1. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Capital Markets and Green National Green Building Underwriting Standard

2. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Overview What is green as it applies to real estate finance Capital markets requirement of a national standard Which green aspects are important

3. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 What is Green in the Real Estate Industry? 1.Best business practices –Maximize efficiency aspects in construction / operations –Minimize waste and costs –Capture free inputs from natural environment –Increased architect / engineer / contractor coordination 2.Mark of high-quality construction and asset value via several third-party verification processes 3.A product differentiation marker based on: –Energy and water operational cost savings –IEQ and associated health benefits –Amenities –Asset quality (perceived / real)

4. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Why Are Investors / Companies Going Green? Its just business…… 1.Operational cost efficiency 2.Risk reduction 3.Best management practices 4.Halo effect

5. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Capital Markets Focus Financially Tangible Asset Attributes Energy efficiency Water efficiency Location aspects –Transit orientation –Pedestrian accessibility –Neighborhood amenities Indoor environmental quality

6. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Capital Market Relevance INVESTOR / LENDER Fiduciary Responsibility Effective risk management –Energy/water price increases – risk exposure –Energy/water price volatility – risk exposure –Litigation / liability – risk exposure Transparent information / reporting –Provide additional relevant data points –Third-party verified OPERATOR / BORROWER Maximize Business Opportunities Improves competitiveness Improves operational efficiency –Cash flow and material risk factors Promotes market differentiation Enhances brand value Facilitates progress –Societal –Business

7. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 CFO Research Services / Jones Lang LaSalle Report March 2008 Top Sustainability Priorities Improve energy efficiency Reduce carbon footprint Reduce environmental impact of operations Manage risk Barriers Lack of decision framework / tool Inability to measure effect on shareholder value / investor returns Not integrated into financial management and control systems Respondent Quote As more efficient measuring tools are created and utilized, finances role in sustainability efforts will be greatly enhanced. Survey Metrics: 175 responses – senior finance executives 95% from companies w/ over $500MM revenue

8. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Green Building Underwriting Standard ReportingDecision Tool Investment Performance Risk Management

9. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Capital Markets Partnership – Members Partial List City of San Francisco City of Chicago City of Dallas City of Denver City of Miami City of New York City of Oakland City of San Jose City of Santa Monica City of Seattle

10. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 US Conference of Mayors Resolution June 2008

11. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Principals – Green Building Underwriting Standard 1.Performance based 2.Easy to analyze / simple to implement 3.Disciplined Tangible financial impacts Acknowledgement of intangible value 4.Utilize/recognize consensus industry standards 5.Third-party verified IN PRACTICE: Underwriting Overlay Does not materially change current underwriting practices Request additional key information pieces during underwriting process Incorporate information data points –Decision processes –Reporting If you cannot measure, report, and verify……you cannot manage it

12. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Structure – Green Building Underwriting Standard Recognizes and incorporates existing industry standards –Comprehensive –Transparent –Market-driven –Consensus-based Standards include –EPA EnergyStar –USGBC LEED Rating System –MTS Climate Neutral Performance based –Energy –Water –Indoor environmental quality Third-party verification requirement –Self-Regulation = No Regulation = Wild West

13. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 EPA EnergyStar Government-backed program helping businesses and individuals achieve superior energy efficiency Energy performance rating tools –EnergyStar Portfolio Manager (existing buildings) –EnergyStar Target Finder (new construction) Scoring system of 1-100 –Commercial buildings Bell curve based on statistically significant comparative data set Higher score is better –Median = 50 –EnergyStar Certified buildings score 75 or higher –Residential buildings Based on energy consumption / HERS test Lower score is better

14. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 USGBCs LEED Rating System Leadership in Energy and Environmental Design Environmental Responsibility Defined For Buildings Answers question: What exactly is an environmentally-responsible building? Third party certification of environmental achievement LEED New Construction 2.2 Implementation Point-based system Broken into categories Sustainable Sites14 Points Water Efficiency 5 Points Energy & Atmosphere17 Points Materials & Resources13 Points Indoor Environmental Quality15 Points Innovation 5 Points TOTAL POSSIBLE POINTS69 Points Certified26-32 points Silver33-38 points Gold39-51 points Platinum52-69 points

15. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Climate Neutral certification Consensus-based national standard Certifies carbon neutrality Certification process: Audit baseline energy use Implement efficiency measures Address remaining energy use: 1.Install onsite renewable energy; 2.Purchase Green-e renewable energy; 3.Purchase/retire Green-e RECs; and/or 4.Purchase annual emissions offsets based on the Cleaner and Greener® program requirements Certify by accredited 3 rd party professional

16. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Mechanics Green Building Underwriting Standards I. Information Disclosure at time of debt financing 1.Energy Star score (Portfolio Manager or Target Finder) 2.LEED certification and scorecard 3.Climate Neutral certification 4.Commissioning report (recommended) II. Analyze LEED scorecard for specific LEED points achieved Focus placed on a subset of specific LEED credits –Energy efficiency –Water use –Indoor environmental quality III.Rate revenue/expense impacts of strategies employed Relative scale compared to a market asset -5-4-3-2012345 LOWMEDIUM HIGH XXXXXXXXXXXXXXXXX

17. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Example Scoring – Specific LEED Point LEED Water Efficiency WE-3.1/3.2 – 20%/30% Water Use Reduction LEED scorecard analysis –Achieved both WE-3.1 and WE-3.2 Asset analysis –Dual flush toilets –Waterless urinals –Faucet aerators Positive score on financial impact = 2 UNDERWRITING 30% reduction applied to market asset water utility costs -5-4-3-2012345 LOWMEDIUM HIGH X

18. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Final Analysis Capital Markets Partnership Commercial Green Score Formula C M P GREEN SCORE

19. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Risk Management Lower operating expenses –Energy / water price volatility –Energy / water efficiency and conservation –Energy – peak load demand –Insurance –Waste disposal –Maintenance –Capital expenditures Commercial - Evolving corporate green policies –Impact on tenant demand Potential for two-tiered market Obsolescence risk –Improved tenant satisfaction / retention Future regulatory compliance CO2 trading –Cost increases based on CO2 / ton used to power asset –Value capture Current / future tax incentives Building health / IAQ liability Informs investment consideration, capital access and pricing Real Estate Value 1.Cash Flow 2.Timing of Cash Flow 3.Risk of Receiving Cash Flow

20. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Summary – Green Underwriting Standard Incorporates performance-based tangible attributes –Energy use /efficiency –Water use / efficiency –Location attributes –Indoor environmental quality Simple due diligence requirements –EnergyStar score –LEED scorecard –Commissioning report Straightforward implementation Transparent Third-party verified

21. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Crude Oil – Actual (Jan 1997 thru July 28, 2008) World oil production flat since 2004 / China and Indias consumption surging / domestic consumption in oil producing countries increasing Energy traders / OPEC now publicly refer to the proper price of $85 / barrel at which point OPEC reduces production to support prices

22. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 US Electricity Prices (1982 – 2006) Source: US Department of Energy http://www.eia.doe.gov/fuelelectric.html / kwh

23. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 US Electric Power Generation Sources (2007)

24. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 DOE Coal Prices June 2003 to July 2006 Source: http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html Central Appalachia +88% Northern Appalachia +41% Illinois Basin 38% Uinta Basin 114% Powder River Basin 100%

25. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 DOE Coal Prices June 2003 to July 2008 Current Price = $149 / ton Current Price = $140 / ton Source: http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html +312% - Central Appalachia +452% - Northern Appalachia +200% - Illinois Basin +254% - Uinta Basin +127% - Powder River Basin

26. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008

27. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Serious Grid / Infrastructure Challenges There will need to be $350 billion invested in power generation over the next decade. Transmission represents another $150 billion of needed investment -- the distribution infrastructure in our cities has really deteriorated. Environmental retrofits on existing plants are going to cost another $50 billion, and that doesn't include carbon capture. Efficiency investments are going to be another $50 billion." Mac MacFarland VP of Corporate Development Exelon Energy Source: Knowledge at Wharton http://knowledge.wharton.upenn.edu/article.cfm?articleid=1881

28. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Whats Your Prediction? Source: US Department of Energy http://www.eia.doe.gov/fuelelectric.html / kwh

29. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Natural Gas Spot Prices (Oct 83 – Apr 08) http://www.eia.doe.gov/oil_gas/natural_gas/info_glance/natural_gas.html

30. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Energy Market Drivers 1990 Market Restructuring Aging Power Grid Globalization Digital Economy Emissions and Climate Change Energy Reliability and Security Resource Scarcity 199520002005-102010-20

31. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Final Thought: Finance Industry and Sustainability The finance industry prides itself on seeing the road ahead…… It cannot be done while using the rear view mirror……

32. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Perspective – Evolution Partners Work with asset owners and developers across North America –Strategy Pragmatic industry analysis Advise on what competitors are doing Portfolio analysis – buy/hold/sell –Asset positioning (development / existing) LEED-NC / LEED-EB audit EnergyStar benchmarking Environmental audit Recommend best practices –Financing Raise debt/equity capital for LEED projects Articulate asset features during underwriting (ie – resistance to mark-to-market) –Leasing and Marketing Communication strategies Green Lease Addendum Industry Work –Industry speaking – ULI / NAIOP –Green financial underwriting standards Clients Regional developers Public REITs Private equity firms Investment banks Start-up firms

33. Evolution Partners Copyright 2008 Green Homes and Sustainable Communities August 7, 2008 Dan Winters, Managing Principal 1511 Wisconsin Avenue NW #200 Washington, DC 20007 202.997.3922 Dan@EvolutionPartners.com