That question presumes two things: 1) that green features always cost more, which is not true and a topic for another day, and 2) that the market does not accurately differentiate the financial benefits that green buildings add to the owner’s bottom line. At the present time, this is very true.

I don’t know anyone who hasn’t pointed out how hard it is for investments in green building and energy efficiency retrofits to scale up without the appraisal community providing that crucial feedback loop — property valuations that consider green strategies in place. Without this, banks and other capital providers have a hard time deciding how (much) to lend on and invest in sustainably built real estate.  That perpetuates the status quo — wasting resources, capital not flowing towards green real estate and continued community decline.

Here’s a first step towards addressing that problem on the residential side with potentially huge impact. The Appraisal Institute has just released a Residential Green and Energy Efficient Addendum, to help structure the way that appraisers can consider many typical green and energy efficiency features within their valuation of residential properties. While this is probably a first step in the AI addressing green residential valuation issues, when you think about the fact that we have 114 million residential structures in the US, this “little” form can help the trillions of dollars of US housing and mortgage market investors actually see the impact of their decisions (or non-decisions) about energy efficiency and green design features.

I know that similar efforts have been underway for commercial real estate valuation, too, for quite some time. We’ll keep sharing the word on that, but in the meantime, let’s appreciate the progress the AI has made with this closely linked milestone.

P.S.–> Go to the EIA’s Residential Energy Use Explained (the source for today’s image) for good download on energy use in the residential sector. 114 M residential structure estimate taken from 2009 RECS data tables.

Called Reimagining the Metropolis — No Joke, the session featured three panelists with different areas of energy efficiency finance expertise sharing their perspective on the approaches they saw as being critical for growing a liquid market for energy efficiency financial products and services.

Which idea will have the most impact?

The three big ideas boiled down to:

More data and best practices for lenders - Sam Marks, from Deutsche Bank Americas Foundation, talked about how their Living Cities project was in the process of studying and aggregating  benchmarking data on housing energy efficiency performance. That benchmarking data, should cover 12,000 multifamily units. It will eventually identify best practices for lenders.

More data, particularly for the multifamily market is desperately needed. I have to add, though, that any such project should ultimately focus on satisfying the needs of appraisers, since any regulated financial institution ultimately relies on an appraisal in order to estimate how much they will lend on the property.

Teach lenders how to incorporate energy efficiency within underwriting - The Community Preservation Corporation’s Sadie McKeown showed how underwriting for energy efficiency finance is not as hard as it seems, plus pointed how how scarce incentives really are. Their approach included training their own staff in the benchmarking process.

Both of these comments are very close to what we cover in our Competitive Edge Green Finance Workshops, where we teach how to develop a green building business case. I also think that, given the level of  inefficiency “trapped” in so many of our buildings, the upside in energy efficiency is actually in retrofitting the building and obtaining better performance and higher value, as opposed to cashing in incentives.

Tougher regulations - Attorney Lawrence Schnapf talked about a pathway of tougher policy and regulation, such as tougher building codes and ordinances, which will simply force investors and financiers to deal with lower energy assets, “like it or not”.

This scenario has already been presumed by so many green building advocates, that you might be tempted to skip it, but don’t. It’s still significant because you cannot simply assume one particular market action in isolation. My investment and lending experience has shown me that most surprises come in two’s or three’s. That is, you have to be able to think about the impact of tougher building energy regulations happening at the same time as other tough scenarios, such as a long-term lack of credit and/or even greater water shortages.

Or, all of the above

Actually, the above approaches should not be viewed as an “either / or” type of choice. Based upon our view of the market, all of the above will have to be interacting together for a sufficient duration, in order for us to see a liquid, fairly-priced market for energy efficiency financial products supporting U.S. real estate.

Your thoughts?

Good news! There is now a standardized way for investors and lenders to evaluate and rely upon building energy data in their underwriting.

• Date/Time: March 29th 1:00 PM EST - 2:30 PM EST
• Title: Understanding the New ASTM BEPA Standard E 2797-11
• Speaker: Anthony Buonicore, Chairman of the ASTM BEPA Task Group

I want to make sure that you have the latest on Strengthening the Green Foundation, an exciting green finance conference that’s taking place at Tulane University, in New Orleans, this Spring.

Tulane University’s new Master in Sustainable Real Estate Development Program and the Federal Reserve Bank of Atlanta invite researchers, industry practitioners, and policymakers to participate in a conference to advance the understanding of and improve the practice of green development and finance.

1. Set the Agenda: Advance the Study and Practice of Green Building Finance

Core research tracks include the development and finance industry structure, green valuation, and portfolio management. Practice and policy tracks include green underwriting, green measurement and certification issues, and green leasing.

Read the complete call for papers, which includes details of the conference tracks, the abstract submission process, and deadlines, as well as a link to the online abstract submission site.

2. Leverage Time: Meet Me, Other Practitioners, Policymakers and Green Finance Specialists

This will be a great use of your time spent on understanding the green finance space. I have the honor of being among the speakers and am excited about the great list of practitioners, researchers and policymakers who are scheduled to present.

If you are attending, please drop me a line at and let me know.  This is a breakout year for green finance and I’m sure this event will be filled with thought-provoking insights you can’t miss!

A few 2010 events either changed or reinforced perceptions enough to influence sustainable finance in 2011 and beyond:

1. Positive Green Building Momentum & Performance

Confirming year-end data reinforces the value of building environmental certification.

• LEED-certified buildings have reached a footprint of 1 billion square feet worldwide, with another six billion square feet of registered projects in the pipeline.

• In the The Economics of Green Building, researchers demonstrate that green building economic performance was not affected by recent market volatility, that the economic premiums in the green properties studies remain substantial and energy efficiency does contribute to higher rents and values.

2. Quantified Credit Risk for Environmental Irresponsibility

• If your lender shrugs when you tell them that building environmental certification benefits them, too, send them a copy of Corporate Environmental Management & Credit Risk. Rob Bauer and Daniel Hann’s prize-winning study that demonstrated how US companies engaged in environmentally risky activities paid a premium for their bond debt of up to 64 bps per annum.

3. Innovative Structure Straddles Real Estate & Energy

• We covered Hunt Power’s use of the REIT structure to offer up to $2.1 billion in energy infrastructure finance via joint ventures, purchase and leasing. There are several energy and technology sectors that urgently need better ways to access capital than the market can provide. Look out for more novel, hybrid investment structures that bring commercial solutions to financing sustainability across buildings and other domains.

4. Regulatory Ramp Up Continues

• Carbon cap and trade has arrived in California, joining building energy disclosure requirements and Cal Green. Under new regulations adopted 20 December, greenhouse gas emissions of large industrial plants will be capped from 2012 forward. Given California’s legal requirement to reduce emissions by 15% from today’s levels by 2020, we will continue to see heavy action both within California, as well as California’s experience influencing how these issues are handled in other states and even within the Federal Government.

5. PACE: New Tools Equal New Perceptions

• We dedicated substantial coverage last year to tax-lien financing for energy efficiency. Professionals from diverse sectors joined forces to cheer on property-assessed clean energy’s brave fight…and boo the regulators as they killed most residential programs. New tools equal new perceptions. PACE’s major success has been how it helped build awareness and shape positive perceptions. Now practitioners realize that such structures are possible and urgently needed. That’s kicked off a lot more interest in getting green finance right from now on.  Policy makers are working on various versions of PACE 2.0 or other PACE-like enabling legislation. It’s hard to tell what progress they’ll make, but PACE’s potential helped focus commercial real estate and government on the market need for such structures in a way not seen before.

So, what kind of market do you think you’ll sell into?

With so much momentum already underway, what are the prospects for your building portfolio?  We think successful investors in the coming years will be good at continuously re-imagining and reinventing their businesses, often at highly local levels.

Which of these events carry the most weight for green real estate?

What’s missing from the green finance conversation that you think needs attention?

Photo credit: Muse by Oimax. If you are a fan of urban photography, check out Oimax’s 6,000+ photostream of stunning Tokyo architecture, scenes and objects.