WINNING IN THE LONG RUN · 2014-01-24 · Working Paper 2 –V20 8 s-i-r-e Winning in the Long Run –Driving Sustainable Financial Performance on Real Estate The Value of a Sustained

Working Paper 2 – V20 1

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Winning in the Long Run – Driving Sustainable Financial Performance on Real Estate

WINNING IN THE LONG RUN ?DrivingSustainable Financial Performanceon Real Estate

AUTHORS

Juerg R. BernetSarah SayceMaarten VermeulenRupert C. Ledl

Working Paper 2–V20MAY 20, 2011


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AUTHORS


Working Paper 2–V20MAR-28, 2011

A project of the international research programmes-i-r-e Sustainable Investment in Real Estate

directed by Danube University Krems (Austria)in cooperation with Kingston University London

GRANTS

Royal Institution of Chartered Surveyors, RICS Education TrustAustrian Chamber of Commerce, Federation of Real Estate ProfessionalsEURO Institute of Real Estate Management

ADVISORY BOARD

Gerlald Allison, DTZ Gerald Blundell, strategy advisorPeter de Haas, Cornerstone Real Estate AdvisorsThomas Luetzkendorf, Karlsruhe Institute of TechnologyLiem Nguyen, Bureau Veritas, Green Rating AllianceSuzanne Roberts, Capita SymondsMartin Townsend, Buliding Research EstablishmentAd van Driel, GrontmijSander-Paul van Tongeren, APG


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0 PROJECT

The Content of this WorkingPaper

IIIIII 3 ANALYSIS0 PROJECT

SummaryPlatformPartners

2 APPROACH1 ISSUE 4 RESULTS

A APPENDIX


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The Need for an Independent Research Platform

WEAKNESS. Intransparency. Irrationality. Uncertainty

STRENGTH. Leadership. Expertise. Innovation

OPPORTUNITY. Reallocation. Responsibility. Redevelopment

THREAT. Legislation. Reputation. Obsolescence

Sustainable Investment in Real Estate

supportIndustry Initiatives

PROVIDEEXPERT NETWORKING

VERIFYMARKET EVIDENCE

DESIGNMANAGEMENT TOOLS


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... Content ...



2 APPROACH1 ISSUE

SituationQuestionsDeliverablesFocus

4 RESULTS

A APPENDIX


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The Empirical Search for theGreen Alpha

Bernet & Sayce et al. (EU): (work in progress)

Wiley et al. (USA): Rent 7..17%, Occupancy 10..18%Fuerst & McAllister (USA): Occupancy 3..8%Leopoldsberger et al. (DE): Rent 0..6%Salvi et al. (CH): Rent 5..6%

Fuerst & McAllister (USA): Rent 5..6%, Price 31..35%Pivo & Fisher (USA): Net Income 6%, Value 13% Eichholtz et al. (USA): Rent 3..6%, Price 16%Cudworth & Graham (UK): Return -3%

Miller et al. (USA): Rent 0..3%, Price 15%, Value 10%Fuerst & McAllister (USA): Rent 4..5%, Price 25..26%Eichholtz et al. (USA): Rent 2..6%Salvi et al. (CH): Price 3..7%

20112008 2009 2010


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The Value of a Sustained GrowingCash Flow

IRR ≈ y + g

INDEX: CF = Initial cash flow, CV = Initial capital value, D = Capital expenditure, g = Sustainable net growth rate,IRR = Internal rate of return, O = Non-recoverable operating and maintenance cost, R = Gross rental and other income,

T = Property and environment taxes, V = Vacancy cost, y = Initial net income yield, Δ = Sustainable growth

with y = CF / NPV, CF = R – V – O – D – T, g = ΔR – ΔV – ΔO – ΔD – ΔT

CV = CF ³ 1+g( )

1+IRR

+ CF ³

21+g( )

2(1+IRR)

+ … = CF ³

t1+g( )

t1+IRR( )t = 1

•

Â

¼ CV CF ³1+g

IRR-g


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The Business Case for a SustainableInvestment

Income Yield

Income Growth

RATE OF RETURN

Vacancy Cost

Operating Cost

Capital Expenditure

PRESERVE !

RED

UCE !

(Inflation) ?

OUTFLOWINFLOW

Perf

orm

ance D

rivers

Environmental Tax


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Which Indicators Drive SustainablePerformance

Standing Investment

y

R

V

O

D

T

SHORT POSITION

Observ

ations

Expecta

tions

Sustainable Investment

y

R

V

O

D

T

LONG POSITION

Fin

ancia

l D

rivers

SUSTAINABLEPERFORMANCE PLAN

(I1, I2, ..., In)

?Sustainability Indicators


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Deliverables to the Project Stakeholders

Reviewed journal paper

Management summary brochure

Research project report

Performance indicator list

Investor panel discussions

Project partner workshops

Professional magazine articles

Integrated analytical model

Aggregated data set

Research programme website

Financial sustainability scorecard

Academic conference papers

Project presentation charts

Research project plan

Public

Trustees

Board

TeamPartners


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The Focus of a First Empirical Studyin Europe

RESEARCH PORTFOLIO

INVESTMENT FUNDS

POLICY, LEADERSHIP

Investors

Structure

F/C ≥ 2, F/P ≤ 20%

600-800 ASSETS


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... Content ...



2 APPROACH

FrameworkConceptScorecardModel

1 ISSUE

SituationQuestionsDeliverablesFocus

4 RESULTS

A APPENDIX


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Towards a Framework of SustainabilityMetrics

REGULATORSEC (EPD;EPBD;GBP;EPC;DEC;ETS),

ISO (14000;15392), CEN (EN15643)

RATING BODIESBRE (BREEAM), GBCI (LEED),

DGNB (DGNB), BMVBS (BNB), AHQE (HQE), MINERGIE (M-P-ECO)

AUDITORSGRI (G3;CRESS), VERITAS,

KPMG, CBRE

ASSOCIATIONSRICS (VIP13;CP), ICSC(BREEAM), EPRA (G3;CRESS), INREV, ULI

COUNCILSWRI/WBCSD (GHG), BBP (SBT), SBA (CMF), UNEP-FI/SBCI (FSMR;MPM;CCM)

ANALYSTSIPD (ECO;ISPI), DTZ, FERI,JLL (OSCAR;3D;PCI)

INVESTORSGPF (PCI), BPF-GPA (GPA), IIGCC (GPA),

IPF (ISPI;GPA), GRA (GR), GRESB (GRESB), ISA (BREEAM)

UNIVERSITIESKU (SAP), HBS, CCSR (ESI),

ECCE (EREI), EURO/DUK (SIRE)

?


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MANAGEMENT

The Concept of Driving SustainabilityIndicators

EXTERNALITIES

socialnatural

economic

SustainabilityReport

Financial Report

A S S E T


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NATURALECONOMICPHYSICAL SOCIAL LEGAL FINANCIAL

The Financial SustainabilityScorecard

Asset Externalities Management

Record Property Period Numerator Amount Source Date Notes

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Type

Size

Age

Building management

Building shapeCeiling heightMain floorsRental areaTotal areaLast refurbishmentBuilding completion

type

typemnumberm2m2yearyear

.....

.....

.....

.....

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ID TOPIC ITEM METRIC DEF

P8 Building flexibility type .....


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NATURALPHYSICAL SOCIAL LEGAL FINANCIAL



ECONOMIC


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Private

Monetary

Consumer spending

Direct incomeSectoral diversityGross domestic prouct growthCore inflation rateGovernment bond yieldMoney market yieldLocal currency rate

index

000 LCUfactor% pa% pa% pa% paLCU/Euro

.....

.....

.....

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.....


E8 Private wealth mLCU .....

Corporate


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ECONOMIC NATURALPHYSICAL SOCIAL LEGAL FINANCIAL




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WaterEmission

Energy

Climate

Waste recycled/composted

Water recycled/harvestedTotal water usedGreenhouse gases emittedRenewable energy used/producedTotal energy usedFlood risk registeredWeather conditions monitored

t

m3m3t CO2ekWhkWhyes/noDD

.....

.....

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.....

.....

.....

.....

.....


N8 Waste Total waste disposed t .....


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Employee

Tenant

Community

Visitor engagement

EmployeesTenant engagementTenant mixHealth statusMobility servicesJob creation Educational diversity

level

FTElevelfactorindexscore%ratio

.....

.....

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S8 Visitor Visits number .....


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L7L6L5L4L3L2L1

Agreement

Policy

Legislation

Green lease implementation

Remaining lease lengthOccupier sustainability reportOwner sustainability reportGreen building certificationCarbon taxation on transportCarbon taxation on buildingEnergy efficiency regulation

level

years%yeartypeyearyeartype

.....

.....

.....

.....

.....

.....

.....

.....


L8 Building operation period hrs .....


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Outflow

Inflow

Initial capital value

Property and environmental taxCapital expenditureMaintenance costNon-recoverable operating costVacancy costOther incomeRental income

mLCU

000 LCU000 LCU000 LCU000 LCU000 LCU000 LCU000 LCU

.....

.....

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.....

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F8 Other Recoverable operating cost 000 LCU .....


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The Analytical Model of an IntegratedApproach

SUSTAINABILITYINDICATORS

ASSET

EXTERNALITIES economic natural social

MANAGEMENT

Independent Variables

PERFORMANCE DRIVERS

INFLOW Income Yield Income Growth

OUTFLOW Vacancy Cost Operating Cost Capital Expenditure Environmental Tax

Dependent Variables

ANALYTICALMODEL

CFACash-Flow Analysis

MFRMulti-Factor Regression

ROAReal Option Analysis

Mathematical Functions


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AUTHORS


Working Paper 2–20MAR-28, 2011


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AUTHORS


Working Paper 2–20MAY 20, 2011

Documents

WINNING IN THE LONG RUN · 2014-01-24 · Working Paper 2 –V20 8 s-i-r-e Winning in the Long Run –Driving Sustainable Financial Performance on Real Estate The Value of a Sustained