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EVALUATION OF GREEN BUILDING PROJECTS FOR FUNDING New Delhi 2015 Presented By - Ajay Sharma MRICS DGM, HDFC Realty Ltd QUESTIONS : AECs & OWNERS Financial • ExperienceSector on steep learning curve Achieved Goals? 2000’s • Buildings producing 20-30% energy savings • Gains also in site planning, resource Today conservation, environment quality. Casual Active Bystander • Increased availability Participant of green products Raw Materials • Almost 90-95% of a green project done with Availability? green products Viable Investment Opportunities • Quantifiable advantages over conventional buildings • Demand character changing from push to • Better asset quality pull Costs • Alignment with sustainable development movement Comparisons? Proved government results that &costs just 2-5% • Availability of •various local atbody premium of convention buildings incentives ASSET TYPE- QUESTIONS Do Green Buildings Enable the Following? Commercial • Maximizing profit. • Enhance occupant performance • Faster Leasing Residential • Higher price premium • Faster sales Institutional • Better habitable environs • Enhancing performance Retail Industrial • Better operation management • Better sales per sq.ft • Increased efficiency • Better worker productivity Are Green Buildings….. • • • • • Valuable & profitable Easily leasable/sold Reduced liability risk Enhancing brand Increase efficiency & retention • Healthier Investors seek answers for above for funding. BENEFITS – PERCEIVED OR REAL? Project Stakeholders/Owners Response 75% 66% 50% 45% 44% 47% 45% 40% 31% Greenfield Projects • 27% owners say building value increases 6 -10%. • 14% owners said it increased more than 10% 25% 0% Lower Operating Costs Higher Value at Point Sale Future Proofing Assets Higher Rental Values Increased Productivity Higher Occupancy Rates Quality Assurance Source: McGraw Hlil Construction 2013 All the above results , considering nearly 40% of owners don’t track quantifiable results Existing Projects • 35% owners said operating costs decreased in green retrofit buildings • 30% owners say retrofit building value increased 6-10% BARRIERS & MOTIVATION Owners/Developers Point To……… • First cost justification • Receiving Tax incentives • Financial Incentives • Significant addition to capital expenditure • Unwilling market on premium • Complicated paperwork & approvals • Adaptation of technology is difficult Source: BD+C Survey, Reed Business Information • Operation cost savings • Left behind by sustainable movement • Higher market value • Reduce lawsuits & liabilities • No cost differentiation INDIA PERSPECTIVE Yes Bank & TERI BCSD jointly conducted a survey in 2014 “Green Real Estate Sector 2014”. Top 10 Reasons for No Adoption Green Building Practices • First Cost • Lack of Awareness • Low Motivation for End Consumer • Lack of Mandatory Policy • No clear business benefits • Green RE not strategic priority • Lack of financial instruments • No peer pressure • Inefficient supply chain • Lack of top management support Financial Barriers • FI lack awareness of innovative credit lines • Lack of Preferential Lending Rates • Low valuation of green buildings • High up front fees • Lack of access to finance options • Low resale value • High loan processing fees INDIA PERSPECTIVE : DRIVERS Key Initiatives Required • • • • • • Source: Yes Bank & TERI BCSD 2014 Strict enforcement of regulations Innovative financial incentives Incentives like FAR Ensuring real energy Disincentives for failing to follow green codes Energy Saving Contracting Agencies be employed Financing Initiatives • Setting up of ECBC (Energy Conservation Building Code) and establishing Bureau for Energy Efficiency • Environment Clearance Requirements • National Action Plan on Climate • Change emphasizing inclusion of ECBC guidelines for development by-laws FINANCE SECTOR – GREEN MOVEMENT Occupiers Better ROI in self occupied space Better Returns Price Premiums Alignment with Trends • Critical Role • Enabler • Least Unique Role • Enabler • New Opportunity • Passive Lesser Liability Risk & Lower Redundancy Owner Investor Insurers Lenders • Critical Role • Enabler Corporate Commitment Lesser Default Risks Branding/PR SOURCES OF FUNDING • PE FUNDS dedicated to green & sustainable development. Ex: Hines & CalPERS • INSTITUTIONAL FUNDS Internationally….. • Federal Government Aid • State/Local Government Aid • Crowd Source Funding • Grants from Private Companies • Green property bonds • Multilateral institutions like World Bank & IFC • INVESTORS looking for Economic Value than just market value • REITs/REMFs • CARBON MARKETS In India….. • Funds from HUDCO, IREDA • MNRE Green Building Scheme • Grants from Private Companies • Green bonds by Private sector banks like Yes Bank • Green Home Loan program by NHB & KfW, SBI and others FUNDING REQUIREMENT Business Case Development Program Site development, project planning, recycling of construction waste, raw materials, labor and intended certification Detailed Cost Analysis First costs including premiums for going green. Structured Leasing/Sale Program Positioning of project, target segment of clients, marketing & PR plan Financial Saving through sustainability Cost benefit analysis, long term savings, value creation through life of building, transfer of benefits Impact analysis of increased retention Tenant employee retention, health, work efficiency and other tangible costs for occupants Economic Value Added How both investors and occupants in the project create value References • • • • Building Design + Construction: Green Buildings and the Bottom Line Green Building Incentives That Work, NAIOP Green Buildings and Finance Sector, UNEP Promoting Sustainable and Inclusive Growth in Emerging Economies, Economic Policy Forum • Yes Bank + teri BCSD Green Real Estate Sector 2014 • World Green Building Trends, McGraw Hill + United Technologies Thank You