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Masato Ito, Deputy General Manager, Real Estate Consulting Department - The Sumitomo Trust & Banking Co., Ltd. - Japan.
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EMBODIMENT OF ENVIROMMENTAL VALUE ADDED
FOR GREEN REAL ESTATE
The Sumitomo Trust and Banking Co., Ltd.
Masato Ito
22
The 3 Most Important Key Messages
1. Green real estate has possibility to make “added value” .
2. Green building rating systems have possibility to be used as a tool for evaluating ”added value”.
3. We have many opportunities to launch new businesses in order to disseminate green real estate.
33
Main global environmental problems and countermeasures of real estate
Global environment problems
Countermeasures Countermeasures in real estate
arena
Examples
Global warming ( Greenhouse gas effect )
Acid rain ( Nitrogen oxide , sulfur oxide )
Depletion of ozone layer
Depletion of energy resources
Reduction of Greenhouse gases ( Kyoto Protocol ) Regulations on exhaust gas
Avoid Freon/Halon
Energy saving Recyclable energy
Energy-saving design
Improved insulation, reduction of illumination load, skeleton heat storage, natural ventilation, night purge
Use of recyclable energy
Passive cooling/heating, photovoltaic power generation
Avoid Toxic substances in buildings / facilities
Extinction material, Insulator, refrigerant, others
Ecosystem crisis Protecting ecosystem
Protection and creation of ecosystem
Afforestation, preservation of forest floor, adoption of local vegetation, biotope
Waste Promotion of resource recycling
Introduction of eco-friendly materials, building material circulation, and longevity
Prolongation of building life, circulation of building material, introducing material of low environmental load
44
Visualizing the value-added components of sustainable real estate(1)
Three aspects of real estate valuation
Expense characteristics
Marketability Profitability
Two major elements of income approach
Countermeasures from environmental consideration
Deduce worth of environmental value-added components
“The income approach" that reflects "profitability" of real estate tends to be
emphasized
Value indicated byIncome approach (*)=
( Real estate yield )
* In the case of direct capitalization (description upcoming )
Net income that real estate produces
Capitalization rate(*)
55
Visualizing the value-added components of sustainable real estate(2)
Cash E
xpenses
Net income
Cost of NewTenants
Utilities
Leasing &Mgt
Maintenance
Gro
ss Inco
me
Taxes &Insurance
Added value
Net Income
Cost of NewTenants
Utilities
Leasing &Mgt
Maintenance
Taxes &Insurance
Decreasesby
Energy Saving
Decreasesby
Improvement ofDurability
Net IncomeIncreases
If there is a reduction of
property taxes…
If the total income
increases …
“A note on environmental value added for real estate” (Masato Ito) On the occasion tenth anniversary commemorative article for Tokyo Association of Real Estate Appraisers, 2005
Value added by Increasing Net IncomeConventional
Real Estates
Sustainable
Real Estates
66
Visualizing the value-added components of sustainable real estate(3)
Marketability
environmental
Capita
lizatio
n ra
te
Risk FreeRate
Added value
Environmental
depreciation
DepreciationRisk
pre
miu
m marketability
Other
Risk FreeRate
When Durability of a building
increases
Sustainable Real Estate will not be affected by future taxation and regulations thanks to its environmental nature.
“Image Improvement Effect” thanks to environmental consideration
“A note on environmental value added for real estate”(Masato Ito)On the occasion tenth anniversary commemorative article for Tokyo Association of Real Estate Appraisers, 2005
Environmental value-added means risk premium reduction
Other
Conventional
Real Estates
Sustainable
Real Estates
77
Examples of Monetary Effect (1)
The expense ratio to occupy in total income :35% The ratio of energy expenses to the total
income :10%. Provided that environmentally considered real
estate realizes energy saving by 30% The increase in net income is calculated as follows.
(1 - (35% - 10% * 30%)) / (1 - 35%) - 1=4.6% (1) (2)(1) rate of return after energy-saving realized,(2) normal rate of return
88
Examples of Monetary Effect (2)
Building occupies 40% of real estate in terms of price Skeleton occupies 70% of building The differential between the depreciation rates for 50-year
durable skeleton and 100-year durable one:
(1 * 0.4 * 0.7 /50) – (1 * 0.4 * 0.7 /100) = 0.28%
Set the net income of real estate "a" and assumed the capitalization rate of normal real estate at 5.00%
Value indicated by the income approach of real estate for building of 50-year durability:
(V ) = a / 5.00%
Value indicated by the income approach of real estate for building of 100-year durability:
(V ') = a / (5.00% - 0.28%) V '/ V = 1.06
99
Sustainability-related Policy in Japan (1)
Toyako Summit The goal of achieving at least 50% reduction of global greenhouse gas emissions by 2050
Reinforcement of Energy Conservation LawTighter regulations to take sufficient measures during new construction and large-scale repair
New subsidy schemesProjects for installation of advanced CO2 reduction facilities and systemsProjects for ultra long-term houses
Dissemination of CASBEE
1010
Sustainability-related Policy in Japan (2)
Tokyo Climate Change Strategy Reduce Tokyo’s greenhouse gas emissions by 25% from the 2000 level by 2020 adopting cap & trade law
Yokohama CO-DO 30Aims to reduce its greenhouse gas emissions by 30 percent per capita from the 2004 level by 2025, and 60 percent by 2050
Some Japanese local governments have introduced CASBEE system
1111
Activities 1Connecting CASBEE to Real Estate Appraisal (1)
What is CASBEE?
Comprehensive Assessment System for Building Environmental Efficiency
http://www.ibec.or.jp/CASBEE/english/methodE.htm
1212
Activities 1Connecting CASBEE to Real Estate Appraisal (2)
L (building environmental loadings)
Q (Building environmental quality and performance)
Building Environmental Efficiency (BEE)
BEE =
Capitalization rate
the net income generated by real estate
Value indicated by Income approach
Value of Property* =
*In the case of the direct capitalization
Improvement ofDurability(Q-2)
Decrease inrepairs
Increase inTenant Income
Improvement ofProductivity(Q-1)
Energy Saving(LR-1)
Decrease of utilities
Reduction of environmental risk
Decrease ofDepreciation
ratio
Sustainability Ranking
Image improvement effect
1313
CASBEE Items Real Estate Appraisal ItemsIncomeIncrease
CostReduction
RiskReduction
ImageImprovement
Q-1-1 Noise & Acoustics ○
Q-1-2 Thermal Comfort ○
Q-1-3 Lightning & Illumination ○
Q-1-4 Air Quality ○
Q-2-1 Service Ability ○ ○
Q-2-2 Durability & Reliability ○ ○
Q-2-3 Flexibility & Adaptability ○ ○
Q-3 Outdoor Environment on site ○
LR-1 Energy ○ ○
LR-2 Resources & Materials ○
LR-3 Off-site Environment ○
Sustainability Ranking ○
Activities 1Connecting CASBEE to Real Estate Appraisal (3)
1414
Activities 2Sustainable Real Estate Appraisal
Investigations for the planned building and the site where environmental value-added components are considered.
Analyses of price forming factors from environmental points of view
Comparison with conventional real estate
1515
Activities 3Consulting for Sustainable Construction
The advice offered concerns energy conservation, landscape-friendly features, longer building lifespans, use of recycling systems, etc.
The Architecture Consulting Department established in June 2006
1616
Preferential interest rate loans for the purchase of environmentally friendly houses
Preferential housing loan rates which are based on the “CASBEE Kawasaki” and the Apartment Environmental Efficiency Label Program of the Tokyo Metropolitan Government
Activities 4Preferential Loan Rate
for Environmentally Friendly Houses
1717
Activities 5Energy Conservation Promotion Mechanism
(LLP Structure)
[Owner]Pays the energy costs
for common areas(set baseline)
[Owner]Profit/loss dividend
based on common areacost reduction amount
(members’ levy)
[Tenant]Pays the energy costs
for specific areas(set baseline)
[Tenant]Profit/loss dividend
based on specific areacost reduction amount
(members’ levy)
ESCO businessesEnergy conservation
for buildings(guarantee a fixed percentage
of energy conservation)
Financial institutionsFinancing for
energy conservationconstruction business
Energy Management LLP(limited liability/
pass-through taxation)
Energy Management LLP(limited liability/
pass-through taxation)
1818
Activities 6 Support for
Contaminated Land Purchase and Revival Fund
Contaminated property
Eco-Land-Fund Green Earth Co., Ltd. (manager)
Land Solution, IncLand Solution, Inc
1. Entrustment
3. Investment
4. Transfer of trust beneficiary right
Investors (including Sumitomo Trust)
Sumitomo Trust
2. Trust beneficiary right
Sumitomo Trust
(sale of property)
5. Purification of property
6. Transfer of trust beneficiary right
(sale of property)
Seller
7. Dividend 4. Loan
Buyer
Cleaned-upproperty
1919
Activities 7On the way to launching a “Japanese
Sustainable Real Estate Fund."
Meeting the Standard of Environment Efficiency
e.g. B+ or better CASBEE score is prerequisite
&
For example…
- CASBEE S rating buildings
- Over 50% of Energy Efficiency Ratio
- Ultra long-term houses
- Contributing to preserving Biodiversity
Highlighted sustainability
2020
We present specific products and services of Sumitomo Trust’s Eco Trustution, which provide solutions to ecological problems by using the functions of trusts.
Eco Trust Solution+ +
Eco Trustution
The concept of Eco Trustution
2121
Global Warming
Brown Field
Others
Preferential Interest Loans for Environmentally Friendly Housing
Environmentally Friendly Project Finance
SRIFinancial Scheme to Promote CSR Procurement
Eco-Land-Fund Investment
Development of Financial Schemes for Promoting Energy Conservation in Tenant Buildings
Establishing a Mechanism for the Promotion of Environmental Consciousness Real Estate (Buildings)
Environmental Consciousness Construction Consulting
Emission Rights Trusts
Environmentally Friendly Project Finance
Waste Disposal
Retail Financial Services Wholesale Financial Services
Eco Trustution Products and ServicesCommercialized products
Products under development
Appraisal of Biodiversity (Utilizing Habitat Evaluation Procedure)Crisis ofBiodiversity
2222
The Sumitomo Trust’s homepage on Green Real Estate
http://www.sumitomotrust.co.jp/csr/innovation/real-estate/01english.html