CERTIFICATE

PROGRAM

Developed by:

With generous support from:

COURSE 1

ENERGY TECHNOLOGIES
AND REAL ESTATE STRATEGY

COURSE INSTRUCTOR: Honey Berk

Technology Specialist, CUNY Building Performance Lab
CUNY Institute For Urban Systems, City College Of New York

WEEK 1

REAL ESTATE STRATEGY AND

ENERGY DECISIONS: PART 1

WEEK 1: LEARNING OBJECTIVES

Describe the differences between operational and
speculative real estate value
Explain what the term energy efficiency means in the
context of this course
Name three factors that support the business case for
increased value through energy efficiency
improvements
Illustrate how cash flows through a real estate asset

WEEK 1: READINGS
The Real Estate Game, Poorvu, William J. (Harvard
GSD).
Chapter 1: The Game
Chapter 2: Using Numbers in Real Estate

Investment Returns from Responsible Property

Investments, Pivo & Fisher (2009).
Green Noise or Green Value? Fuerst & McAllister
(2011).
Lease-Based Analysis, NYSERDA Presentation.

HOW IS VALUE REALIZED IN REAL ESTATE?

1. Cash Flow: Properties with
strong financial performance
and higher net operating
incomes (NOI) generally have
a higher value
2. Capital Appreciation:
Properties in strong markets
and with strong market
positions can increase in
value over time
Discussion
Review the AEP Portfolio.
Choose two properties and
discuss the value of each with
regard to cash flow capital
appreciation.

Image credit Massimo Catarinella, via Wikimedia Commons.

WHAT DO WE MEAN
BY ENERGY CONSERVATION MEASURES?
The term energy conservation measure (ECM) has
been used in slightly different ways in various contexts. For
AEP, we define an energy conservation measure as:
The investment of resources in equipment,
materials, or practices for the purpose of
achieving reduced energy consumption.

Image credit Tony Boon, via Wikimedia Commons.

HOW DO ENERGY CONSERVATION MEASURES

ADD VALUE?
Operational Value/Financial
Performance
1. Reduce energy costs/offset increases
2. Reduce maintenance expenses
3. Increase net operating income (NOI)
Speculative Value/Market
Performance
4. Upgrade building quality
5. Increase tenant retention and rent
premium
6. Address market demand for
sustainable space
7. Advance sustainability goals &
positively impact companys
reputation
8. Improve employee productivity
Image credit Fistarol, via Wikimedia Commons.

HOW DO ENERGY CONSERVATION MEASURES

ADD VALUE?
Regulatory Compliance
1. Facilitate compliance with a growing patchwork of
federal, state & local statutes, regulations, and
ordinances
2. Position the property from federal, state & local
incentives and tax credits for energy-efficient buildings
Environmental Footprints
3. Reduced use of nonrenewable energy resources
4. Lowered organizational carbon outputs

WHAT IS THE ECONOMIC CASE FOR ECMS?

Discussion
Draw on your
experience: Have you
seen these kinds of
results in your
company portfolio?
How about in other
properties across
your state or
metropolitan region?

ENERGY STAR properties have:

2.7% higher NOI

5.2% higher rents

1.3% higher occupancy rates

12.9% lower per sq. ft. energy

expenses

10% sales price premium

With more floor area and energy

use than any other building type,
office buildings offer great
potential for positive impact.

Sources: 1. Investment Returns from Responsible Property Investments: Energy Efficient, Transit-oriented and Urban
Regeneration Office Properties in the US from 1998-2007, Pivo & Fischer, October 2008
2. Fuerst, Franz and McAllister, Patrick Green Noise or Green Value? Measuring the Price Effects of Environmental Certification
in Commercial Buildings, School of Real Estate and Planning, Henley Business School, April 25, 2009

HOW DOES CASH FLOW THROUGH

A REAL ESTATE ASSET?

Exercise
Using a property from the
AEP Portfolio, calculate
the net operating income
(NOI) using the Excel
cash flow model. See how
NOI changes when you:
1)Vary energy costs and
sources
2)Adjust for net vs.
gross/hybrid leases
3)Modify other
assumptions.

Real Estate Income:

Total Base Rent +
Escalations
Vacancy Allowance =
Income

HOW DOES CASH FLOW THROUGH

A REAL ESTATE ASSET?
Exercise
Using a property from
the AEP Portfolio,
calculate the net
operating income
(NOI) using the Excel
cash flow model. See
how NOI changes
when you:
1) Vary energy costs
and sources
2) Adjust for net vs.
gross/hybrid leases
3) Modify other
assumptions.

Revenue
Expenses
Operating expenditures (OPEX)
Capital expenditures (CAPEX)
Tax liabilities
Fines or fees
Income + Revenue Expenses =
NOI
(Net Operating Income)

HOW DO ENERGY COSTS FIT INTO

BUILDING CASH FLOW?
Energy Cost
Considerations
How is energy metered?
Direct-metered
Sub-metered
Rent-included
Pro-rata share
How is HVAC supplied?

WEEK 1: IN-CLASS EXERCISES

Choose at least two properties from the AEP Portfolio and
calculate their net operating incomes (NOI), using the attached
Excel document. (The spreadsheet is embedded with a
workable cash flow model.)
Next, experiment with variations in the figures that you use as
the basis for calculation (e.g., energy costs, water costs,
replacement reserves, etc.), and observe how NOI changes with
variations in your assumptions. Which items might be reduced
with few negative consequences? How might doing so affect
the building's profitability?
Write up your observations, and submit your write-up (as a
Word document) and the saved Excel spreadsheets for both
properties through the Course Module, below.

WEEK 1: HOMEWORK
In 1-2 pages, consider Fuerst & McAllister's journal article,
"Green Noise or Green Value?" as well as your readings from
Poorvu's The Real Estate Game.
What does the research say about green real estate? Is
evidence of a price premium persuasive?
What are two key added expenses associated with the
green certification of a property?
Are some certification frameworks more valuable than
others? What factors may be at issue?
How might green real estate fit into "the game" that
Poorvu describes in the first chapter of his book?