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DDeakin Research Online Research Online This is the published version: Reed, Richard G. 2008, Encouraging the uptake of sustainable buildings and the critical role of the property valuer, in SB 2008 : Proceedings of the World Sustainable Building Conference, SB08, Melbourne, Vic., pp. 272-283. Available from Deakin Research Online: http://hdl.handle.net/10536/DRO/DU:30019174 Every reasonable effort has been made to ensure that permission has been obtained for items included in DRO. If you believe that your rights have been infringed by this repository, please contact drosupport@deakin.edu.au Copyright : 2008, ASN Events

Presentation at the 2008 World Sustainable Conference Melbourne,

Professional

Encouraging the Uptake of Sustainable Buildings and the Critical Role of the Property Valuer

8B08

Or Richard Reed MRICS AAPI Professor of Property and Real Estate Deakin University Melbourne Email: r.reed@deakin.edu.au

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Presentation at the 2008 World Sustainable Conference Melbourne,

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Three main objectives:

-Equip valuers, financiers, investors/owners and other stakeholders with a better understanding of the varying levels of sustainability and how it affects the level of risk (and subsequently the value associated with a commercial building); -It will allow owners, investors, and tenants to appreciate the role of a valuer, their exposure to liability, and their challenging task of assessing the current and future risk, and subsequently value, of a sustainable commercial building; and -Through this higher level of understanding it should mean that the benefits of sustainability will be fully reflected in the valuation process, therefore contributing to support for those developers and investors who are leading in the provision of sustainable solutions.

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Communication between valuers and stakeholders

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INVESTORS • Would fUnd

sustainable buildings

• Experience no demand

TENANTS • Demand sustainable

buildings • Have little choice

~LI ___ V_A_LU_E_RS __ ~Ic=> CONTRACTORS

• Can build environmentally efficient buildings

• Do not have demand

DEVELOPERS • Would ask for sustainable

buildings • Believe investors won't

fund them

(Source: modified from Myers et al.. 2(07)

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The main issues for valuers ...

• Lack of a centralised market • Off-market transactions • Availability of accurate up-to-date information • Privacy limitations about transaction data • Limited information about leases • Lag in the availability of information • Contract v. unconditional v. settlement

Professional

Transfer becomes unconditional

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and available to public '-----

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Transfer is registered on govt. database

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Presentation at the lOOS Wodd Sustainable ConferencE! Australia

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Total development period

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Value ($)

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5tte acquisttion, preparation

and pre­contract

6 12 18 24 Months

Law of Diminishing Returns

(a)

30

Construction Cost ($)

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Market Value Model

Construction Cost '---------'

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(C) Aclual

--------~----~~~---- (b) Difference between

(a) and (e)

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Highest and best use:

Conference

"The most probable use of a property, which is physically possible, appropriately justified, legally permissible, financially feasible, and which results in the highest value of the property being valued"

(lVSC 2007)

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Definition of market value:

"the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had acted knowledgeably, prudently, and without compulsion"

(RICS Red Book - Valuation Standards)

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Definition of special value:

IISpecial Value can arise where an asset has attributes that make it more attractive to a particular buyer, or to a limited category of buyers, than to the general body of buyers in a market. These attributes can include the physical, geographic, economic or legal characteristics of an asset. Market Value requires the disregard of any element of Special Value because at any given date it is only assumed that there is a willing buyer, not a particular willing buyer. "

(RICS Red Book - Valuation Standards)

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Drivers of sustainability considerations in valuation

• Tenant demand • Investor demand • Government specification of sustainability in leasing

contracts • Socio-economic change including adoption of CSR • Lower operating costs and increased accountability • Increased performance measurement • Improved rating systems • Retention of staff

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Barriers to acceptance of sustainability considerations in valuation

• Lack of knowledge about the effect on value • Limited discussion in valuation circles • Ability of valuation approaches to incorporate

sustainability • Impact of individual sustainabiJity inclusions • Quantifying the intangible aspects of valuation • Systematic nature of buildings

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Concept of intangible value in valuation

• Wider effect of buildings on the environment • Point of difference • Corporate social responsibility • Government legislation • Addressing long-term obsolescence

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Policies, regulations and standards

• RICS Red Book - Valuation Standards • International Valuation Standards Committee (IVSC)

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Professional

• Wider effect of buildings on the environment • Point of difference • Corporate social responsibility • Government legislation • Addressing long-term obsolescence

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Incorporating sustainability into valuation

• Do the sustainable features cause the building to be associated with less or more risk?

• How is the level of sustainability reflected in the assessed value of the building?

• How is sustainabmty incorporated throughout the valuation process?

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Presentation at the 2008 World Sustainable Melbourne, Australia

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Environmentally Efficient Buildmgs

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• Changing perception of sustainability • The definition of market value • Changing relationship between cost and value • Increased communication and information availability • Undertaking explicit valuations • Increased data collection and transparency • Enhanced understanding of the valuation process

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