The Facts about Commercial Real Estate Going Green

by John Downie on August 5, 2011

picture-8A colleague of mine happened to send me this article from The Braver Group that highlighted a recent McGraw Hill Construction study about trends in Commercial Real Estate Going Green.  While some of the stats are interesting, I think there is a fine line between what’s hopeful and reality.  It validates and contrasts some of the issues that we outlined in the last post that discusses a presentation Andy Burns and I gave at the Real Estate Bar Association for Massachusetts.

Here’s what I mean:

A green building can be a competitive differentiator, especially one with LEED certification due to the advantages of having independent third-party verification. That “stamp of approval” sets a building apart from others and makes it more attractive.  Educated buyers and tenants are highly interested in buildings that meet stringent requirements because they are as energy efficient, clean, and sustainable as they can be.

This is true, a green building is a differentiator when it comes to attracting tenants and investors.  In a Silver LEED-EB 2.0 project, it was just as important to the property maintenance team and owners to secure this rating.   However, the problem comes with maintaining this rating level after the certification has been achieved.  The challenge is, in most commercial buildings, that you can only really “control” the shared public areas.  All other areas occupied by tenants require that they maintain their requirements on their end.  What this means is that green education becomes a critical success factor for long term success.  It cannot be taken for granted.  In this project, the property manager took this very seriously and sent out quarterly “friendly” reminders about what it means to be “green” and how “they” (the tenants) can make a difference.  One other point: a LEED-certified building gives points to a tenant that is seeking LEED for their interiors project, a valuable asset when trying to attract environmentally conscious tenants.

Green building certification can actually help mitigate risk in a number of ways.  First, third party certification can help provide some protection against lawsuits since green buildings are safer and healthier to inhabit.

While this is also technically true, it’s important to remember that the USGBC is not a federal or state organization, it’s a private, not-for-profit organization.  The amount of backing in a legal case is questionable, and there have been cases already filed to dispute the authority and quality of what a LEED rating really means, especially in relation to a buildings’ energy use.  There are inherent risks in this type of pursuit, and it’s very difficult to promise hard outcomes that are shared in this study:

  • Reduced operating costs in the order of 13.6% for new construction and 8.5% for existing buildings. Consequently, lower operating costs increase the value of buildings significantly– 10.9% for new construction, and 6.8% for existing building projects.

In our experience, making these kinds of promises are challenging and invite more risk to the parties involved.  The folks at Braver note that securing a LEED certification means going beyond building codes, and in some states that includes stretch codes, this is not necessarily true. The stretch code in Massachusetts requires around 30% more energy efficiency over the base requirement for LEED certification. Meeting the stretch code will add points to a buildings’ LEED total. This just adds to the level of variability from state to state. Inconsistency rules, unfortunately.

It’s important to know that LEED certification rates on 6 different criteria that extend beyond the traditional architectural/structural components of a building’s “green-ness”.  For an existing building, it included whole-building cleaning and maintenance issues (including chemical use), recycling programs, exterior maintenance programs, and systems upgrades, but within those categories are things like access to public transportation, and general accessibility that go beyond the nuts and bolts.  These points matter.

One last point I wanted to validate was:

Owners of existing commercial buildings can also aspire to creating a greener structure by having their buildings commissioned to make sure all its major systems are fine tuned and operating at maximum efficiency. Since energy systems are the biggest power wasters, commissioning can make an older building much more sustainable.

This is true.  In the case study I mentioned, we retro-commissioned an energy study in the beginning of the project with Code Green Solutions that helped map out the upgrade process for this building.  We also received assistance from NYSERDA (New York State Energy Research Development Authority) who co-funded this project and helped defray the upgrade process by 25%.  There are incentives available in other states. These are worth looking into.

Overall, I’m glad we had the hands-on experience in securing a LEED Certification for an existing building.  It highlighted the possibilities and the black holes that exist and will help us better assist our clients through the process if they so desire.  It’s important to read between the lines when it comes to assessing the full risk when dealing with the promise of “green” and your clients.

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