1. December 2014 Thomas A. Dorsey Appraisals and financing – moving towards a sustainable tomorrow

2. One of the perceived challenges to green construction and renovations is the ability to obtain financing. The role of the real estate appraiser is central to this process. This presentation introduces “green” practitioners to the valuation implications of properties constructed to sustainable building standards, positions them to assist the appraiser in the valuation assignment, and reviews financing programs designed specifically to support properties that address environmental concerns. COURSE DESCRIPTION December 4, 2014Green NC2

3. Course Content/Objectives  Reviewing the history of “green” buildings  Appreciating Green NC – learning how North Carolina stacks up  Understanding real estate appraisers – who they are, what they do, and what they need  Introducing the value proposition for “green”  Identifying financing opportunities for “green” properties December 4, 2014Green NC3

4.  Reviewing the history of “green” buildings 1. HISTORY

5. December 4, 20145Green NC

6. HOW DID WE FORGET? December 4, 20146Green NC Roman architect, Vitruvius, taught sustainable building principles, as recorded in De Architectura (15 BCE)

7. WATER FIRE EARTHETHER AIR THE FIVE ELEMENTS (included in different philosophies) December 4, 20147Green NC

8. ….development that meets the needs of the present without compromising the ability of future generations to meet their own needs. EARTH DAY 1970 1987 The first Earth Day led to the creation of the United States Environmental Protection Agency and the passage of the Clean Air, Clean Water, and Endangered Species Acts. U.S. Green Building Council 1993 …transform the way buildings and communities are designed, built and operated, enabling an environmentally and socially responsible, healthy, and prosperous environment that improves the quality of life.

9. December 4, 2014 Green NC9 Increasing awareness on the various environmental problems has led a shift in the way consumers go about their life. There has been a change in consumer attitudes towards a green lifestyle. People are actively trying to reduce their impact on the environment. However, this is not widespread and is still evolving. http://ccsenet.org/journal/index.php/ass/article/view/20767 …the percentage of Generation Y who report that they "buy as many green/eco-friendly products as they can" is up to 36% in 2012 from 31% in 2009, a 16% growth rate during some tough economic times, according to our survey of 4,000 US adults. Generation Y, those born between 1977-1998, is showing signs of a major shift in green attitudes... http://www.theguardian.com/sustainable-business/blog/rise-generation-y-sustainable-marketplace

10. PEOPLE PLANET PROFIT CORPORATE AMERICA HAS EMBRACED GREEN! December 4, 201410Green NC

11. Our Environmental Commitment Health and wellbeing of customers and team members “A healthy environment is an integral part of positive community development and long-term business success. We've been working hard to integrate environmental stewardship into everything we do and are proud to be recognized for our efforts. Company efforts will help us fund and create environmental solutions that will provide long-term sustainability for our communities, our company and our team members.” - Mary Wenzel, Environmental Affairs Wells Fargo

12.  Appreciating Green NC – learning how North Carolina stacks up 2. GREEN NORTH CAROLINA

13. December 4, 2014Green NC13 Report: N.C. ranks second in U.S. for new solar capacity under development Source: SNL Energy as reported by the Charlotte Business Journal May 21, 2014

14. For 2013 new LEED-certifications, North Carolina ranked: 7 th in per-capita square footage And, among the top 10: 5 th in the number of new certified projects 4 th in total square footage in new projects 1999: 1 chapter; 2013: 77 2000: 51 projects; 2013: 102,742 2001: 448 LEED professionals; 2013: 196,537 NATIONALLY: December 4, 2014 14 Green NC Nov. 18, 2014NC Platinum 50 Gold 401 Silver 392 Certified 130 Subtotal 973 Registered 819 TOTAL 1,792

15. 15 ProjectCityRating system Dubose ResidenceAshevilleHomes Ngoie ResidenceAshevilleHomes Greene StAshevilleHomes 208 RegimentAshevilleHomes Similton ResidenceAshevilleNew Construction Water Garden VillageBlack MountainHomes Urban CottageBooneHomes Habitat for Humanity LEED H PilotBooneHomes McCullough residenceCaryNew Construction ASU Mountaineer Residence HallChapel HillSchools - New Construction Bono ResidenceChapel HillCore and Shell Boyd ResidenceChapel HillNew Construction Barmettler LEEDStarCharlotteHomes Lucky Clays FarmCharlotteHomes Kankienza/Beyoko ResidenceCharlotteExisting Buildings Davidson Springs Lot 3CharlotteCore and Shell 40 Lake AvenueCharlotteCommercial Interiors Meadowcreek CommonsCharlotteCommercial Interiors Vandemusser ResidenceCharlotteCommercial Interiors Our Towns LEED HouseCharlotteCommercial Interiors Ken and Amy MurphyCharlotteNew Construction Mutela/Kolanda ResidenceConoverSchools - New Construction Walters ResidenceDurhamCore and Shell 74 Boyd Ave.DurhamNew Construction Greek House QDurhamNew Construction Pate ResidenceElonHomes Greek House RElonHomes Greek House SElonHomes Greek House OPElonHomes Greek House NElonHomes Landings at SouthpointFort BraggNew Construction Walters ResidenceGreensboroNew Construction Deborah and Mick Edwards ResidenceGreensboroCore and Shell Stober ResidenceMCB Camp LejeuneNew Construction Morris ResidenceMooresvilleHomes Bryant ResidenceNags HeadNew Construction Highland TerraceRaleighNew Construction Talon Court RenovationRaleighNew Construction Cherry GardenRaleighNew Construction Mean Lean Dream Green HomeRaleighCommercial Interiors Penick WoodlandsRobbinsvilleHomes Holderness ResidenceSanfordCommercial Interiors The Common Sense Green HouseStatesvilleHomes Greenspiration HomeSwannanoaExisting Buildings 393 GlendaleWake ForestNew Construction Konrady Green HomeWilmingtonHomes PrimroseWilmingtonHomes Multipurpose BuildingWinston SalemCore and Shell DROF - Master SiteWinston SalemCore and Shell Duke University West UnionNew Construction NC PLATINUM AshevilleCamp Lejeune Black MountainMooresville BooneNags Head CaryRaleigh Chapel HillRobbinsville CharlotteSanford ConoverStatesville DurhamSwannanoa ElonWake Forest Fort BraggWilmington GreensboroWinston Salem November 18, 2014

16. “If you’d told me that we could build a luxury hotel and save 39% energy, I would have said maybe. If you’d told me that we could use 34% less water and still maintain the luxury, I would have said no way.” Dennis Quaintance, Quaintance-Weaver Restaurants and Hotels PROXIMITY HOTEL – Greensboro, NC – LEED Platinum December 4, 201416Green NC

17. Photo: CREE/video screen capture McDonald’s has TWO LEED-certified restaurants in Cary, NC 1299 Kildaire Farm Rd (2009) and Crossroads Plaza on Walnut Street (2013) At the report date, these were 2 of only 9 LEED McDonald’s in the U.S. Crossroads Plaza is the 3 rd LEED Gold McDonald’s and the first of a planned 25 LEED McDonald’s under the USGBC’s volume program Schedule a tour: http://mcdonaldsadvantage.com/green-mcdonalds-store-tours-2/http://mcdonaldsadvantage.com/green-mcdonalds-store-tours-2/ Featuring natural daylighting, LED lighting, water saving features, electric vehicle charging and an awning made from solar panels, the restaurant is projected to use 24 percent less energy than a standard McDonald's. As reported by Amanda Jones Hoyle in the Triangle Business Journal, September 9, 2013, for the Walnut Drive restaurant owned by Ric Richards.

18.  Understanding real estate appraisers – who they are, what they do, and what they need 3. THE APPRAISER

19. STATE CERTIFICATION CERTIFIED RESIDENTIAL APPRAISER (1-4 unit residential properties) - 2-year degree, 200 hours appraisal education, 2,500 hours of experience, and exam CERTIFIED GENERAL APPRAISER - 4-year degree, 300 hours appraisal education, 3,000 hours of experience (50%+ non-residential), and exam CONTINUING EDUCATION REQUIREMENTS ENFORCEMENT, DISCIPLINE, ETC. December 4, 201419Green NC

20. USPAP: Appraiser …one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective. USPAP: Uniform Standards of Professional Appraisal Practice December 4, 201420Green NC

21. WHAT IS AN APPRAISAL? The act or process of developing an opinion of value Opinions include various types of property and assets Appraisers often have different opinions December 4, 201421Green NC

22. MARKET VALUE DEFINITION INTERNATIONAL VALUATION STANDARDS ……the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion. December 4, 201422Green NC

23. VALUE …..never a fact but always an opinion of the worth of a property at a given time in accordance with a specific definition of value ….market value, liquidation value, investment value, insurance value, etc. December 4, 201423Green NC

24. The cost approach (the buyer will not pay more for a property than it would cost to build an equivalent). The sales comparison approach (comparing a property's characteristics with those of comparable properties that have recently sold in similar transactions). The income approach (similar to the methods used for financial valuation, securities analysis or bond pricing) Source: Wikipedia COMPONENTS OF THE APPRAISAL December 4, 201424 Why pay more than you can get a substitute for? Green NC

25. Standards Rule 1-4 In developing a real property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results. December 4, 201425Green NC

26. HUNGRY FOR INFORMATION Registered projects Certified projects Documentation Point allocation Modeling, trade-offs, etc. Sources: ARCHITECTS, ENGINEERS, CONTRACTORS…AND THE MARKET December 4, 201426Green NC

27. The multi billion dollar potential in green building is pitting home builders against home appraisers in a fight to find value in an improved environment... “Appraisers are behind the curve….” vs. “So far buyers prefer granite over green…” There's No Extra Green in Green Homes Published: Wednesday, 21 Apr 2010 | 3:43 PM ET Realty Check with Diana Olick - CNBC December 4, 201427Green NC

28. Valuation of Sustainable Buildings Professional Development Program  Introduction to Green Buildings: Principles & Concepts  Case Studies in Appraising Green Residential Buildings  Case Studies in Appraising Green Commercial Buildings  Residential and Commercial Valuation of Solar

29. April 16, 2014Innovative Infrastructure Conference29

30.  Introducing the value proposition for “green” 4. VALUE PROPOSITION

31. The dollars and sense of green retrofits Sooner is better than later, and it could cost less than you think A joint study by Deloitte and Charles Lockwood Motives for undergoing a green retrofit (survey responses - 2007) February 9, 201231

32. INVESTMENT HYPOTHESIS: WHAT TO LOOK FOR 1.Higher rents 2.Lower operating expense (less risk) 3.Faster absorption 4.Lower tenant turnover 5.Lower risks 6.Higher value 7.Recovery of added costs MYTH-BUSTING The commonly held belief that green building necessitated higher costs has proven a false assumption, as design and building profession- als, together with product manufacturers, have found ways to achieve savings in up-front costs. RSMeans - Introduction Green Building: Project Planning & Cost Estimating February 9, 201232

33. December 4, 201433Green NC

34.  Identifying financing opportunities for “green” properties 5. FINANCING

35. CERES Definition of Sustainability “How environmental, social and economic considerations are integrated into corporate strategy and capital markets for the long term.” Coalition of institutional investors, environmental organizations and 60+ member companies working to address sustainability challenges Sets criteria with an environmental ethic, by which investors can assess companies. Launched the Global Reporting Initiative, known as GRI. Coalition for Environmentally Responsible Economies

36. Wells Fargo’s Environmental Commitment Accelerating a “Greener” Economy “Where We Do Business” Customer engagement: Increase customer education and engagement on cost-saving environmental opportunities, with a focus on paper reduction and residential energy efficiency Environmental financing — providing $30 billion of financing by 2020 to environmentally beneficial business opportunities Environmental and social risk management — promoting responsible ways of doing business together with our business customers

37. The book can be downloaded for free as a public service of the Consortium. A hardbound book is also available for $35.00 USD plus shipping. http://www.greenbuildingfc.com/ …methods and practices necessary to assess the value and risk of sustainable property investment, while providing those seeking money an insider’s view on how capital providers value property and make investment decisions.

38. Q & A December 4, 201438Green NC Thomas A. Dorsey, MAI, SRA is the 2014 chair of the USGBC’s North Carolina Chapter. He is a LEED AP (BD+C) and is qualified as a real estate appraiser, broker, and general contractor. Tom earned the B.A. Degree at Case Western Reserve University and the M.B.A. at Florida Atlantic University. He holds a Certificate in Sustainability from Wake Forest University, and he is a graduate of Leadership North Carolina. Tom is a senior vice president at Wells Fargo, where he leads the team that provides portfolio management services to administrative buildings in the Carolinas.

39. APPENDIX F I N A N C I N G

40. Funding Opportunities o Numerous sources of funding for green building are available at the national, state and local levels for homeowners, industry, government organizations and nonprofits. o EPA does not currently provide funding to support green building projects. http://www.epa.gov/

41. https://www.go-gba.org / No matter the scale of your project, there are an abundance of green building incentives and financial mechanisms to help you through the process.

42. http://www.ctcleanenergy.com/Default.aspx The Clean Energy Finance and Investment Authority (CEFIA) is the successor organization to the Connecticut Clean Energy Fund (CCEF) Commercial Property Assessed Clean Energy (C-PACE) is an innovative program that is helping commercial, industrial and multi-family property owners access affordable, long-term financing for smart energy upgrades to their buildings.

43. http://www.c-pace.com/ Connecticut Property Assessed Clean Energy (C-PACE) is an innovative program that is helping commercial, industrial and multi-family property owners access affordable, long-term financing for smart energy upgrades to their buildings. C-PACE allows building owners to finance qualifying energy efficiency and clean energy improvements through placing a voluntary assessment on their property tax bill. Property owners pay for the improvements over time through this additional charge on their property tax bill and the repayment obligation transfers automatically to the next owner if the property is sold. Similar to a sewer tax assessment, capital provided under the C-PACE program is secured by a lien on the property, so low- interest capital can be raised from the private sector with no government financing required. PACE financing offers a broad range of benefits to building owners, municipalities, mortgage holders, lenders and energy efficiency/renewable energy contractors. CLICK the links on the left to learn more about how C-PACE benefits you.

44. C-PACE provides 100% upfront, fixed rate, long-term financing to property owners for qualified energy upgrades. Game-changing benefits for owners are: C-PACE assessments may qualify as an operating expense. This means owners can finance improvements without incurring additional debt and preserve capital and credit lines for core business investments. Also, under typical leases, payments – as well as energy savings – can be passed along to tenants. The tax obligation (which is attached to the property) transfers upon sale to the new owner. Unlike other lending options, payments do not accelerate in case of default. The C-PACE program requires projects to be cash flow-positive from project completion. Financing is structured so that energy savings must more than offset the additional property tax assessment. Deeper energy upgrades are possible because the term of the assessment is up to 20 years and stays with the property rather than the owner. Owners achieve lower operating costs due to increased energy efficiency, improved asset value from new equipment, and a better indoor air quality and comfort for tenants.

45. Green Bonds enable capital-raising and investment for new and existing projects with environmental benefits. Recent activity indicates that the market for Green Bonds is developing rapidly. The Green Bond Principles (GBP) are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Green Bond market by clarifying the approach for issuance of a Green Bond. The GBP are intended for broad use by the market: they provide issuers guidance on the key components involved in launching a credible Green Bond; they aid investors by ensuring availability of information necessary to evaluate the environmental impact of their Green Bond investments; and they assist underwriters by moving the market towards standard disclosures which will facilitate transactions. Coalition for Environmentally Responsible Economies (CERES)

46. http://www.ussif.org/ (formerly www.responsibleproperty.net and www.socialinvest.org) The Forum for Sustainable and Responsible Investment is the US membership association for professionals, firms, institutions and organizations engaged in sustainable, responsible, and impact investing. US SIF and its members advance investment practices that consider environmental, social and corporate governance criteria to generate long-term competitive financial returns and positive societal impact.

47. http://www.gsi-alliance.org/ …collaboration of membership-based sustainable investment organizations around the world. The GSIA’s mission is to deepen the impact and visibility of sustainable investment organizations at the global level. Our vision is a world where sustainable investment is integrated into financial systems and the investment chain and where all regions of the world have coverage by vigorous membership based institutions that represent and advance the sustainable investment community.

48. http://www.robecosam.com/ 1995 SAM founded as the world's first asset management company focusing exclusively on Sustainability Investing 1999 The Dow Jones Sustainability Indices (DJSI) launched in partnership with S&P Dow Jones Indices 2013 …renamed RobecoSAM….sustainability expertise and insights are incorporated into Robeco Group’s entire product and service range.

49. http://www.sustainability-indices.com/index.jsp …launched in 1999 as the first global sustainability benchmarks. The indices are offered cooperatively by RobecoSAM and S&P Dow Jones Indices. The family tracks the stock performance of the world's leading companies in terms of economic, environmental and social criteria. The indices serve as benchmarks for investors who integrate sustainability considerations into their portfolios, and provide an effective engagement platform for companies who want to adopt sustainable best practices. S&P Dow Jones Indices LLC is the world's largest, global resource for index-based concepts, data and research. RobecoSAM (Zurich, Switzerland) is an investment specialist focused exclusively on Sustainability Investing.

50. www.capitalmarketspartnership.com Investors with over $70 trillion in assets want to purchase sustainable or green assets including green building and convertible bonds (National Green Building Secondary Financing Launch at TIAA-CREF, 2012). Consensus Green Building and Sustainable Manufacturing Underwriting Standards: Allow green bond and equity underwriting to determine added value Meet national green financing requirements of FHFA, OCC, and FTC Cover 80% of all economic activity across the global supply chain Are based on Wall Street due diligence released at the NYSE consisting of over 30 peer-reviewed reports, standards and investor surveys documenting with national statistically valid data, that sustainable investment including bonds, are more profitable, less risky, and preferred by investors. ​ The Underwriting Standards are available from ANSI..