This document discusses green building financing. It notes that while the additional upfront cost of greening a building is small, around 1-3% of total construction costs, green buildings can provide long term savings through lower operating costs. Lenders are starting to underwrite loans that account for improved financial performance from green buildings. Rating systems can benchmark and rate buildings on their energy use, water consumption, and waste reduction. Components of green underwriting examine areas like energy cost savings, faster rental absorption, and incentives. However, barriers still exist like lack of data on financial benefits and higher initial costs.

1. Green for Green: financing for green buildings Janet Hamer, Federal Reserve Bank of Atlanta Jacksonville Branch, Community Affairs September 22, 2009 The comments in this presentation are those of the presenter alone and do not necessarily reflect the views of the Federal Reserve Bank of Atlanta or the Federal Reserve System.

2. Why green, according to New Ecology Average construction cost: $181/SF Greening cost: $2-6/SF Percentage increase for greening: 1.1%-3.3%

3. Green financing, defined A system of public and private sector financing mechanisms that promote sustainable development

4. Green v. traditional financing Traditional Short to midterm financial outcomes First costs focus Income & expenses NPV, ROI, IRR, NOI Green Socially/environmental expectations Life cycle cost analysis Income & expenses NPV, ROI, IRR, NOI Savings

6. Underwriting that accounts of improved NOI, green-trained staff, encouraging greening

7. Retail:

8. Green mortgages, reduced closing costs, climate-themed credit cards, car loans with reduced rates for environmentally friendly cars

9. Operations:

11. The components, benchmarking and ratings Focus on: Energy use Water consumption Waste

12. Components, benchmarking and rating systems Rating systems: In-house systems Third-party systems LEED NAHB Earthcraft Energy Star (recently expanded to multifamily) Florida Green Building Coalition Many others

13. Components, underwriting Green cash flows Energy cost savings (operating) Water cost savings (operating) Faster absorption (if you can prove market demand) (income) Rental premiums (more true for commercial than for residential) (income) Enhanced retention (income)

14. Components, incentives Source: 2007 Green Building Survey, National Real Estate Investor and Retail Traffic

15. Components, incentives Equity/endowments/mission-based capital Traditional financing Real estate development Federal New Markets Tax Credits Community Development Block Grants State Energy Efficiency (http://www.dsireusa.org/) Federal DOE Weatherization American Recovery Act Program New Markets Tax Credits EE Conservation Block Grants HUD (NSP2 and technical assistance) Tax credits State and local Utility company rebates/incentives Water conservation State and local

16. Barriers to more green buildings Source: Energy Efficiency in Buildings, World Business Council for Sustainable Development, July 2008

17. Thank you. Federal Reserve Bank of Atlanta Janet.hamer@atl.frb.org 904-632-3588