Frank Hovorka_caisse des depots_2011-11-02_Sustainable performance and value

Sustainable performance Sustainable performance and value : Finding the links

how to work with the necessary complexity or several key performance indicators throughout the different real estate professions.

Frank Hovorka

Head of real estate sustainable policy

Key figures of CDC group

■ Consolidated assets: €255.6 billion■ Equity: €19.2 billion■ Funds managed by Caisse des Dépôts: €224 billion■ Rating: AAA/Aaa

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Unique status:

Caisse des Depôts has a unique status enshrined in the founding law dating from 1816whereby it was “placed, under the most special surveillance and guarantee of thelegislative authorities”.The Chairman and Chief Executive Officer of Caisse des Dépôts is appointed by adecree of the President of the French Republic and takes the following oath of officebefore the Supervisory Committee:“I swear… with all of my powers to uphold the inviolability of Caisse des Dépôts.”.

Caisse des Dépôts Group

■ manages from public regulated savings accounts and invests these on a secure basis in projects in the public interest, particularly social housing,

■ acts as public banker to the judicial and social security systems,■ manages public and semi-public pension schemes,■ invests in regional and local development alongside local authorities,■ acts as a long-term investor in the French economy,■ participates in national economic development via its subsidiaries.

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■ participates in national economic development via its subsidiaries.

Caisse des Dépôts comprises the public institution and a number of subsidiaries:■ business and infrastructure financing: Strategic Investment Fund, CDC EntreprisesQualium Investissement, CDC Infrastructure■ personal insurance: CNP Assurances■ real estate: SNI group, Icade■ services: Transdev, Egis, Compagnie des Alpes and Belambra■ Environment: CDC Climat, Société Forestière and CDC Biodiversité.

Value through cities ranking

Attractivity:■ Cultural■ Connectivity■ Density■ People education

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■ People education■ …

Tomorrow: Green City Index ?

Examples: Lyon

■ Rationale – to improve Lyon’s conurbation's ranking and to improve social cohesiveness

■ Initiated by Raymond Barre (1997)■ Bringing together 54 municipalities■ A united, competitive conurbation: 21

priorities for the 21st century■ A conurbation opened to other cultures

and the world at large

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and the world at large■ An attractive liveable conurbation■ A conurbation encouraging the spirit of

enterprise■ A conurbation encouraging life-long

learning■ A conurbation putting participatory

democracy to work

■ The Plan of Action for Technopolitan Metropolis (three poles: a top ranking scientific and academic pole; a sport and entertainment pole, a leisure zone)

■ The Bienalle de la Danse■ The Science and Society Museum

Examples: Lyon

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Examples: Bilbao

■ Early 1990s – collapsed shipbuilding industry, 30% unemployment, aggravated environmental problems

■ Mobilisation of local actors – new vision to be developed using prospective methodology

■ Five aims:

■ Identification of opportunities in the new economic sectors■ Taking account of long-term results

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■ Taking account of long-term results■ Connecting the economy to the civil society■ Providing a collaborative leadership■ Masterminding the regeneration process

■ 50% of initiatives proposed were put in effect■ Flagship projects serving as catalysts

Examples: Bilbao

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The Guggenheim MuseumThe new WaterfrontThe UndergroundThe Euskalduna Conference & Concert Hall

Planning vs. Futures

‘Traditional’ Planning ‘Futures’ Planning

Perspective Partial, ‘everything else being equal’

Overall, ‘nothing else being equal’

Variables QuantitativeObjectiveKnown

QualitativeSubjectiveUnknown

Relationships Statistical Dynamic

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Relationships StatisticalStable Structures

DynamicEmerging Structures

Explanation Past explains the present Future is the raison d’etre of the present

Picture of the Future Simple & certain Multiple & uncertain

Method Deterministic and Quantitative models

Qualitative, behavioural and stochastic models

Attitude to the Future Passive or adaptive (the future will be)

Active and creative (the futures is shaped)

How will you be working?How will you be working?How will you live?How will you live?

What will you stand for?What will you stand for?

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The professional challenge The professional challenge for the for the 2121stst CenturyCentury

Urban morphology and flows

People

Infrastructure, connectivity mobility

Land use

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Land use

Flows : people and goods

Land property and regulations impact

Build shape, energy impact and waste management

Source: S. Salat urban morphology lab

Example : a smartgrid for what?

3 novembre 201112 Source: IISBE Salat, Bourdic, Larson, Hovorka

Towards Synergy Grids

Optimization of supply and demand for neighborhood-scale systems

■ Buildings with a deficit or surplus of :■ thermal energy; ■ domestic hot water; ■ grey water;

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■ grey water; ■ DC power; ■ parking spaces;

■ Owners of private electric vehicles with a deficit or surplus of DC power

Towards Synergy Grids

3 novembre 201114 Source: IISBE Salat, Bourdic, Larson, Hovorka

Structuring and Sizing Grids

« Scale Free Complexity » concept

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Each level of the grid has to display the same level of complexity, no matter the scale considered

Source: IISBE Salat, Bourdic, Larson, Hovorka

Insights from hard-core thermodynamics:

Structuring and Sizing Grids

Power lawsScale free complexity

EnergyEfficiency

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Hausmannian Paris

complexity Efficiency

Source: IISBE Salat, Bourdic, Larson, Hovorka

Most of the natural networks display scale free complexity, to optimise energy efficiency

Structuring and Sizing Grids

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TreesNeuronal networks Blood systems

Source: IISBE Salat, Bourdic, Larson, Hovorka

The Site/district: no fossil fuels allowed

Energy

All functions selfsupplying or from overall production unit ( winturbines etc)

Materials

Reduction and preference for renewable materials, regionally and locally produced

Water

Example: district of tomorrow in Netherlands

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Water

All water going out as clean as it came in.

Land

net built upon land increase = 0. ( That is the equal surface has to become available for other functions ( stack

functions, energyroof, greenhousesroof etc)

Food:

Active search for combination that involve food production

Economy/regulations

Research will be started with market parties to find creative and constructive financial solutions for market

introduction and policy/regulation support

0-energy or plus houses

Material-neutral houses

Food and energy production

testing Urban windturbines

Besides houses, many other elements are developed, designed, constructed and researched

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Service centre

Electric transport(retrofit car)PV loading station

Renewable material production

0-water district

Exergy concept

Mini-hydropower

1

23

4

Sustainable road

Public lighting as service

For constructing the projects we created:

Tender “Sustainable shopping”

Buying materials and products for construction of

the 1st house in an open tender for innovative

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the 1st house in an open tender for innovative

offers by the market.

Some of the selection criteria :

- Material criteria

- Energy criteria

- Way of Delivery

- Proposed financial construction

- ‘Service’ offer in stead of product buy

- co-operational variants

Value :

■Location■ Connectivity infrastructure■ Local services and shops (density)■ Security■ Attractivity ( image…)

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■ Attractivity ( image…)

■Quality ■ Indoor environemental quality■ Energy performance■ Lifespan■ flexibility

From past market mirror to valuation

3 novembre 201122Source : D. Lorentz

Uncertainty

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Risk management

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• Changes in tenants expectations (+)

• Lower share of operating costs (+)

• Lower costs of fittings (+)

• Lower costs for maintenance and servicing activities (-)

• Lower investments to sustain building at market level (-)

• Lower rent waivers (-)

net operating income (market rent – owner’s operating costs)Market=

How sustainability impacts market value of How sustainability impacts market value of real estatereal estate

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net operating income (market rent – owner’s operating costs)

Cap rate (risk free rate + risk premium – growth + depreciation)

Market

value=

• More cash flow (-)

• Improved marketability (-)

• Shorter vacancy periods (-)

• Competitiveness (+)

• Rising energy costs (+)

• Sustainability hype (+)

• Longer life span (-)

• Longer compliance with increasingly stringent legislation (-)

From Dr. David Lorenz, MRICS

Recent research results

Criteria Research name Parution impact

Rental value

Miller & al. 2008 0 to 3%

Eichholtz, Kok & Quigley 2008 et 2009 3 to 6%

Fuerst & McAllister 2008 et 2009 4 to 6%

Pivo & Fisher 2009 5%

Leopoldsberger & al. 2010 0 to 6%

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Leopoldsberger & al. 2010 0 to 6%

Wiley & al. 2010 7 to 17%

Asset valuation

Salvi & al. 2008 3 to 7%

Miller & al. 2008 6 to 10%

Eichholtz, Kok & Quigley 2009 16%

Fuerst & McAllister 2009 31 to 35%

Pivo & Fisher 2009 13%

Occupancy rateFuerst & McAllister 2010 3 to 8%

Wiley & al. 2010 10 to 18%

Survey in Australia

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Additive versus Integrative Approach

3 novembre 20112828Source T. Lutzkendorf

“Longlist” of valuation-relevant property characteristics & attributes (main structure)

Main criteria groups Sub-criteria groups

Location

National market

Macro-location

Micro-location

Plot of landCharacteristics and configuration

Surroundings

Basic building description

Technical quality

aspe

cts

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Building

Functional quality

Environmental qulity

Design / Aesthetic quality

Urban design quality

Cultural value

Health / comfort / satisfaction of inhabitants, user and visitors

Economic quality / cash flow

Market

Payments-in

Payments-out

Vacancy / Letting situation

Tenant and occupier situation

Building Image Brand value / Other

Process quality

Planning quality

Construction quality

Management quality

Sus

tain

abili

ty-

aspe

cts

Valuation sensitivity

3 novembre 201130Source T. Lutzkendorf

Example of energy : NZEB during the life cycle?

Building needs (conventional

calcul )Transport

Embodied

energy

3 novembre 201131 3 novembre 2011Département Etudes, Planification Stratégique et Développement Durable31 In use per yearAt construction or

refurbishment

calcul )

Specific use

Local renewable

energy

Embodied energy Mobility

Local renewable

production

Specific use

electricity

Building needs

Source: Franck Richard ADP

Energy linked to a building: 4 main blocks

Building energyBuilding energy

Actual new building: 130 to 250 kWh ep/m²/an

NZEB :40 to 65 kWh ep/m²/an

Specific electricitySpecific electricity

Housing : 10 à 50 kWhep/m²/an

Office: 30 to 300 kWh /m²/an

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Embodied energyEmbodied energy

New building : ≈ 1200 kWhep/m²

« As usual »NZEB: ≈ 1600 kWhep/m²

Transport

French average daily distance:16km

20 km :by car : 6450 kWh ep/anbus: 630 kWh ep/an

30 to 300 kWh ep/m²/an

Energy in use=renewable production

Embodied

energt

PV

50 kWhEP/m².a

■ NZEB : Production ≥ use

0,25 m² PV/m²

-2,5 kgCO2/m².a

Energy and Carbon

50 years ?

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=renewable production2,5 kgCO2/m²

� Zéro Carbon

Consommation

Renewable production

Energie grise

bâtiment

-23 kgCO2/m².y

2,1 m² PV /m² !!!

PVPV

50 kWhEP/m².a2,5 kgCO2/m²

-2,5 kgCO2/m².a

50 ans

25 years :lifespan

of PV cells33

50 years ?

Carbon emission throughout lifespan

Transparency and follow up

Simulation

-Calcul hypothesis

Metering

- Construction

Real consumption

- regular metering

Mandatory design construction In use

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Mandatory calculation

-Calcul hypothesis input

- Bioclimatism

- Construction quality

- needed metrology for checking and tuning

- regular metering

- Tuning from hypothesis

- Maintenance and modification

Performance waranty at

delivery

Performance waranty in use

COOPERATION – Data is valuable

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Manufacture / Production

Planning / Design /

Engineering Construction / Commissioning /

Modernisation

Facility Management

Disposal & Recycling

Conclusion

■ Changing legislative environment

■ Changing market landscape

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■ Changing occupier behaviour

■ Changing investor strategies

■ Changes to future value