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The Cost of Building Green

The Cost of Building Green. Peter Morris Principal Davis Langdon. The Bottom Line. What does green cost? New construction Programmed renovation Green targeted renovation. New Construction. The project itself, without the green elements Just prices the added elements

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The Cost of Building Green

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  1. The Cost of Building Green • Peter Morris • Principal • Davis Langdon

  2. The Bottom Line • What does green cost? • New construction • Programmed renovation • Green targeted renovation

  3. New Construction • The project itself, without the green elements • Just prices the added elements • Some elements have no cost • Some elements are embedded in the project design or program • Some elements have identifiable cost • Usually results in an added cost of 3 – 8% • Generally correlates well with level of green

  4. New Construction • The original budget • Is typically self reported/anecdotal • Does not validate original budget • Usually results in an added cost of 0 – 2% • But outcome is highly skewed and • generally does not correlate with level of green

  5. Median Average New Construction

  6. New Construction • Comparable Buildings

  7. New Construction

  8. New Construction

  9. New Construction

  10. New Construction • Comparable Buildings • No statistically significant difference between LEED-seeking and non-LEED average costs for similar program types • Large variation in costs of buildings • Cost difference due primarily to program • There are some low cost and some high cost green buildings

  11. Programmed renovation • Results generally similar to new construction • Green features are usually a smaller percentage of total cost, but . . . • Programmed renovation may not plan to address all areas of desired improvement, and, • Discarded embodied energy may be significant

  12. Green targeted renovation • Can be more targeted – other needs are not competing for funds • Discarded embodied energy may be even more significant • Premium can be reduced by combining with planned renovation wherever possible • Challenge comes when all costs are attributable to green

  13. Life Cycle costing • Time value of money • Interest • Return on Investment • Discounted Cash Flow/Net Present Value • Short term cost of money • Fundraising • Debt limitation • Capital Constraints • Opportunity Cost • Inflation • Erodes long term value of money

  14. Life Cycle costing • Return on Investment (ROI) • Example: • Investment $100,000 • Annual Income $10,000

  15. Life Cycle costing

  16. Life Cycle costing

  17. Life Cycle costing

  18. Life Cycle costing

  19. Life Cycle costing • Typical Discount Rates • Federal/State Governments 3 – 5% • Institutional Owners 5 – 8% • Industrial Owners 10 – 20% • Developers 15 – 30% • Speculative Investment/VC 20 – 40%

  20. Life Cycle costing CPI = 710% over 50 years, or 4% p.a. PPI = 529% over 50 years, or 3.4% p.a. Elect. – 587%, 3.6% p.a. ENR – 1088%, 4.9% p.a. Gas – 1200%, 5.1% p.a.

  21. The Bottom Line • The Bottom Line on Cost • We have to: • Internalize • Integrate • Innovate

  22. The Bottom Line • The Bottom Line on Cost • Internalize • Understand the cost of green – for your specific project • Understand the owner/community’s cost of money • Understand the cost of failure • Understand the owner/community’s business model • Become Fluent in Economics/Financial language • Plan No Wishful Thinking

  23. The Bottom Line • The Bottom Line on Cost • Integrate • Integrate the project team (including owners and users) • Integrate with the community • Integrate sustainable elements into the design • Integrate sustainable improvements with planned work • Share Data: • Cost • Performance • Failure Green is not an add-on – nor is the owner – nor is the community

  24. The Bottom Line • The Bottom Line on Cost • Innovate • New forms of contract • New procurement approaches • New allocations of risk • New allocations of liability • Rethink the basic design paradigms • Eliminate waste • Make the old ways obsolete Insanity is doing the same thing and expecting a different result

  25. The Bottom Line • What does green really cost? • The comfort of doing things the old way • The ‘safe bet’ (nobody got fired for buying IBM) • A quiet life in the community • Somebody else to pass the problem to • The real cost is real change

  26. The Bottom Line The distance to the summit . . . . . . all depends . . . . . . on where you start.

  27. Keeping Green • Discussion:

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