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Randall

Green building could be a temporary victim of the Great Recession--with financing difficult to arrange for any project, sustainability is not proving a benefit to getting funding. GlobeSt.com spoke with Mitchell Randall, a partner practicing in the Land Use and Environmental Law Group and the Real Estate Group in the Walnut Creek, CA office of law firm Morrison Foerster about sustainability, financing and what a municipality may do these days to get a new project.

GlobeSt.com: Does building green help in a tough financing environment? Randall: It’s just tough all around right now, and I don’t think that something like green building is going to make a difference in the financing market in this economy. We’re still pretty early on the curve on green building. A lot of the green building that is going to be done will be single tenant--a corporation that wants to make a statement, and so they have a building built for them. Or someone builds a building for a single tenant that wants to establish its green credentials, and they’ll pay the development premium for that building.

But in terms of multi-tenant commercial buildings, we’re pretty early. It’s debatable, but I think that most would say it does cost more to develop green. You get a return on that investment over the years with lower utility bills and operating expenses, but in a tough financing market, it doesn’t necessarily help to front-load those costs.

GlobeSt.com: Developers and builders will say that it isn’t that much of a premium.

Randall: There are some things you can do that don’t cost any more [than non-sustainable building]. You just have to think about it.

GlobeSt.com: Are there criteria or restrictions when someone finances a green building, because of a longer ROI?

Randall: I don’t think we’re there. I don’t think it’s on people’s radars so much yet. We’re so early in that process that I don’t think people are really focused on those types of issues yet. In this economy, where it’s so difficult to get money, there are so many questions to be asking [other] than the green building questions. It’s not having an impact yet.

GlobeSt.com: Is it a matter of educating investors?

Randall: Yes. I think over time you’ll see people become more educated about it and begin to put a premium on it. There are benefits to having a green building.

Randall: Aside from the financial benefits to the owner of the building--the lower operating costs--you’ve got these subtle benefits for the people working in the building: more daylight versus fluorescent light, lower VOCs coming off the walls or the glue of the carpets, things that make for a healthier work environment. Studies show increased productivity. Those aren’t things that people focus on yet at the financing level. I don’t know whether it’s education or assigning those issues a priority. It’s probably a mixture of the two.

GlobeSt.com: Are we at a standstill, and when things pick up, will it change?

Randall: Yes. You’re seeing more and more municipalities adopt green building ordinances, especially in California. That was really coming into favor over the last couple of years, but now everybody has kind of put the brakes on it, as cities would like to see any development come in to pay their development fees. They’re not as worried about that as they used to be because it makes it harder to develop, and they’re looking for anything they can get.

When the economy turns around, you’re going to see a focus on that again. There’s still a focus, but it’s not the priority it was a year ago for a lot of cities, at least. As those cities focus on it more and more, it will focus the market in that direction--cities and states that adopt LEED as a standard or some other standard.

GlobeSt.com: Are local building codes or regulations like CEQUA being loosened to encourage development? Randall: I’m not seeing loosening building restrictions. Some cities are lowering fees--there are cities in California that recently have lowered development fees, traffic impact fees, to encourage development. It’s a temporary reduction.