Working Paper 2 – V4 1 ERES Conference 2010 Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate WINNING IN THE LONG RUN ? A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate (Working Paper 2) • GRANTS Royal Institution of Chartered Surveyors Education Trust Austrian Chamber of Commerce, Federation of Real Estate Professionals • AUTHORS Vis. Prof. Dr. Juerg R. Bernet, MSC MBA MRICS Prof. Sarah Sayce, BSc PhD FRICS IRRV Maarten Vermeulen, MBA MSRE FRICS DI Rupert C. Ledl Billy Clements, BSc • KEYWORDS Commercial Real Estate; Sustainability Metrics; Risk; Worth; Methodology Milan, 25-06-2010
16
Embed
Working Paper 2 – V4 1 ERES Conference 2010 Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Working Paper 2 – V4 1
ERES Conference 2010
Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate
WINNING IN THE LONG RUN ?A Quantified Approach to the Uncertainty ofSustainable 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
Working Paper 2 – V4 2
ERES Conference 2010
Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate
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
Working Paper 2 – V4 3
ERES Conference 2010
Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate
Project Rationale: BACKGROUND• THEORY
Environmental and social footprint – ongoing risk to property portfoliosLink through to value line via various conduits
Working Paper 2 – V4 4
ERES Conference 2010
Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate
Project Rationale: BACKGROUND
• REALITYPaucity 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 QUESTIONSWhat sustainability factors impact on property returns?What risks do they present?Are these risks priced appropriately?
Working Paper 2 – V4 5
ERES Conference 2010
Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate
Project Rationale: KEY ISSUES
• DEFINING SUSTAINABILITYNo 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
Working Paper 2 – V4 6
ERES Conference 2010
Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate
Project Rationale: KEY ISSUES
• MEASURING SUSTAINABILITYData measurement and collection core to building sustainability CRITERIA into financial modelling and worth forecastsBUTMeasurement 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
Working Paper 2 – V4 7
ERES Conference 2010
Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate
Project Rationale: AIMS
• OVERARCHING AIMDevelop 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
Working Paper 2 – V4 8
ERES Conference 2010
Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate
The Challenge of a Low Growth Economy
Income Yield
Income Growth
RATE OF RETURN
Non-Recoverable Cost
Capital Expenditure
Property Tax
PR
ES
ER
VE ! R
ED
UC
E
!
(Inflation) ?
OUTIN
Perf
orm
an
ce
Att
rib
uti
on
Working Paper 2 – V4 9
ERES Conference 2010
Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate
The Benefits of a Sustainable Performance Plan
Standing Investment
SHORT POSITION
Ob
serv
ati
ons
Performance Drivers
Income Yield
Income Growth
Non-Recoverable Cost
Capital Expenditure
Property Tax
Exp
ect
ati
ons
Sustainable Investment
LONG POSITION
-
PERFORMANCE PLAN
Working Paper 2 – V4 10
ERES Conference 2010
Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate
MANAGEMENT
The Concept of Driving Sustainability Indicators
ENVIRONMENT
economic
natural social
PROPERTY
Working Paper 2 – V4 11
ERES Conference 2010
Winning in the Long Run – A Quantified Approach to the Uncertainty of Sustainable Financial Value on Real Estate