The effects of eco-certification on office properties: a cap rates-based analysis

McGrath, Karen

doi:10.1080/09599916.2012.762034

Cited by 24 publications

(15 citation statements)

References 16 publications

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“…Earlier studies note that beyond market fundamentals, commercial cap rates in general (Ghysels, Plazzi and Valkanov 2007) and hotel cap rates in particular (Das, 2015) are prone to socio-political differences which are not directly associated with risk-reward fundamentals. Other studies such as Lockwood and Rutherford (1996), Mcdonald and Dermisi (2008), Peng (2013), andMcGrath (2013) have shown an association between tangible attributes and cap rates: size (-ve), age (+ve), higher classification (-ve), access to amenities (-ve) and eco-labels (e.g. LEED or Energy Star).…”

Section: Sources Of Conspicuity Extreme Physical Attributesmentioning

confidence: 90%

Pricing Extreme Attributes in Commercial Real Estate: the Case of Hotel Transactions

Das

Smith

Gallimore

2017

J Real Estate Finan Econ

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We show that conventional hedonic models for commercial real estate prices ignore the utility investors derive from a building's extreme attributes. Analyzing geo-enriched data on nearly 4,800 hotel transactions in the United States, we find that the relative positioning of an asset's attributes-particularly at the extremes-has a significant impact on transaction prices. We also detect separating equilibria for extreme attributes across the premium and discount hotel segments. Extreme attributes "stand out" and are value enhancing in premium hotel segments. In contrast, extreme attributes are value diminishing in the discount hotel segment. The relative degree to which the asset's attributes are extreme is important. Being a locally largest asset has a negative effect on price, however the negative effect is more than offset if the hotel is among the largest hotels nationally. The results suggest that locally extreme assets, unless also nationally extreme, are considered atypical and trade at a discount.

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Section: Sources Of Conspicuity Extreme Physical Attributesmentioning

confidence: 90%

Pricing Extreme Attributes in Commercial Real Estate: the Case of Hotel Transactions

Das

Smith

Gallimore

2017

J Real Estate Finan Econ

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“…Signaling theory (Atkinson and Rosenthal ) posits that an eco‐label from an independent third party signifies that “a product is produced in accordance with the standards” (Sonderskov and Daugbjerg , 508) and indicates a product and/or firm's eco‐friendliness. The use of eco‐labels across various industries, for example, building (McGrath ; Fuerst ), tourism (Buckley ; Ryglová ), fisheries (Khan ), food (Grolleau and Caswell ; Berghoef and Dodds ), and forestry (Blackman and Rivera ; Ibanez and Laye ), supports eco‐labels’ effectiveness. Therefore, we hypothesize that eco‐labels reduce the information gap, thereby increasing a consumer's WTP for a product that promises a better environmental footprint through the use of reused content.…”

Section: Theorymentioning

confidence: 96%

Willingness to Pay for Eco‐Certified Refurbished Products: The Effects of Environmental Attitudes and Knowledge

Harms

Linton

2015

J of Industrial Ecology

113

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SummaryRefurbishing products, which are increasingly sold in business-to-consumer markets, is a key strategy to reduce waste. Nevertheless, research finds that consumers' willingness to pay (WTP) for refurbished products is low. Strategies for a higher WTP are needed in order to grow consumer markets for refurbished products. Eco-certification of refurbished products may be a key strategy here. Drawing on the consumer WTP literature concerning "green" products, we investigate the impact of independent eco-certificates. Our analysis is based on a survey of 231 potential customers. The results suggest that, across various product categories, the WTP for products with refurbished components is significantly lower. Adding an eco-certificate tends to return the WTP toward the virgin product level. We show that consumers with proenvironmental attitudes particularly exhibit green buying behavior. Our findings indicate that eco-certification is often worthwhile because it enhances the business rationale for producing products with refurbished components.

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“…Studies confirm lower cap rates in certified buildings. Miller, Spivey and Florance () found them to be 55 bps lower for LEED buildings, Pivo and Fisher () found them to be 52 bps lower for Energy Star buildings, and McGrath () found them to be 36 bps lower for a combined sample of LEED and Energy Star buildings.…”

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confidence: 99%

Green Buildings in Commercial Mortgage‐Backed Securities: The Effects of LEED and Energy Star Certification on Default Risk and Loan Terms

Pivo

2018

Real Estate Economics

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We study the impact of green building on loans in the CMBS market. A hazard model shows green buildings carry 34% less default risk, all else equal. A matched‐sample analysis gives similar results. We attribute the effect to a loan‐to‐value channel, where risk is lowered by a green price premium. The benefit comes at least partly from the level of green achievement, not only the label itself. Loans on buildings that were green at loan origination have slightly better terms than loans on nongreen buildings. That difference is growing over time, but the effect is economically small compared to default risk.

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The effects of eco-certification on office properties: a cap rates-based analysis

Cited by 24 publications

References 16 publications

Pricing Extreme Attributes in Commercial Real Estate: the Case of Hotel Transactions

Pricing Extreme Attributes in Commercial Real Estate: the Case of Hotel Transactions

Willingness to Pay for Eco‐Certified Refurbished Products: The Effects of Environmental Attitudes and Knowledge

Green Buildings in Commercial Mortgage‐Backed Securities: The Effects of LEED and Energy Star Certification on Default Risk and Loan Terms

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