Transcript Sept. 8 2006 City of..

MTS: leading environmental groups,
governments & companies
Using high leverage activities to achieve 90%
sustainable products market penetration by 2015:
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Capital markets
Education
Advertising
Standards
A nonprofit public charity
Purpose of Today’s Meeting
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Go over key issues in Capital Markets Partnership Strategic Plan
for Mayor Daley to stop dangerous climate change before it’s
irreversible.
The Plan requests Mayor Daley’s leadership to organize
the Partnership to secure higher ratings for sustainable
technologies to stop dangerous climate change.
The first step would be to recruit several other elected officials
& financial institutions.
The following slides summarize the Plan, benefits & rationale for
activities deserving higher ratings by Fitch, Moody’s & S&P: green
buildings & power, sustainable products, clean vehicles & mass transit.
Capital Markets Partnership
Strategic Plan To Stop Dangerous Climate Change
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We Only Have 5-10 yrs. to Eliminate 60% of Global
Pollution or else climate change will be irreversible &
catastrophic global damages will ensue (NASA & UK 2006).
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The Capital Markets Are the Best Solution Due To:
- Substantial & unprecedented amount of global
pollution reduction required
- Markets' speed and extent covering greatest
pollution amount
- Successful precedent
- Substantial limits of regulatory efforts
- White House support of such market mechanisms
Factors for Higher Ratings
Stopping Dangerous Climate Change
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Economic Risks are Real & Severe. Insurance
suffered $40B in climate damages in 2004, $80B in 2005, is
expecting further increases, and will end private insurance if these
damages remain unchecked (Reinsurance Risk Officers & Lloyds 2006).
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Agencies are Legally Responsible to Reflect These
Substantial Risks (SEC, Investment Advisors Act, & UN)
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There is no Discrimination & Devaluation
- Existing market differentiators of value are followed.
- Property not achieving higher ratings are not devalued.
- Any property can be made to be certified to higher rated
performance based consensus standards: green bdgs., green
power, sustainable products, clean vehicles & mass transit.
- Chicago & many governments have adopted them.
- Agencies require consensus stds. to limit risk & uncertainty.
60% of Global Carbon Reduction Needed in 5-10 yrs
to Stop Dangerous & Irreversible Climate Change
Fossil fuel use in 2000 (IEA)
Allocation of 6.2 GtC/yr
Allocation
6.2 GtC/yr&
Higher ratings
for greenofbuildings
power, sustainable products, clean
vehicles & mass transit, will reduce more
than the needed 3.7GtC/yr in 5-10 yrs.
Electricity: 40%
Fuels used directly: 60%
Transportation
Electricity
Heating
Successful Precedent
Phase 1 & Property Condition Assessment (PCA)
Resulted in 95% US Market Penetration in 3-5 Yrs.
100%
Phase 1 was rated
higher & PCA was
mandated
by Rating Agencies
for all mortgage backed
securities
90%
PCA
Growth
Phase 1
Growth
80%
70%
60%
50%
40%
30%
20%
LEED Green Building Growth
10%
Phase I
Property Condition
LEED
Green Power
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Benefits of Higher Ratings for Green
Buildings & Power, Sustainable Products,
Clean Vehicles & Mass Transit
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Stop substantial & devastating global damages &
runaway irreversible climate change
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Protect/enhance human health, environment & social
equity
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Ensure stability & prosperity of global capital markets
& economy
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Ensure viability of private insurance
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Offset annually rising energy costs for foreseeable
future providing energy security
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Implement much needed efficiencies in technology
Challenges & Solution
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Politics. Gore’s movie is very political. White House opposes regulation.
Bipartisan & business leadership vacuum.
Denial & Lack of Market Mechanisms. Not enough viable choices for consumers.
Many feel powerless & thus shut out the urgency & need to act.
Very Effective Disinformation. Energy industry is still paying about 20 perceived to
be reputable scientists & journalists to misrepresent the facts.
Intimidation/Fear. Many leading scientists including with governments, know we
only have 5-10 yrs. to solve the problem but are intimidated & afraid to speak out.
Legislation can help but we can’t pin our hopes on it.
Solution & Benefits to Chicago. The public wants leaders to tell
them about the problem, solutions, & how working together we can
solve it. Mayor Daley’s leadership is needed because the business
community alone will not solve this problem.
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This activity would provide a higher rating for any city bonding for
renewable energy or energy efficiency roughly saving the City $25M/yr. in interest for a $500M bond.
Chicago could host the first meeting of the Capital Markets
Partnership and showcase it’s sustainable leadership &
achievements.
Management Team
John Howard, Attorney, Vinson & Elkins, past White House
Environmental Executive
Don Reed, CFA, Ecos Corp., MTS Economic Benefits Committee Chair
Dan Winters, LEED AP, President, Evolution Partners, Real Estate
Finance Expert
Leanne Tobias, President, Malachite LLC, Real Estate Investment
Advisors, formerly with Mortgage Bankers Association
David Springer, Attorney & Government Affairs Expert, Venable
Paul Watchman. Attorney, Freshfields, author of UN Study concluding
that laws of countries with capital markets require reflection of climate risk
Chris Walker, Attorney, Swiss Re & The Climate Group
Rob Watson, Senior Scientist, MBA, Natural Resources Defense
Council. Cofounder of LEED and USGBC Director
Chris Dobrzanski, Sr VP, Citizens Bank of Canada, Vancity Bank
Matt Petersen, CEO, Global Green, MTS Director & Partner in Enterprise
Foundation $550m green building fund
Jim Dougherty, Attorney, Sierra Club
Economic Benefits
Green Buildings Are Growing at a 70% Rate and are 5% of
New Construction Market.
Turner Construction's 2005 Green Building Construction
Survey of 719 building executives shows:
- 93% expect their green building workload to rise
- 51% expect substantial increases
SMART© Sustainable Building Product
Standards Adopted by California, Dallas & Chicago
Multiple environmental, social & economic benefits over global
supply chain. Economic benefits equal or exceed green buildings.
Maximum Credit for Certified Products With:
• 100% reduction of 1000 pollutants
• 100% Green-e power use
• 100% postconsumer recycled content
• 100% biobased organic content w/BMPs
• 100% reuse/reclamation
• Social equity requirements
Phenomenal USGBC Member Growth
We Gave The Market What It Wanted:
consensus green building standard
Who’s Driving Growth? Everyone
LEED Green Building US Distribution
GREEN BUILDING FACTS
HIGHER REVENUE
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Green building rents are in the upper quartile of Class A
peer group when compared across different markets and
varying time frames
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Lease-up rates significantly exceed pro-forma
expectations in numerous case studies
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At $30.00 NNN office lease rates, one month of lost revenue
due to slower lease-up = ($2.50/SF)
LOWER OPERATING EXPENSES
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67% of LEED-certified buildings to date received credit
for a 30% increase in energy efficiency
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At $2.85/SF avg. for utilities, a 30% reduction = $0.86/SF
Operations and maintenance costs consistently in lower
quartile when compared against BOMA peer group
Every $1.00/SF in increased revenue and/or reduced operating
expenses equals $12.50/SF in property value at an 8.0% cap rate
LOWER OCCUPANCY COSTS
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Green building tenants achieve superior metrics on their
total occupancy costs
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Recruiting, retention, absenteeism / inner-office
technological churn / employee personal comfort / general
productivity / insurance and medical / risk
State of California has taken
a global leadership role by
launching the Green Wave
Initiative & LEED
CalPERS is stimulating global
private markets toward
environmentally sound, risk
adjusted investment opportunities
when considering Real Estate
investment allocations
By approving allocations to Green
Real Estate Private Equity, CalPERS
is the catalyst for far-reaching
impacts:
• State of CA continues leadership
in environmental stewardship &
moves forward the objectives of
Executive Order s-20-04
• Higher risk-adjusted rates of
return
• Reduction in state-wide energy
usage and infrastructure
Rating Agencies
• Address environmentally
responsible projects
• Assets deemed superior risk-adjusted
investments
• RESULT: Lower cost of debt /
equity capital for Green projects
Evolution Partners
Wells Fargo
• World-class Green private equity
professionals & thought leaders
• Develops Green financial
instruments
• Solely focused on acquiring
Green buildings in select markets
• Lowers lending rates / creates
Green mortgage backed
securities (MBS and CMBS)
• EP develops preferred lending
relationship with Green-focused
banking groups
• Becomes Green Bank of Choice
by addressing the demands of
consumers, developers & investors
• Reduction in water use and
infrastructure
• Lower raw material usage &
landfill construction waste
• Reduction in auto-based
transportation & urban sprawl
• Increased investor capital flow to
meet residential & commercial
consumer demand
• Creates markets for emerging
energy technologies / stimulates
investment in alternative energy
LEED
Investment
Funds
Social Investors
• $2.2 trillion in US investments *
• Green MBS and Green CMBS
become preferred holdings
• RESULT: Increasing the demand
for Green assets
* Source: Social Investment Forum, 2003
Retail Green Buildings/MBS
Green Mortgage
Backed Securities (MBS)
Can Cause Certification of Thousands of Green
Buildings, Pool Their Mortgages, Obtain Higher
Rating & Sell it as a Security. Everyone makes
more $$.
Successful Precedent:
Phase I & Property Condition Assessment
Resulted in 95% Market Penetration in 3-5 Yrs.
Substantial value is created for entire building industry.
Green MBS Added Value
Buildings owners/developers achieve lower
costs, higher asset value, more productive work
environments & possibly a lower cost of capital via
mortgage rate.
Investment bankers achieve value through profit
& differentiation surrounding structure & distribution
of Green MBS pool.
Ratings agencies reduce risks of Green MBS pool
& receive commission.
Investors purchase Green MBS backed by assets
that are worth more, viewed as less risky, & more
closely aligned with investor goals of purchasing
sustainable assets.
Hines Peachtree
Symphony Center
41 story
Atlanta office
tower
with retail
store,
supermarket
& art gallery;
registered
LEED project
Economic Benefits
100,000 ft² LEED™ building saves*
• $80,000/yr in energy costs
• $93,000 through 186 tons of waste reduction
• $44,000/yr for avoided wastewater treatment
& water conservation
• $53,368/yr from energy efficient appliances
& lighting
* about 30-50% in operating costs, MTS Economic Benefits Standard
LEED EB CERTIFIED
National Geographic Society
Headquarters, Wash., DC
The Society added $16M in
value from this LEED
certification from a higher
appraised value, raising
tenant rents, lower
operating costs, increased
credit rating from Moody’s,
& lower interest rates on
large loans secured to the
building. Presentation at 2003
Congressional Green Building Luncheon
by Chris Liedel, CFO, National
Geographic Society.
Economic Benefits
Increased Building Valuation
• Using the income-capitalization method:
asset value = net operating income (NOI)
divided by the capitalization rate. If the cap
rate is 7%, divide the reduction in annual
operating costs by 7% to calculate the
increase in the building’s asset value.
• Green building cost/investment is 20 year
net benefit of $50 to $66/ft² based on 33
green buildings (USGBC/Capital-E 2003),
and 10% net dollar savings for the total
investment from 300 Johnson Controls
Green Buildings (Leonardo Academy 2001).
Economic Benefits
Projected 70% US Commercial Green
Building Market Penetration*
Energy Savings & Daylighting:
Construction Waste Reduction:
Water Pollution Savings from Water Conservation:
Energy Savings from appliances & Lighting:
Added Value from Increased Occupant Productivity,
IAQ & Reduced Absenteeism:
Emission Reductions’ Market Value:
$
Total
$36 Billion/yr
$6.7 B/yr
$20 B/yr
$24 B/yr
$632 B/yr
1.1 B/yr
$720 billion/yr value added
Green Retail Buildings Will Also Accrue Increased Retail Sales
* Leonardo Academy & MTS Projections 2003
Cheaper Cost of Capital
Program
The Economic Benefits Committee’s cheaper cost of
capital for Green & ENERGY STAR Buildings:
• Green MBS
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Whole green building loan product
Institutional financing for green buildings - debt & equity
Improved credit ratings for investors, Green REITS & owners
Higher appraised value for real estate
Green Building Finance Summit in NYC with over $100B in real
estate investment represented, concluded that green buildings are
more valuable through debt & equity panels & case studies
• Prepared Case For Added Green Building Value for CMBS
industry & Fitch
Tom Owens, Sr. VP
Hines Development
from October 2003 MTS/BOM Special Report “Green Economics”
• “If a building costs less to operate, then there is less
risk in owning that building”… “Tenants will be
attracted to that. The buildings are easier to keep
leased in down times and can draw a premium rent
in up times.”
• “If the owner has lower financing costs, you’re
effectively giving the owner money for less,” …. “As
a result the developer could borrow more money —
money that can be applied to making the building
even greener.”
• Owens said Hines has recognized the value of
energy efficiency and green buildings. “It’s time the
agencies recognized this.”
Next Steps
Strategic Plan To Stop Dangerous Climate Change
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Higher ratings for sustainable technologies will stop
dangerous climate change.
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We are continuing discussions with other leading
elected officials with a nexus to capital markets & who
have assisted:
Governors Corzine & Schwarzeneger, Attorney General
Spitzer & Mayor Bloomberg
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Will You Ask Mayor Daley to Take a Leadership Role?
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Should we Confirm the Meeting Requested With Mayor
Daley in our July 6 Letter?