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24 February 2012 – In a move that will slay the naysayers, a new valuation guide for sustainable buildings not only accepts that green buildings have a different value to their peers, but urges valuers to make their own assessments of a building’s sustainability profile, rather than rely on ratings or other claims.

Produced by The Royal Institution of Chartered Surveyors, Sustainability and the Valuation of Commercial Property, recommends valuers become familiar with how the local and global ratings systems work, how points are calculated, and to take courses on offer, such as by the Green Building Council of Australia.

It asks valuers to decide whether a building’s rating is relevant to its performance. Have the management systems been tampered with since the rating was achieved, for instance?  Or is the technology that helped achieve a six star rating been decommissioned or switched off?

Written by Mark Willers of CBRE and John Goddard of John Goddard & Co, with technical assistance and review by Bryon Price of AG Coombs, Stephen Hennessy of WT Sustainability and Davina Rooney of Stockland, the guide sets exacting standards.

Valuers are advised to learn the language of sustainability, and to work out what new technology, such as lighting, is “just around the corner”, which could knock out the leading edge claimed by current systems.

The guide goes further than specific building issues and asks valuers to become familiar with embodied carbon issue and life cycle assessment of building materials.

“In future it is likely that the cost and value of embodied carbon will be brought into the equation,” the guide says.

“There is a groundswell in property circles around the world that may in the near future lead to the requirement to include embodied carbon in the total energy calculation for a building.”

There’s no doubt this document is a game changer. It will be a wakeup call to laggards in the capital markets who believe they can ignore the sustainability profile of property assets.

And it will not be enough to note whether a building has a six star green star rating or a five star NABERS. Instead valuers will need to examine and judge the sustainability claims of a building for themselves before they can put their dollar judgements on the value of the asset.

Or risk legal liability.

Mark Willers said the document is an extension of RICS Valuation Information Paper (VIP) 13, which provided an initial discussion surrounding the valuation of green buildings.

“However I believe this is the first document of its kind in terms of focus and content (it goes further than VIP 13 and is more specific),” he says.

He notes that green buildings are still a small proportion of the overall stock levels in the market.

Following are some extracts from the guide:

“The fact that the building has achieved a rating does not mean that it performs to high standards of sustainability across all categories, and this can be misleading. Ideally valuers need to assess if the levels of performance achieved are in the areas that the market will require.

“For instance tenants and buyers may seek very high standards of indoor environmental quality, but the building’s high rating may be due to high level of energy performance, which might show in a high NABERS rating.

“When assessing a building with a Green Star Design rating, valuers should be careful to check that the initiatives and systems that contributed to the building achieving its rating have been implemented,” the guide says.

It gets more interesting.

“The valuer should also look for systems in the building that would have contributed to the building achieving its rating, but have been decommissioned, turned off or no longer used once the building was completed and the rating awarded.

“At present there is no audit system, but if the GBCA proceeds with its performance tool, future auditing of the Green Star rating in use might become available and there would be the risk that a rating could vary with the changed circumstances of the building.”

“It is not enough for a valuer to simply use a NABERS or Green Star rating to assess the sustainability performance into a valuation of a building without first having an understanding of the schemes and the point scoring behind them. We recommend that valuers read about the Green Star and NABERS rating schemes.

“We also recommend that valuers attend one of the many courses run by the Green Building Council of Australia.”

The guide goes further.

“Valuers will need to understand the influence of emissions, resource usage and embodied energy as carbon becomes priced into the economy.” Such as:

  • Is retail or comms space separately metered?
  • Is there a history of energy and water efficiency consciousness and reporting in the building?
  • Is there a history of a broader sustainability consciousness in the building?
  • Is the building being managed and maintained to optimise energy efficiency?
  • Have the building services in general been well maintained?
  • Have any recent modifications to the building services been carried out professionally?
  • Are there Green Leases in place or leases that have some energy efficiency related aspect?
  • If so are necessary improvements being carried out and maintained?
  • Are there tenancy guidelines for fit outs that relate to energy efficiency, and or water
  • efficiency and or material selection and or waste management and or other sustainability related items?

Valuers are warned to be critical of everything and to make their own assessments:

  • First: Is it energy efficient when compared to market standards? A NABERS rating is a reasonable but not complete indicator of this.
  • Second: Is it energy efficient with respect to its technical potential, i.e. it is generally as good as it can be within its current design limitations
  • Thirdly: Does it possess good ‘‘green bones” ? In other words, can it achieve a good standard of sustainability cost effectively without significant interruption of its income flow?

On green leases, the guide says:

Green Leases are a mechanism allowing property owners and tenants to formalise requirements relating to future building performance in terms of sustainability. Green Leases can be considered as either light, mid or dark green, depending on the extent of actions required by either party and the penalty for non-compliance.

Critical Issues:

  • Valuers should tailor their information requests for large commercial assets based on their characteristics.
  • At inspection a valuer should gain an understanding of the property owner’s strategy in relation to sustainability, capital works completed and committed to improve sustainability and the scope of potential works in the future.
  • Where major tenants have known CSR requirements valuers should be mindful that the property will meet those requirements at lease expiry. This will need to be reflected in renewal probabilities. 4. Where tenant leases include green lease clauses valuers will need to be mindful that property owners and tenants are meeting the requirements of the clauses.
  • Valuation reports should clearly show the impact of sustainability ratings, requirements and capital works on property valuation, both at the date of valuation and throughout the projected cash flow.

The guide gets technical.

In the section on “hard assets” the guide adviser that valuers may need assistance from technical advisers.

It provides introductory advice on metering; “Is there an energy efficiency sub metering system in place and is there reliable energy consumption information?”

“Is the metering system operation and accurate?”

On lighting, it warns that new systems such as LED, E1 and organic LED technologies have only just arrived on the market but others are “just around the corner, and they may make even the current/new office lights obsolete.”

The guide also looks into:

  • Air Handling and Distribution
  • Water usage
  • Building Management and Control System
  • The façade and building structure
  • Waste management
  • Car parks

Under “soft assets” the guide ventures into even more complex territory:

  • Is there a history of sustainability consciousness in the building, including energy efficiency and water efficiency?
  • Is there an energy efficiency and or water reporting process in place?
  • Has the building been managed and maintained to optimise energy efficiency?
  • Are environmentally friendly cleaning materials used?
  • Are environmentally friendly pesticides used?

Carbon efficiency

“Carbon efficiency is concerned with the efficiency with which a building uses its embodied carbon. The calculation of carbon efficiency will be based on the carbon embodied or bound into the building during material extraction and manufacture, construction, management, alteration and even demolition and reconstruction of the building.

“The system can then be used for tracking the carbon through the life of the building and future buildings on that site. This type of Carbon Foot printing is already being used by product manufacturers and retailers.

“Valuation is a factor of the market and if at the time of the valuation the market is not including embodied energy, then it will not be factored into the sustainable performance/valuation.

“When the market takes embodied energy into account the more discerning valuers will start to factor it is as a risk. The risk will probably be driven by the cost of carbon when this is factored into materials and building systems.

“RICS already has a guide for this, Redefining Zero (2010), as “an approach” for the measurement of embodied energy in buildings.

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