The Cost Efficacy of Building Green

NEW YORK CITY-The economic crisis continues, but that shouldn’t preclude investing in sustainability which can lead to both short and long-term financial benefits, said speakers at the RealShare Green Buildings virtual conference, held Wednesday.

These can include higher rents, stronger tenant relationships, and better sales values over time. “Two thousand and seven was undeniably the year of green,” said keynote speaker Mark Hansen, senior vice president-value added conversions, AMB Property Corp. “Interest in LEED certification exploded. It also was a year of [another type of] green–there was a lot of cheap money.” Last year, however, saw a major shift, with new development scarce.

“Now the real interest is in existing portfolios,” said Brenna Walraven, managing director and national property management portfolio manager for USAA Real Estate. “The real focus is on the operating expense side.”

For now, the appeal is on short-term benefits. Fortunately, a number of initiatives can be undertaken at little to no cost, noted Mychele Lord, principal of Lord Green Real Estate Strategies. These include green cleaning techniques, integrated pet management, sustainable landscaping and managing the indoor environment through the use of low volatile organic compound (VOC) products.

Development isn’t impossible, however, particularly if cost-effect measures are in place. AMB has revised its development specifications for all projects to achieve a LEED Silver rating, by implementing water-efficient landscaping, replacing annual plants with perennials, including green spaces in site plan, reflective roofing and exploring photovoltaics, Hansen noted.

Finding the funds requires a lot more research, though. “Think of it as a three-legged stool, [consisting of] incentives, contractors and private financing,” said Bruce Ficke, executive vice president, global client solutions for Cushman & Wakefield.

Developers should look for all state, local and Federal programs, even including fee waivers to fund their development. Green contractors can be found in a number of sources, there are small banks that specialize in green financing, Ficke said.

The greatest incentives for going green, however, come from the tenants themselves.”Tenants want green buildings because they’re better buildings and easier to operate,” Hansen said.

Sustainable buildings also can serve to attract a younger workforce, said Vance Voss, managing director-portfolio management of Principal Real Estate Investors. “A building that is not green will be harder to lease,” Voss said.

Relationships can improve, too, as owner/managers educate their tenants on both the building improvements and how the clients can modify their own behavior to help save resources, Hansen said.

“I still think more and more companies will want their facilities to be green,” Hansen said. Brownfields will provide ample opportunity for redevelopment, and municipalities increasingly are looking for LEED-certified projects, he added.

Knowledge is the key. Voss recommended that landlords give tenants real-time feedback regarding their energy usage, much as hybrid cars display their fuel efficiency while in motion. “We have to educate and incentivize the tenant to behave better,” he said.

It’s also important that owners promote their green efforts–tenants won’t know a project is sustainable if they aren’t told. The result can be higher rents, and better retention of existing tenants.

“We believe you market everything you’ve done to make your project green,” Hansen said. “Put it in your brochures, talk it up with tenants, mention it on your property tours.”

All of the efforts will combine for major savings in the short-term, and additional benefits over time, the speakers said. AMB’s green buildings achieve the highest rates in their markets, and are more appealing to buyers, according to Hansen.

In addition, they should be more attractive when the acquisitions market comes back.”You don’t want to buy an asset today that’s one of the least efficient in the market,” said William Hankowsky, chairman, president & CEO of Liberty Property Trust.

“The capital markets are very constrained from a debt and equity perspective. Sometimes you have to have a longer-term view,” Voss said. “Green buildings are going to lease up quicker, will have a higher tenant retention ratio, and will appeal to a broader swath of buyers in the future.”

To listen to the full Green Building RealShare virtual conference, register here.