The role of sustainability in real estate finance and investments

Conventional real estate development practices and the operation of existing buildings create significant negative externalities. New practices collectively known as "green building" or "sustainable development" offer mitigation for these externalities. However, the proliferation of green buildings has been hindered by, among other things, a lack of understanding of how property-level sustainability affects building valuation and investment and analysis. Sources of Data—I used the LEED New Construction rating system as framework for evaluating property-level sustainability's interaction with building value. Various studies and market data provided the basis for assumptions about the value of various sustainable attributes. Personal communications with investment analysts provided insight into the trends, attitudes, and analytical framework employed by large investment funds with respect to sustainable properties. Conclusions Reached—Conventional financial analysis techniques such as discounted cash flow analysis can be modified to account for sustainable building features. Each property is unique and has a unique interaction between sustainability and value. Using the exercises presented in this thesis can help guide the process of underwriting sustainable property investment. Investment funds can encourage sustainable development by prioritizing funding for sustainable projects, but will should develop an institutional understanding of how to analyze sustainable property investment in order to avoid tradeoffs between sustainability and profitability.