial real estate study. There is also a companion residential study
which can be obtained by contacting Earth Advantage Institute, http://www.earthadvantage.org/, (503) 968-7160. Executive Summary .............................................................................................. 59
Project Description ................................................................................................ 60
steering committee
Rationale/Business Case ...................................................................................... 6
aaron adelstein, Master Builders Association King and Snohomish Counties
theddi Wright chappell, Cushman Wakefield Key Green Features ............................................................................................... 63
chris corps, Asset Strategics and Vancouver Valuation Accord Findings ................................................................................................................. 64
fiona douglas Hamilton, SEEC LLC
Ann Griffin, Earth Advantage Institute
rachael jamison, State of WA Department of Ecology
julie mcBride, Olympia Master Builders
sean Penrith, Earth Advantage Institute
this product was funded in part through a grant from Washington State Department
Brandon smith, Cascadia Region Green Building Council of Ecology. While these materials were reviewed for grant consistency, this does not
tiffany speir, MBA of Pierce County necessarily constitute endorsement by the department.

3. 2 HIGH PERFORMANCE GREEN BUILDING HIGH PERFORMANCE GREEN BUILDING 3
What’s it Worth? What’s it Worth?
May 2009 May 2009
introduction • Suggests the potential for an
innovative lease structure that can
be used to convert operational
intended audiences and savings into asset value.
goals
• Expands on past research in
Interest and investment in high this arena, responding to a
performance green/sustainable pressing need in both the green
buildings have grown substantially building and financial/investment
over the last 5 years. Despite communities.
this increased attention, these
buildings account for only a small The consultants also identified
percentage of the markets across several issues that either potentially
the United States and Canada. affect asset value or have broader
While there has been a great deal market implications. these include
of discussion about the value that government regulation, energy
these buildings provide, there is a price volatility, and water scarcity.
significant disconnect between the these relate to aspects not valued
building/design community and the in current practices but to aspects
financial/investment community that are embedded in resources
on how to quantify and validate this consumed by buildings or emissions
value. Further, there is no consensus created by buildings. these issues
between these communities may increasingly affect value and/or
regarding what exactly is meant risk, and create potential liabilities
by the term value. Often, the two for buildings that do not incorporate
groups are using the same words but high performance features.
speaking different languages.
target audiences
the primary purpose of this
study is to help bridge the gap in this study provides a new resource
understanding between these two to several key professional
distinct but interrelated communities communities in the commercial
by providing information about the real estate sector. After reading this
valuation of high performance green study,
buildings with a focus on commercial
investment office properties. • Architects, designers,
contractors, and other members
this study does the following: of the building/design community
will better understand the
• Assesses whether green features valuation perspective of what
impact asset value and market contributes to the market value
positioning (based on detailed of a property. In doing so, they
analyses of three commercial should be able to consider these
office buildings). factors in the initial design
process, resulting in more holistic
and viable designs with broader
investment appeal.

4. 4 HIGH PERFORMANCE GREEN BUILDING HIGH PERFORMANCE GREEN BUILDING 5
What’s it Worth? What’s it Worth?
May 2009 May 2009
• Valuation professionals, lenders, One of the terms most frequently sustainable development, there are financial performance information
underwriters, owners, investors, misunderstood and misused is the references in the case studies to a that is rarely shared with outside
and other members of the word sustainable. In the building/ building’s sustainable attributes or observers. As a result, these analyses
financial/investment community design community, it has very performance. In these instances, offer unprecedented information and
will better understand which high specific environmental and ecological the term is used for descriptive strategies about the valuation of high
performance green building/ applications. Conversely, the financial/ purposes, and reflects the owner’s performance green buildings.
sustainable strategies might investment community (and the or investor’s various approaches to
impact asset value and market public), use it in a much broader improve building performance in all consultants/autHors
positioning of a building. context. In fact, in many real estate aspects. the use of this descriptive
discussions, the terms sustainable, term is meant to characterize the theddi Wright chappell: theddi
the authors of this paper are green, and high performance are used types of initiatives undertaken by the Wright Chappell is the managing
hopeful that readers will find this interchangeably when discussing building owner or investor to create director of the Cushman Wakefield
information helpful in understanding buildings with green attributes. a financially and environmentally of Washington Valuation Services,
how the decision to move toward healthier, more efficient building. Capital Markets Group and national
high performance green building Leaders of valuation groups from practice leader of the firm’s National
practices may play a role in throughout North and Latin America,
Background Green Building and Sustainability
estimating the market value of a Europe, and various Pacific countries Valuation and Advisory Practice.
commercial property. met in 2007 in Vancouver, BC, to this project was the collaborative theddi has been actively engaged in
discuss the valuation implications of effort among private industry, the commercial real estate appraisal
terminology – sustainability and how they should government, and nonprofits that business for over 20 years. She has
sustainaBility and HigH be approached on a global basis. were all interested in answering extensive experience in national and
Performance green the result of that meeting was one question: Are high performance international investment analysis
Building the Vancouver Valuation Accord, green buildings really worth more and consulting services, having
a document that was signed by than traditional buildings? worked on projects throughout the
One of the greatest challenges representatives from 20 countries United States, Canada, Europe, and
in bridging the communication and that adopted the definition of to explore this question, two of Australasia. theddi most recently
gap between the building/design sustainable development created for the leading experts in valuing high served as the CEO of Sustainable
community and the financial/ the United Nations by the Brundtland performance green properties in Values, Inc. in Portland, Oregon,
investment community is the Commission in 987: the United States and Canada (see where she specialized in market,
ability to successfully translate the …development that meets the Bios) were recruited to analyze and feasibility, and investment analysis
concepts of one group to the other. needs of the present without ascertain whether high performance particularly related to valuation and
For the purposes of this study, compromising the ability of green attributes contributed to financing of new, existing, and urban
the building/design community future generations to meet their market values. the consultants redevelopment projects, as well as
includes architects, engineers, own needs. approached the owners of three the identification and quantification
contractors, designers, and design high performance green commercial of the benefits of sustainable
and construction consultants. Real The Brundtland Commission defined office buildings (200 Market Place in development. theddi serves as the
estate valuation professionals, sustainable development using seven Portland, OR; Alley24 East in Seattle, ambassador of sustainable initiatives
appraisers, lenders, owners, themes, which included the concept WA; and the Vancouver Centre in for the Appraisal Institute and is
developers, underwriters and other that environmental and social factors Vancouver, British Columbia) who a director of the Green Building
real estate financial professionals are given comparable consideration were willing to make their data Finance Consortium. She was
comprise the financial/investment to the economic factors associated available for analysis. the results an organizer of and presenter at
community. In many instances, with real estate development. of this work are three detailed the Vancouver Valuation Summit
the challenge may be the ability to case studies on green buildings in Vancouver, BC. She is a LEED
translate either a design or valuation While the authors understand written from a financial/investment Accredited Professional who
concept to the public at large. the that very few, if any, existing perspective. the owners of the graduated with honors from the
reader’s indulgence is respectfully buildings currently meet the three subject properties gave the University of tennessee and holds
requested in this regard. complete architectural and design research team access to lease rates, the CRE, MAI, FRICS, and AAPI
criteria and requirements of truly operational expense data, and other designations.

5. 6 HIGH PERFORMANCE GREEN BUILDING HIGH PERFORMANCE GREEN BUILDING 7
What’s it Worth? What’s it Worth?
May 2009 May 2009
chris corps: Chris Corps is a • Gathered information on the and property specific information in 2007. the project was awarded
chartered surveyor and principal green strategies employed at the and analyzing the costs and benefits Sustainable Development of the
of Asset Strategics in Victoria, subject properties of these strategies objectively and year and Mixed-Use Development
British Columbia. Chris instigated thoughtfully provides a basis for of the year awards in 2006 by the
• Interviewed building owners,
and co-led the Vancouver Valuation identifying and validating their Washington Chapter of the National
managers, engineers,
Accord and Summit, an initiative valuation impacts. Association of Industrial Office
high performance green
linking sustainability and value Properties (NAIOP). Following are
building consultants, and
that was signed by BC’s Premier summary of key some of the key findings from the
others associated with the
and valuation professionals from findings case study:
implementation of green
20 countries. Chris has nearly 30
strategies • While the long-term implications
years of experience in real estate the following sections present of the various high performance
and complex business cases in the • Interviewed agents, brokers, the key findings of the research green strategies employed
UK and Canada. He specializes and other market participants conducted on the three subject at Alley24 East can only be
in investment and development regarding the market positioning properties. A more detailed analysis quantified via specific and
viability, working on projects of the subject properties and supporting information can be detailed analysis over time, it is
from London’s Canary Wharf to • Compared property specific found in the case studies that follow clear that the property:
Dockside Green. With a background information to broader market these summaries. It should be noted » experienced a comparatively
in linking sustainability to value, parameters: that the information presented quick absorption period;
Chris instigated and led the 2005 Occupancy in each of the studies is slightly
» » attracted and has retained
international Green Value study. Rents different, which is typical in most
» high quality tenants;
He is vice president of Light House Tenant profiles real estate analyses. Consultants,
» » achieved competitive rents;
Sustainable Building Centre, an tenant retention investors, underwriters, and analysts
» » and has a higher-than-
advisory board member of the Green are consistently faced with the
• Analyzed the properties’ average level of occupancy.
Building Finance Consortium, and disparity in data availability and
member of committees responsible performances relative to the • When the building was delivered,
must rely on the information that is
for defining valuation standards following: it was 90% preleased. this is an
available in each specific situation. In
used in 32 countries. Chris is the » Operational costs and savings impressive amount of preleasing
almost every instance, there will be
inaugural past chairman of Canada’s » Absorption and tenant under any circumstances. Given
variations in the amount and context
Royal Institution of Chartered retention the somewhat unproven location
of the information available, making
Surveyors and recently co-led an » Market competition attributes of the site at the time
comparisons among investment
initiative that identified over $1.7 » Established goals of construction, preleasing
opportunities, underwriting
billion in savings by linking value » Historical statistics at this level is a tribute to the
possibilities, and valuation
and sustainability. that initiative • Submitted assessments and assignments a continual challenge. ownership’s ability to target and
can result in 25% reduction of conclusions for peer review the case studies that follow are no sign the tenants best suited
greenhouse gases while eliminating including working analyses different, offering similar yet varying for the building, as well as the
waste at no cost to taxpayers. of payback and financial information on each of the projects. owner’s insights into emerging
assessments. market preferences for high
performance green development.
metHodology Project 1 – alley24 east, seattle,
the consultants for this study are • Leases signed at Alley24 East
valuation experts who specialize Wa
the consultants took various steps were competitive with other
including some or all of the following in assessing the asset value properties in terms of rental
Alley24 East was one of the first
to complete the case studies: implications of green practices rates, escalations, and tenant
mixed-used developments in Seattle
and principles. Both have practices improvement allowances. Specific
• Conducted inspections of the to achieve Leadership in Energy
that focus on maximizing the value data indicate that Alley24 East
properties being analyzed and Environmental Design (LEED®)
of real estate investments and held a strong competitive position
certification from the U.S. Green
• Completed primary and developments, especially through relative to its peers, at the same
Building Council (USGBC). The
secondary market research the adoption of high performance time exceeding industry averages
project achieved LEED for Core
green strategies. Gathering market for both rent and occupancy.
Shell (LEED-CS) Silver certification

6. 8 HIGH PERFORMANCE GREEN BUILDING HIGH PERFORMANCE GREEN BUILDING 9
What’s it Worth? What’s it Worth?
May 2009 May 2009
Project 2 – 200 market Place, • From 2007 to 2008, overall • the way in which sustainable costs), without raising the
Portland, or operating expenses declined by attributes translate into value tenant's total costs; and an
0.64%, and they are projected to is not simple or direct, and may apportionment of benefits. If
two-hundred Market Place was decline by an additional 3.29% in alternatively be found in other handled carefully, this has the
the first multitenant property in 2009. factors such as higher profit, potential to encourage more
the United States to achieve LEED increased staff productivity, or retrofits by motivating landlords
• By consistently looking for ways
for Existing Buildings (LEED-EB) savings in tenant operating costs and tenants through mutual
to improve overall building
Gold certification from the USGBC. rather than higher capital value. profit.
performance, the building owner
Since certification, the building’s is reducing the risk of early • this review concludes that the
owner has continued to improve market obsolescence for the nature of the retrofit and savings HigH Performance
building efficiency, as evidenced by property and ensuring that 200 were not pivotal in determining green/sustainaBle
the building’s ENERGy StAR rating, Market Place will remain a major the purchase price of the Buildings and tHe leed
which has increased from 79 at the competitor in the Portland office building to the buyer. the value system
time of LEED certification to a rating market for as long as possible. of the retrofit was known and
of 96 in 2009. the following are some contributory, but of insufficient impacts of Buildings
of the key findings from the case size to change the decision to buy
study: Project 3 – Vancouver centre, Buildings are significant users
the building.
Vancouver, Bc of energy, water, and material
• two-hundred Market Place • the study nevertheless concludes
leads its competition in resources, as well as major
In 200, Great West Life Realty that value was received contributors to environmental
tenant occupancy statistics Advisors (GWLRA) purchased indirectly and distinguishes
with a current occupancy of degradation associated with
the 34-story, 472,422 square foot between savings, cost, and the use of these resources.
99.6%. While this high level of building known as Vancouver value, illustrating how these are
occupancy is most likely the Without significant increases
Centre at 650 West Georgia Street reflected differently in valuation and improvements in building
result of a variety of factors, it near Vancouver’s downtown office methods. this results in possible
is indisputable that the building practices, the negative impact of
and retail core. Prior to purchase, confusion about how sustainable the built environment on human
is marketed and run as a high GWLRA identified age-related attributes affect asset value.
performance green property. and environmental health is likely
obsolescence in certain capital plant to increase dramatically in future
• An incidental finding relates to
• Based on comparisons of the and equipment (e.g., HVAC, lighting) decades.
lease structures and how the
lease rates achieved, tenant and the potential to improve energy
relationship between landlord • Buildings in the United States and
improvement allowances offered, performance with resultant savings.
and tenant might be structured Canada represent about one-third
and escalation factors, the leases A rolling renovation program was
to support a sustainable retrofit of primary energy use and carbon
signed at 200 Market Place are implemented to optimize revenue
for mutual profit. It was identified dioxide emissions.
similar to and competitive with flow and respect existing tenancies.
that the same attributes that
those signed at comparable • The energy retrofit project gave a 9% approximate return • In the United States, buildings
properties in the Portland central achieved a 9% return on on investment (ROI) could represent about 72% of U.S.
business district. investment (ROI). While a payback increase to 97% provided both electricity consumption.
• Prior to LEED-EB certification, of four years was anticipated, parties agree to a lease term and • Over 36 million tons of building
energy consumption escalated the extended implementation to structure more closely matching related construction and
each year from 2004 through minimize tenant disruption meant the life cycle of the retrofit costs demolition debris are generated
2006. However, since the that the returns took longer but and savings; a redistribution by the United States in a single
building’s LEED certification were successful. It also meant of costs aligned with debt year, and in Canada, buildings
in 2006 and implementation of that the benefit was directed retirement; a reallocation of total are responsible for 25% of landfill
a variety of energy strategies, less towards cash flow and more occupancy payments (e.g., rent, waste.
energy use declined in 2007 by towards improving vacancy, operations, and maintenance
3.45% and in 2008 by 8.73%, absorption, tenant retention, and
reflecting increasing year-over- other factors.
year reductions.

7. 0 HIGH PERFORMANCE GREEN BUILDING HIGH PERFORMANCE GREEN BUILDING
What’s it Worth? What’s it Worth?
May 2009 May 2009
• In the United States, buildings groWtH of tHe HigH Valuation and primary basis upon which properties
use about 3.6% of all potable Performance green aPPraisal are valued, and investment and
water, or approximately 5 trillion Building sector lending decisions are made.
gallons per year. the recognition and adoption of
sustainable principles, practices, Given the breath and depth of the
In response to these issues, a united states concept of market value relative
and protocols on an international
number of countries have created basis has led to more intense to real estate investment, it is the
the high performance green building
standards to certify buildings investigation of the value proposition goal of this paper to provide readers
sector has been gaining significant
that significantly reduce their of green strategies by real estate with a better understanding of the
momentum over the past 5
negative impacts through a variety owners, investors, and market process used to arrive at market
years. USGBC membership, which
of factors. In the US and Canada, analysts worldwide. though a value and how this concept is
included over 20,000 organizations
the predominant rating system for number of practitioners have applied. the goal is to clarify some
as of April 2009, has more than
certifying high performance green included sustainable development of the challenges that investors,
quadrupled since 2000. During that
buildings is the LEED rating system. protocols in their building designs valuers, and analysts currently face
same time, the USGBC has certified
and construction as best practices relative to translating the attributes
the following are the categories that 2,476 commercial projects and has
for years, the incorporation of these of green development into an
comprise the LEED rating system: projects seeking certification in all
practices into mainstream real estimate of market value. Further,
50 states and in 9 countries. the
• Sustainable sites estate has only occurred relatively by creating a greater awareness of
USGBC had also accredited 8,55
recently. that incorporation has the methodology utilized to arrive
• Water efficiency LEED Accredited Professionals
most predominantly occurred at market value, it is hoped to
(LEED AP) as of April 2009. By 2010,
• Energy and atmosphere through the exposure and promotion facilitate a broader exchange of the
approximately 0% of commercial
of these practices by organizations types of data required to arrive at
• Materials and resources construction starts in the United
such as the U.S. Green Building accurate value estimates of green
States are expected to be green,
• Indoor environmental quality Council (USGBC) and the Canada development.
and there were 95 state and local
• Innovation and design government initiatives supporting Green Building Council (CaGBC)
via the Leadership in Energy and the challenge that valuers,
high performance green building as analysts, and potential investors
To earn a LEED certification, an of December 2008. Current trends Environmental Design (LEED)
standard. have is to discern to what degree
applicant project must satisfy all of in high performance green building the various aspects of sustainable
the prerequisites and a minimum indicate that there will be continued
Based on criteria that consider development may impact market
number of points in the various growth in the sector.2
not only economics but also the value. Based on the concept of
categories to attain the established
environmental and social impacts of market value, value is recognized
project rating levels of Certified,
Silver, Gold, and Platinum. Each canada development, the LEED certification when it is reflected in the form of
has become the de facto standard of definitive, quantifiable data. In other
rating requires a certain range of
As of March 2009, the Canada building excellence and sustainability words, the financial/investment
points be attained by a project.
Green Building Council (CaGBC) in the United States and beyond. community requires evidence that
had certified 95 buildings under Despite the triple economic, social, a measurable differential exists
the LEED rating system and had an and environmental benefits (also between traditional and high
additional ,58 buildings seeking known as the triple bottom line4) performance green construction in
certification. CaGBC membership, that are espoused internationally, order to recognize and accept that
which included over 2,200 the majority of owners, investors, a differential in market value exists
organizations as of March 2009, has underwriters, and valuers in the between the two.
grown tenfold since 2003.3 United States and Canada rely upon
this report contributes to market
the concept of market value as the
understanding by discussing and
2 US Green Building Council – http://www.usgbc.
analyzing three green properties
All US information from US Green Building org 4 John Elkington, Cannibals with Forks: The Triple where the decision was made to
Council - http://www.usgbc.org and all Canadian Bottom Line of 21st Century Business (Oxford:
information Canada Green Building Council 3 Canada Green Building Council – http://www. Capstone Publishing, 1999). incorporate green strategies into
- http://www.cagbc.org cagbc.org

8. 2 HIGH PERFORMANCE GREEN BUILDING HIGH PERFORMANCE GREEN BUILDING 3
What’s it Worth? What’s it Worth?
May 2009 May 2009
building or upgrade programs. Valuation standards and Notwithstanding the multiple the foregoing recognized, the
these case studies were written Definitions standards that exist, the core authors note that the North
to help assess how incorporating definitions of value are very similar. American valuation theory
these strategies into a development Worldwide, a number of standards this study relies on the U.S. recognizes four forces that influence
program may impact asset value and define how real estate is valued: Appraisal Institute’s definition of real property markets.
market positioning. market value:
• In the United States and most • Social forces
of North America, the Uniform the most probable price, as
Since the case studies are presented • Economic circumstances
Standards of Professional of a specified date, in cash, or
from the perspective of a valuation
Appraisal Practice (USPAP) is in terms equivalent to cash, • Environmental conditions
professional or an appraiser, some
the defining standard for valuers or in other precisely revealed • Governmental controls and
discussion of the basis upon which
in developing and reporting an terms, for which the specified regulations
value is estimated is provided in the
appraisal, analysis, or opinion. property rights should sell
following paragraphs.
Developed by the Appraisal after reasonable exposure in these forces are interactive.0
Awareness of the considerations Standards Board of the Appraisal a competitive market under
and constraints inherent in the Foundation, USPAP has been all conditions requisite to a It should be noted that three of the
valuation process will facilitate a adopted by the Appraisal fair sale, with the buyer and four forces (social, economic, and
better understanding of both the Institute, as well as numerous seller each acting prudently, environmental) are components
valuation process overall and, more other professional appraisal knowledgeably, and for self- of the triple bottom line, a concept
specifically, the challenges that valuers organizations.5 interest, and assuming that that enjoys greater acceptance
face in evaluating and valuing high neither is under undue stress.9 and incorporation into investment
• In Canada, the Canadian Uniform
performance green properties. decisions outside the United States
Standards of Professional Clearly, this definition of market than within. Since the fourth force,
Appraisal Practice is the value relates almost exclusively
Further, by creating a deeper government regulation, is arguably
dominant standard published by to the economics associated with
comprehension of the methodology the enactment of what society wants,
the Appraisal Institute of Canada.6 the transaction of property rights
utilized to arrive at market value, these four influences are consistent
this is closely related to the U.S. under consideration, i.e. what
the studies should contribute to a with the triple bottom line.
Appraisal Institute’s standards. something will sell or rent for.
broader exchange of the types of data
required to arrive at an accurate value • the most-used standard by a Neither the methodology that is
estimate of high performance green single profession is the Manual of currently accepted and practiced
development. If undertaken properly Valuation, or Red Book, which is by the valuation profession nor the
and accurately, valuation can be published by the Royal Institution methodology that is typically used
essential in understanding whether of Chartered Surveyors7 and used by the investment community or
high performance green measures by its members in 32 countries. major lending institutions includes
add value. specific considerations of social or
• Internationally, the International
environmental factors. It is largely
Valuation Standards administered
assumed these are reflected in the
by the International Valuation
price or rent paid in the market.
Standards Council8 sets an agreed
upon standard that multiple
countries subscribe to and that
is increasingly used as the core
global valuation standard.
5 the Appraisal Institute, The Appraisal of Real
Estate: Thirteenth Edition, p. 6.
6 See http://www.aicanada.ca/.
7 See http://www.rics.org/.
9 the Appraisal Institute, The Appraisal of Real 0 the Appraisal Institute, The Appraisal of Real
8 See http://www.ivsc.org/. Estate: Thirteenth Edition, p. 23. Estate: Thirteenth Edition, pp. 44-46.

9. 4 HIGH PERFORMANCE GREEN BUILDING HIGH PERFORMANCE GREEN BUILDING 5
What’s it Worth? What’s it Worth?
May 2009 May 2009
Valuation metHodology approaches: the cost approach, the in the nuances of high performance issue, valuers are also faced with
and aPProacHes sales comparison approach, and the green building, the accuracy of the challenge of comparing high
income capitalization approach. this approach at this point must be performance green properties to
the challenge that asset valuers, viewed with some skepticism. standard properties. Even greater
analysts, and potential investors for cost approach disparities may exist in these
high performance green building sales comparison approach situations, despite similarity in
have is to discern to what degree the cost approach is based on the visual characteristics. It is also quite
the various aspects of sustainable concept that market participants the sales comparison approach difficult to accurately adjust for
development may impact market relate value to cost. this can be a is most useful when a number of the value of individual components
value. Based on the concept of reasonable assumption in certain similar properties have recently for use within a sales comparison
market value as defined today, value circumstances such as when been sold or are currently for sale approach.
can only be recognized when it is a property is new and market in the subject property’s market.
reflected in the form of definitive, conditions are stable. It is also Given the comparatively small therefore, this approach, similar to
quantifiable data. often used when there is little or no number of high performance green the cost approach, must currently be
evidence of market transactions, properties (in relation to the total viewed as a less reliable indication of
to determine whether a discernible such as for public assets. Given pool of commercial and residential market value, especially when direct
difference does exist between current economic conditions in the properties) and the even smaller comparison is being made.
standard and high performance United States and globally, this number of sales of such properties
green properties, there is a specific approach would likely prove less in recent years, there is arguably not income capitalization approach
process that must be followed to dependable, particularly for an older, a sufficient, statistically relevant pool
arrive at a credible estimate of value. existing property. In addition to of information to help appraisers In the income capitalization
It involves a number of definitive these limitations, there is currently reliably compare and adjust non- approach, the current value of the
steps, regardless of property type or no readily available national cost green buildings and values to those future benefits of property ownership
level of environmental performance: estimating database for high with green features, or even to is measured. Given that this study
• Data collection performance green development compare between green buildings focuses primarily on commercial
upon which valuers, investors, or of the same type. this situation real estate that is valued on the
• Market and marketability analysis basis of the quality and quantity of
other property analysts can rely. has been exacerbated by current
• Land and site analysis In addition, older assets may be economic conditions in which there its income stream and adequate
more difficult to value using the is a lack of real estate transactions operational data is available, this
• Improvement analysis
cost approach as it employs the from late 2008 until the time of approach currently offers the most
• Highest and best use concept of depreciation from a writing, or even longer in some reliable indication of market value
determination, in which the variety of factors (e.g., obsolescence, sectors. for a high performance green
concept of most probable buyer functional depreciation, condition, property.
(the individual or entity most technical impacts) to arrive at Coupled with limited empirical data,
likely to purchase a particular an estimate of value, thereby the plethora of options available One of the greatest challenges that
asset and the highest net return introducing yet another set of to a developer with respect to high many investors face is assessing
to the land) plays a key role variables into the analysis. Since performance green strategies the viability of sustainable
sustainable features can have a creates a particularly challenging set strategies/high performance green
these steps affect not only longer life, this introduces further of circumstances for the valuation development and the impact that
whether the potential value of complexity in correctly depreciating community when it comes to its various elements may have on
high performance green attributes a green asset. comparison of high performance the initial cost of construction.2
is captured but also how it is green assets and attributes. Given Given the integrated approach that
processed. This is largely defined Considering the foregoing and in that any level of LEED certification is utilized by successful sustainable
by the methodology used to assess the absence of cost data provided by can be achieved through a variety of design teams, construction costs
value. the most commonly used trained professionals experienced different strategies, two buildings
methodology to arrive at an estimate with the same rating (LEED Silver, 12 Design professionals often term this first costs.
of market value includes three for example) cannot be assumed to But as any developer or lender will attest, many
the Appraisal Institute, The Appraisal of Real other costs have usually occurred before a
Estate: Thirteenth Edition, pp.4-43. be comparable. In addition to this project gets to the design or construction phase.

10. 6 HIGH PERFORMANCE GREEN BUILDING HIGH PERFORMANCE GREEN BUILDING 7
What’s it Worth? What’s it Worth?
May 2009 May 2009
may be higher than for a traditional cost approach levels of both operational and market value, placing the greatest
building. However, to accurately performance risk. reliance on the approach that was
• Is there an adjustment that
assess and value high performance considered the most accurate.
should be made to reflect the • How are the leases structured?
green design components, In every step of this process, a
long-term benefits of sustainable Who pays for what and who
strategies, and development, the valuer’s role is to translate market
components or strategies? to receives the benefits of any
costs must be weighed against information and reflect market
accomplish this, one would first savings?
the benefits derived from these preferences and behavior as the
have to accurately identify and
strategies. Incorporation of concepts • How might the high performance ultimate indication of market value.
quantify the long-term benefits.
such as life cycle cost analysis and green strategies employed impact
other methodologies to appropriately • What materials/components the following items:
compare components and assess were used? Will these impact the » Absorption – how quickly a neW frontier in
performance over either the life estimated life of the building or building leases Valuation
or holding period of an investment the depreciation assumptions? » tenant retention/renewal
are necessary to provide a true assumptions Value vs. Worth
• Were incentives offered that
and accurate indication of value. It » Downtime between leases
could impact/offset some of the
should also be borne in mind that » Maintenance and operational this concept is experiencing growing
building’s costs?
sustainable attributes may have costs acceptance in European valuation
a higher residual or reversionary • Does the longevity and benefit of » Utility costs circles, and has application with high
value, which means there is and sustainable features affect the » the level of risk associated performance green asset valuation.
end-of-life value that has to be depreciation rate and building with the property overall
considered more carefully with obsolescence? Compared to market value, worth
sustainable attributes in green can be used to express aspects that
sales comparison approach summary
buildings. might lack monetization but that
• What are the differences between In many instances, client nevertheless influence or form an
Currently, the methodology to the physical characteristics of the requirements dictate an appraisal intangible part of market value. An
accomplish these comparisons high performance green building that incorporates all three example of this is a living wall (a wall
lies mainly within the income being evaluated and those of its approaches to value, and the covered with plants): these plants on
capitalization approach. market peers? appraiser has to reconcile the the vertical faces of a building have
different approaches. However, aspects (e.g., cost/benefit, savings,
• Can these differences be market value) that may be difficult
options quantified as adjustments? in reality, not all approaches
may be applicable. the Uniform to quantify. However, they contribute
In the current economic • Does the market recognize Standards of Appraisal Practice to how the building is perceived
environment, investors, analysts, the different elements and will (USPAP) guidelines do not require by owners, investors, occupants,
valuers, and underwriters are consumers pay (more) for them? the use of all three approaches, and the broader public. Some of
finding that there is limited market but rather those which are, in this might not find its way into the
• Will the high performance green
data upon which to rely. this theme fact, most applicable. therefore, market value but could nevertheless
elements impact marketability
was prevalent in the preceding in those instances where all benefit the occupier, who in essence
of the property? Will they affect
sections. However, there are still three approaches are not deemed “pockets the value.”
marketing time or other factors?
business decisions that have to be necessary to provide an accurate
In a context where high performance
made every day, so those who are income approach indication of market value, valuers
green attributes might not always
required to conduct proper analyses must explain why an approach was
• Was the building commissioned? translate to market value, worth
must rely on the limited information omitted and also indicate which of
Commissioning3 could impact is clearly a potentially important
that is available. It is important to the approaches provides the most
assumptions relative to the concept. However, valuation
understand what useful information accurate indication of value.
standards and especially appraisal
is available and the minimum factors
3 Commissioning is the process wherein trained
Once these analyses have been practices in North America have not
that should be considered. professionals, such as mechanical engineers,
test the mechanical, electrical, and plumbing completed, the value indications are yet adapted to formally address this
systems to verify that they are operating reconciled into a final estimate of distinction.
optimally and as designed.

11. 8 HIGH PERFORMANCE GREEN BUILDING HIGH PERFORMANCE GREEN BUILDING 9
What’s it Worth? What’s it Worth?
May 2009 May 2009
resources alley24 east
• www.vancouveraccord.org 22 yale Avenue North, Seattle, Washington, USA
(access to additional case studies
and other information)
• www.dsireusa.org (for incentives
executiVe summary • When the building was delivered,
it was 90% preleased. It should be
throughout the United States) noted that this is an impressive
Alley24 East is a mixed-use office
• www.usgbc.org (U.S. Green development located in the South amount of preleasing under
Building Council) Lake Union neighborhood of Seattle. any circumstances. Given the
It is composed of two buildings somewhat unproven locational
• www.cagbc.org (Canada Green
that are connected above ground attributes of the site at the time
Building Council)
level: the south tower is six stories of construction, preleasing
• www.appraisalinstitute.org and the north tower is five stories. at this level is a tribute to the
(seminar on valuing green the development was completed ownership’s ability to target and
buildings) in February 2006. It was one of the sign the tenants best suited for
• www.rics.org (information from first mixed-used developments in the building and the ownership’s
the Royal Institute of Chartered Seattle to achieve LEED® Core insight into emerging market
Surveyors) Shell Silver certification by the U.S. preferences for high performance
Green Building Council in 2007. the green development.
• www.rmi.org (Rocky Mountain project was awarded Sustainable
Institute) • Leases signed at Alley24 East
Development of the year and Mixed- were competitive with other
• www.greenbuildingfc.org (Green Use Development of the year awards properties in terms of rental
Building Finance Consortium) in 2006 by the Washington Chapter of rates, escalations, and tenant
the National Association of Industrial improvement allowances.
Office Properties (NAIOP). The Specific data indicate that Alley24
following comments summarize East held a strong competitive
some of the key issues from the position relative to its peers,
study: while at the same time exceeding
Alley24 East

12. 20 HIGH PERFORMANCE GREEN BUILDING HIGH PERFORMANCE GREEN BUILDING 2
What’s it Worth? What’s it Worth?
May 2009 May 2009
industry averages for rent and systems by trained professionals, can make a notable difference in tenant and owner satisfaction. More satisfied
occupancy. As evidenced by both these vetted assumptions can tenants can lead to improved tenant retention and less downtime between
the property specific and general be incorporated into a formal leases, ultimately resulting in better bottom line results.
occupancy data presented valuation or evaluation analysis.
in this study, Alley24 East deVeloPer
• Building management provides
continues to experience above
ongoing accountability of energy
average occupancy and achieve Vulcan, Inc. was founded in 986 by Paul G. Allen, a cofounder of Microsoft
consumption using meters that
competitive rental rates at the Corporation. the Seattle-based company was set up with Jo Allen Patton to
monitor electricity usage for each
same time. manage Allen’s business and charitable endeavors. Vulcan, Inc. oversees several
tenant. This benefits tenants and
• While the long-term implications owners since both parties can business ventures, including Vulcan Real Estate, which has a significant presence
of the various high performance track and manage utility use. in Seattle largely due to its participation in the redevelopment of the South Lake
green strategies employed this is unlike developments with Union neighborhood. Vulcan Real Estate has demonstrated a commitment to
at Alley24 East can only be one master meter where some sustainable real estate through a variety of development projects, including
quantified via specific and tenants may be allotted a pro Alley24 East.
detailed analysis over time, it is rata share of energy costs based
clear that the property on square footage regardless Project descriPtion
» experienced a comparatively of actual energy usage. In such
quick absorption period; situations, tenants that use less Address 22 yale Avenue North
» attracted and retained high- energy may be paying more than
quality tenants; their fair shares of energy costs Net Building Area Office: 186,299
» achieved competitive rents; if the building power source is (Square Feet) Retail: 24,557
» and has a higher-than- shared with tenants with above total: 20,856
average level of occupancy. average usage, such as call Date Completed February 2006
centers. Given the implications of
• tenant rankings of Alley24 East Owner Vulcan Inc. / PEMCO Mutual Insurance Company
individual metering, more owners
in the New Building Institute’s
implementing this practice and Developer Vulcan Real Estate
Building Performance Review
more tenants requesting it can be Architect NBBJ
reflected high or moderately high
expected. It is quite possible that
scores in tenant satisfaction Builder Skanska USA
individual metering will become
related to building temperature,
a more common component Construction Cost $42,000,000
air quality, acoustics, lighting,
in green lease clauses, being
and general health and
negotiated by one or both parties
productivity factors.
in the transaction.
• Alley24 East received enhanced
• One of the greatest variables in
commissioning. From a risk
operational/building performance
and valuation perspective, this
(and generally one of the most
is perhaps one of the most
difficult to control) is tenant
important components of the
behavior. SS Credit 9 tenants at
entire LEED certification process.
Alley24 East are provided with
In fact, this integral step in
illustrated tenant manuals,
attaining a LEED certification
educating them and facilitating
could be one of the most
implementation of high
important aspects of LEED
performance green design and
Streetside retail view
certification as it relates to asset
construction strategies within
value. By providing third-party
their spaces. Educating tenants
validation of the operational
on how they should operate in a
efficiency and anticipated
high performance green space
performance levels of building