Hello and welcome back to class. Our focus for this presentation is the business case, or the logic behind green building and its growth in recent years. Here we're looking at a chart of current or past activity in green building. I think 2015, the kind of bluer number, perhaps, on the bottom, versus what is expected to be the level of green building activity in 2018. Now importantly, this is a survey of firms who have done more than - or they will be doing more than, 60 percent of their work as green projects. Typically, this means a third-party certified green program applied to a real estate project. So as entrepreneurs, it's important to look at the delta, the gap between those two colors, those two - those two numbers. In that gap, there is market growth and that could be a chance for you to launch a startup, perhaps, or launch a new product or service from with - inside a larger organization; so along the lines of intrapreneurship. Notice that the growth across those countries is not the same. And so, you know, perhaps you're living within one country, but you may see opportunities where there is more delta; think China, Saudi Arabia, Brazil, Colombia, as a few examples. Maybe there are ways to partner to capitalize on those growth opportunities overseas. The other important thing to note is that there is also a gap between what people say, what firms say they will do and what they will actually do. In predicting the future, that's one more handicapper, or source of error, that you need to consider. This is one of the biggest takeaways I hope you'll leave with for this presentation and that is that the gap between the perceived extra first cost for green development is very high. So surveys of real estate professionals show that the expectation is 15 percent or so extra first cost to build to a green building standard. The reality, that is, other studies of actual green buildings and their owners, tend to show a zero to four percent extra first cost to build to green building standards. So again, a wide gap between perceived risk, really, and actual risk of building green. So there is a job for you to be an educator as well. If only every organization could think about life cycle costs and benefits versus near-term or upfront costs and benefits. Now, I fully recognize that the way budgets, and teams and decision-making is set up in many organizations is siloed; it's separated between, you know, say, capital expenses and operating expenses. That's a problem. I can't solve that in this course, but perhaps you can with your work in your startup, or from within inside a larger organization. The point is clear. A minority - roughly 25 percent of the life cycle cost of a green building - a building, really, for that matter - are spent, essentially, upfront; construction, design, finance. The majority, roughly 75 percent - of course, it varies from building to building - but the majority of the life cycle cost of a building occur during operation. Because green buildings reduce operating costs, the idea is that it is hitting - is benefiting the largest portion of life cycle costs. The next few slides talk about the many financial and sometimes intangible benefits of green buildings. All of these benefits are backed by either peer-reviewed studies and/or studies produced by industry leading real estate organizations. The first here is rent premium. This is to say that when you control for all of the variables of buildings certified to, say, lead or Energy Star, or perhaps other standards in other countries, show that those green buildings, they tend to be able to charge higher rents on a per square foot per year basis. Sales. The sale of green buildings, the sale prices, tend to be higher than non-green buildings; again, when you're controlling for other variables, such as location and age and design and so forth. The third one there, absorption premium, means that green buildings tend to lease up, or sell out, more quickly. Occupancy premium. Green buildings tend to have higher occupancy ratios than non-green buildings, again, when controlling for most other factors. Imagine a green building with, hypothetically, 97 percent of its square footage occupied, leased out, versus the market average for similar buildings of, say, 93 percent. That delta represents material financial benefits. Lower operational expenses; the last one there, we talked about. And we'll have a slide on that here in a few slides. More financial benefits. Net operating income, NOI. A way that the economics of real estate are frequently measured. Obviously, the inputs from the prior slide go into formulating the higher NOI often attributable to green buildings. Number two. There are enhanced land sales. Green buildings are tending to help to sell lots, sell pads, sell land more quickly, but part of the reason there being the green brand of the project. I've seen this in prior roles at investment funds, where we owned some such land with green plans like this. Greater tenant retention. Green buildings tend to retain tenants longer. There's less churn, as they say. This is important because it saves on lost rent, fewer or lower broker fees and less money paid. Frontline lower rates for tenants for outfit allowances, in which tenants use those dollars to make the space unique to them. Improved retail sales. Products sold in green buildings tend to sell at a higher rate than those in non-green buildings or non, say, daylit areas of a store. How do you explain it? I don't know, but it tends to happen. Risk reduction. So think when/if there is a price on carbon, or as energy prices rise, let's say, as water prices rise, green building owners have - have a hedge, basically, because they consume less energy, less water. They are less exposed to the risk of those prices increasing. Here, efficiency improvements. Hard to argue with the goal of less waste. So 70 percent less construction and demolition waste in green buildings, on average, 30 to 50 percent less water use. That's very, very easy to achieve. Certainly, the projects that I've been involved in, that was the case. Then, say, 25 to 50 percent less energy use and often the same carbon emissions as well. Not all benefits are financial here. The non-financial benefits; increased productivity. Studies showing one to 15 percent boost in worker satisfaction and therefore productivity. Number two, the reduced absenteeism; so fewer sick days by employees, again, linked to green building features. How exactly, or why exactly that occurs, I'm not sure anyone really knows; but again, high level, an association between green buildings and fewer sick days. Number three. Students tend to perform better on standardized tests, such as math and reading, when they're studying in, taking tests in, green building-designed schools. Maybe this is about daylight, greater fresh air intake. The daylight piece, that tends to be what folks assume is the contributing factor. The first one there. Faster recovery rates at medical facilities. Again, maybe not intuitive, but recovery time is faster when you have things like more views to the outside, better daylighting, greater fresh air intake. Cleaner indoor air, you would also presume as well. Lots and lots of other human health benefits. And again, what tends to happen is that these benefits get a value of zero, right? Zero additional benefit to the bottom line. That's because they're hard to model. But the answer is not zero, it's non-zero. Now, where it is above zero, that's hard to say, but because we - the people - our salaries and benefits are typically the largest portion of a budget for many organizations, assuming a zero benefit to us from green buildings is a flaw. Let's go around, starting from the top left. When there is better daylighting in the space, there is an increase in sleep, basically, tied to circadian rhythms, therefore greater productivity. When there's better ventilation and air quality - number two, top middle of the slide - up to 100 percent increase in cognitive scores when workers are tested in those spaces. Number three, active layout design. Think about staircases that are welcoming and beautiful and safe and well-lit, so that workers take the stairs versus taking the elevator, as an example, to get exercise throughout the normal course of the day without driving to a gym. Number four; acoustics and noise reduction. There have been shown, in some studies, a 66 percent fall in staff performance when those things are not accounted for. Number five, the bottom in the middle. When thermal comfort is maximized, one such study showed a boost of 5 percent in employee performance. Number six; biophilia and views to the outside. When projects incorporated those strategies in the green buildings, there was a 10 percent boost in employee performance. Seven; location to amenities. So the option to not just get in your car as one single individual and drive to and from work, but options to bike and take mass transit, again, offer benefits to us, to human health. Key conclusions. People mistakenly assume that green buildings cost far more than they actually cost. Number two; it's difficult to quantify the non-financial benefits of green buildings and because, again, salaries and worker benefits are often the most expensive part of a business, these intangible aspects are very material. Number three; green buildings create many environmental benefits, as their name implies, but the financial and human benefits are the real drivers of growth. Finally, per other videos, grab a pen and paper, or perhaps your laptop and take notes for answers to these questions. The first one; when you mention green buildings to peers or stakeholders, what are their top three objections or complaints? Number two; which data points from the slides and readings in this course will you use to address some of those concerns? Finally, what aspects of the green building business case are most unfamiliar to you? Consider taking an hour, or two or three, this week to read more about those points. Great. With that, we'll see you in the next video.
