Page 234 - The Green Building Bottom Line The Real Cost of Sustainable Building

212 CHAPTER 7

There are a number of things worth pointing out in this analysis. First, unlike all of
the cash flow projections we have seen in previous chapters, this one does not com-
pute an internal rate of return. This is simply because the net present value of our
analysis is negative. The rent our collective tenants would pay in the Birmingham
Federal Reserve & Tower project ($28 per square foot for an annual amount of $4.76
million and a ten-year total of $47.6 million) is greater than the accumulated savings
and revenues we have calculated (ten-year total of nearly $18.8 million). That’s OK.
In fact, it’s a lot better than OK. Essentially, this analysis indicates a tenant gets back
over a third, or 36.57 percent, of its rental expense in the way of savings and revenue
enhancements, paying an effective rate of $17.76 per square foot ($28 minus $10.24
in savings and revenues). Rather than paying rent over ten years of $47.6 million
(which, when discounted back to Year 0 is $29.2 million), our collective tenants effec-
tively pay rent of just over $30 million (which, when discounted back to Year 0, is
$18.5 million). Compare that result to a tenant who moves into a conventional office
space of the same size, paying exactly the same rental rate of $28 per square foot but
getting no added bangs for the buck.
To put it another way: If our tenants paid us $1 (not a square foot, just one dollar)
for the benefit of residing in a green building, they would realize an infinitesimally
high return for that initial investment over ten years (so high that my spreadsheet soft-
ware can’t calculate it). If for argument’s sake, our tenants decided to pay us $1 mil-
lion up front for the benefit of occupying a green building, they would see a whopping
190 percent internal rate of return for that investment over ten years. In fact, if our ten-
ants all conducted businesses that made an annual 30 percent return on their activities,
they would be “willing” to pay $8 million in Year 0 for the benefits they would receive
over the ensuing ten years.
It might be easy to assume that the presentation above is too analytical for tenants
to grasp. On the contrary, we’ve been able to use this presentation effectively with
prospects. What matters most, however, is that Melaver is not the one inputting the
assumptions, but, instead, the tenant. We simply provide a spreadsheet for the tenant’s
use at their leisure. In one recent tenant presentation, we completed the spreadsheet
together, calculating in real time that the tenant’s return of rental investment exceeded
200 percent. We did not make a single assumption; the managing partner of the firm
made all of them.
Given such benefits, the question becomes not what are the financial justifications
for going green, but rather what are the financial justifications for not doing so?

Making Dollars and Sense

for Capital Providers

Making the business case to prospective tenants for a green building is only part of
“selling” sustainability. Other key stakeholders need to be brought on board. The