A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL

1. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL APPRAISERS Arch. Antonella Mazzeo, MBA, Luiss Business School Prof. Giacomo Morri, Director Master in Real Estate - SDA Bocconi

2. A few questions in a today market • How to incorporate green issues into value in the mid term? • Does the conventional evaluating model fit the Green Property ? • How can we improve the conventional evaluating model in the mid term? A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL

3. AGENDA • Green Issues and Value • Anevaluating model in the midterm • A Case Study in Rome, Italy • Future Scenario A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL

4. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL GREEN ISSUES AND VALUE • Sustainable Sites and Community Connectivity • Water and Energy Efficiency • Atmosphere • Materials & Resources • Indoor Environmental Quality • Innovation & Design Process REVENUES (RENT) EXPENSES RISK * Categories by main sustainable certification processes

5. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL GREEN ISSUES AND VALUE • Saving money • Risk Mitigation • Energy Saving • Water Saving • Space Saving • Productivity Increasing(?) • Insurance Saving(?) • Process Performance Optimization • Feature Performance Increasing • Building Performance Increasing • Market Performance Increasing • Financial Performance Increasing REAL ESTATE EVALUATING MODEL

6. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL GREEN ISSUES AND VALUE • How many comparables in Italy? ECONOMY EFFICACY EFFICIENCY Number of Buildings Green Buildings Sustainable Buildings Energy Efficiency

7. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL AN EVALUATING MODEL IN THE MID TERM • Does the traditional evaluating model match the Green Property ? PV = CF / (1+r)t • CASH FLOW ANALYSIS 1 2 … … n-1 n • + Base Rental Revenue • - Base Rent Abatements • BASE RENTAL INCOME • - Vacancy & Collection Loss • EFFECTIVE GROSS INCOME • Operating Expenses • Insurance costs • - Maintenance costs • Real Estate Taxes • NET OPERATING INCOME Howto link RentalGrow Depreciation Risk Premium Cash flow To GREEN ?

8. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL AN EVALUATING MODEL IN THE MID TERM PV = CF / (1+r)t Past / Present Midterm Value = Income / Capitalization rate Rent Vacancy Expenses Views Finishes Flexibility Illiquidity Investment Urbanistic Use Location Maintenance Quality Tenant Leasestructure Last of leasecontract Location Amenities Design Abilitytoattracttenant Operating Electricity, heating, cooling, utilities Maintenance HVAC and finishes Cap Ex Constructioncosts Add in = Rent Vacancy Expenses Health space planning Operatingsaving Productivity OtherRisk Process performance Feature performance Building performance Market performance Financial performance Reflecting brand & image Operating & spacesaving Maintenancesaving

9. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL AN EVALUATING MODEL IN THE MID TERM CONVENTIONAL BUILDINGS + Green Building issues Levers of value P.V. Revenues Expenses Risks Finishes Energysaving Water saving Lessabsenteism Higherproductivity Lowervacancy Bettertenant Maintenancesaving Insurancesaving Process performance Feature performance Building performance Market performance Financial performance Healt space planning (core and shelldimension, windowssizes, mechanicalventilation rate) Rent per Area Stability of Rent Maintenance & Insurancecosts Risk Rentable Area - Expenses - Discounted Rate + Rent NET OPERATING INCOME CAP RATE PRICE VALUE

10. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL AN EVALUATING MODEL IN THE MID TERM • BUILDING CASH FLOW ANALYSIS 1 2 … … n-1 n • + Base Rental Revenue • + Space saving • - Base Rent Abatements • BASE RENTAL INCOME • ADD: • + Energy Saving • + Water Saving • + Health and Worker Saving Costs (Productivity) • + Energy Producing • + Government Incentives • (+ Green Certification sell) • + Turnover Vacancy • Capital expenditures • POTENTIAL GROSS INCOME • - Vacancy & Collection Loss • EFFECTIVE GROSS INCOME • Operating Expenses • Real Estate Taxes • (+ Green Design & Construction) • (+ Contracts ) • - Insurance cost • - Maintenance Costs • NET OPERATING INCOME + RENEWABLE ENERGY CASH FLOW ANALYSIS

11. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL A CASE STUDY IN ROME, ITALY • Building Features • 6900 square meters office • 1 story underground • 4 stories • Building Performance • energy efficiency 45% • water efficiency 50% • 70 more workers • DCF Assumptionsfor the Initiative • REVENUES (first year) • + traditional rent revenues : • +10% office vacancy rate ( first year) • + space efficiency saving • 1% office vacancy rate (over years) • + energy efficiency saving • + water efficiency saving • + productivity/ + absenteeism reduction (10%) • + government incentives (for 5 years) • (building energy , retrofitting, solar panel, HVAC) • COSTS • maintenance • insurance • about € 1.900.000 • about € 230.000 • about € 30.000 • about € 8.000 • about € 15.000 • about € 190.000 • about € 2.300.000 • about € 2.100.000 • About € 45.000 • 10% • we consider - REVENUES from green REVENUES from renewable technology (incentives from GSE + direct sell + energy not paid to electricity deliverer)

12. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL AN EVALUATING MODEL IN THE MID TERM Add in Healthspace planning Operating saving

13. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL AN EVALUATING MODEL IN THE MID TERM Add in Productivity Indoor EnvironmentalQuality

14. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL A CASE STUDY IN ROME, ITALY Evaluating a building with the “add in” evaluating model gives an extra MARKET VALUE of 20%.

15. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL FUTURE SCENARIO EVALUATION MODELING Green Buildings> ConventionalBuildings RENT UTILITIES RENT Green Buildings< ConventionalBuildings UTILITIES Long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ≥ 10 years

16. A “MEDIUM TERM” ADD IN PROPOSAL FOR GREEN PROPERTY APPRAISAL FINE THANK YOU FOR YOUR ATTENTION