A new survey indicates a wider demand
by property investors and tenants for
buildings that have earned either Leadership in Energy and Environmental
Design (LEED) certification or the Energy
Star certification.
According to a CoStar Group study, LEED
buildings command higher rent premiums
per square foot over their non-LEED peers
and have higher occupancy. Rental rates in
Energy Star buildings represent a smaller
premium per square foot over comparable
non-Energy Star buildings and also have
higher occupancy. Energy Star buildings and
LEED buildings are each selling more per
square foot versus those that are not.
“Most major property management companies are really trying to get a handle on
green construction and green development,” says Jim Dyer, Vice President of project and construction management for
Grubb & Ellis Company’s Corporate Service
Group. “But it’s a moving target; there is not
a defined set of green policies that everyone’s trying to follow.”
Smart Business talked to Dyer about
what factors play a role in a company’s eco-friendly real estate policies.
How is the environmental movement making
an impact on commercial real estate?
In today’s commercial real estate market,
you must be prepared to market your product or services as being green. Like it or not,
clients are now demanding it, and the government is starting to require it. The rapid
growth of green initiatives within the real
estate sector has caught many owners and
property managers by surprise, most finding
there is no ‘one-size-fits-all’ approach to
moving green.
To meet a rapidly growing demand for
environmentally friendly options, many
owner/developers now include such green
practices as recycling or the use of lower
VOC (volatile organic compounds) building
materials. Unfortunately, many of these
options provide little, if any, ROI for the
owner/developer. Conversely, the owner/
developer’s approach to green initiatives
typically seeks out those concepts such as
relamping to high-efficiency lights or
upgrading HVAC equipment, which, while
being ‘green,’ can also generate an acceptable ROI.
While there are many differing opinions as
to which green initiative is more beneficial,
the industry’s use of LEED certification and
Energy Star certification has become an
invaluable performance benchmark. These
certifications allow developers/owners a
means to market their product as being environmentally friendly. It also provides another measuring bar for investors and tenants
trying to evaluate competing buildings.
How is local government involved in setting
ecological standards that apply to real
estate?
Recently, Dallas implemented a new program establishing practical incentives, such
as expedited plan-check for those buildings
and projects that make a demonstrated commitment toward meeting many of the same
standards found in the LEED program.
In 2009, the city will also mandate that all
projects reflect a 15 percent reduction in
energy consumption as compared to the
2006 Energy Code and a 20 percent reduction in water consumption compared to the
1992 EPA standards. While it will lower the
operating costs for the property, it will lessen
the growing demand on the city’s utility
infrastructure and financial resources.
How do finances, return on investment and
spending threshold impact corporate planning for eco-friendly buildings?
All other factors being equal, using green
building materials for interior finish construction typically can add 10 to 20 percent
to project costs. While most construction
budgets or operating decisions typically boil
down to an ROI, those companies considering green options tend to be more subjective
than simple ROI analysis. They tend to look
at the available green options in a manner
that does not easily translate into ROI numbers. Decisions factors could include:
employing green initiatives as a means for
retaining younger employees (generally considered more environmentally conscious),
promoting a better image within the community or region, or even just being associated with participating in leading-edge green
technology.
How does a real estate adviser or corporate
real estate specialist manage green projects
and construction?
Within commercial real estate, going green
— while still in its infancy — has already
demonstrated its ability to impact building
operations and valuation. An afterthought
only several years ago, it’s no longer uncommon for projects or properties to be positioned or viewed in terms of green value.
The challenges for project managers or
transaction professionals involving acquisition, development and/or construction will
be the same as they have always been, but
they must now be able to understand and
convey to the client the practical implications of green initiatives, policies and codes,
and their potential impact on current and
future value of investments.
JIM DYER is Vice President of project and construction management for Grubb & Ellis Company’s Corporate Service Group. Reach him
at (972) 450-3218 or [email protected].
