Does green pay? You bet, and the dividends are being measured in terms of ROI and public perception, if not yet in rent premiums. These are some of the key findings of a first-time industry poll—the 2007 Green Survey: Existing Buildings—conducted recently by Real Estate Media, the Building Owners & Managers Association International and the US Green Building Council.

Some 392 professionals, representing a variety of disciplines, responded to the online poll, which focused exclusively on the real estate industry's existing building stock. (For more about the respondents, see sidebar on page 28). The findings were released this month at USGBC's Greenbuild 2007 Conference & Expo in Chicago.

The survey reveals an industry that's still figuring out how to deal with the concept of green and its potential benefits. While the majority of those who took the September poll attest to a commitment to green, their budgets often don't reflect it—at least not as a separate line item. Training is not yet a part of many firms' green strategies and neither, apparently, is performance monitoring of sustainable systems. Furthermore, respondents often struggle with how to parse out green's advantages from other building amenities. In all, the results indicate that, while we've made strides in our awareness, we still have a long way to go.

The critical question, of course, is how eco-friendly products and procedures impact the performance of our nation's building stock. The litmus tests here are tenancy and returns. Most of the so-called green assets held by our survey respondents boast solid occupancies. In fact, 77.1% of our respondents claimed a 76% to 100% fill rate in these buildings. But apparently tenants aren't signing on because of indoor air quality alone, and 87% of executives said less than one quarter of their tenants took leases because the property was billed as green. And the results drop precipitously from there. Only 4.8% said 76% to 100% of tenants were looking for green space.

But low numbers don't necessarily mean green is over-hyped as a tenant consideration. One senior vice president of property management at a Southwestern-based REIT noted that green was simply not an issue during lease signing, but "we believe the tide has turned."

Another participant agreed. "We have had many tenants interested in learning more about what it means to be in a LEED-certified building," stated the senior vice president and director of national accounts with an international development firm. "But not many chose the building due to 'green.' We expect this may change as people become more educated on the topic."

And it isn't just the space users who need to become better informed. "The brokerage community needs to be instructed on the benefits of green buildings in order to help sell them to tenants," noted one senior property manager for an ownership entity headquartered in the Northeast. Others explained that often the buildings were leased prior to certification.

Neither are these buildings commanding higher rents than comparable assets, according to 70.7% of our respondents. "Studies indicate yes," one senior vice president of property management told us. "But I haven't seen anything that said there is a direct cause and effect. It may be that the type of building that pursues green also pursues other factors that have implications for rates."

For the 29.3% of participants who say they are getting higher rents, 62.6% of that universe claimed tenants are paying as much as a 5% premium. Only 4% said they collect rents that are more than 20% above market rates.

An impressive 78.2% said green initiatives are "only one part of a total package of services and amenities," compared with the 21.8% who saw a direct correlation between green measures and added green in rental checks.

But, if sustainability in and of itself doesn't yield more profit, neither does it cost more to maintain, said 56.1% of respondents. "There is much that can be done at little or no increased cost," pointed out a senior vice president working for a REIT in the Northeast.

"The energy and tax credits offset most of the added costs," a senior vice president with a Western-based development firm explained. "Some of the qualifying features are just good business and so there would be increases without regard to LEED."

And while shelling out more, an executive at a development firm said it's marginal: "The benefits more than offset the added expenses." In all, 43.9% said green maintenance was costing them more.

The majority of those who are paying more seem to prove the oft-quoted theory that the added cost is in the low single digits. Some 43.2% said it is no more than 5%, while 36% of respondents said the costs are 6% to 10% higher.

But, the bottom line is, well, the bottom line, and 60.8% of our survey participants reported that they received a positive ROI for going green. "We are saving 45% on energy and 30% on water," remarked a principal with an ownership entity in the Southwest. "And our employees, due to IAQ, under-floor air distribution systems and natural light, love the space they work in. It helps in both employee retention and recruitment."

Many respondents commented that they're still waiting for the returns to come in, indicating a relatively recent commitment to environmental systems. For those, it's considered an investment in the future. As one national senior property manager noted, "Because the market is demanding green building, future business and leasing successes are dependent upon developing practices and expertise in this area."

That speaks as much to reputation as well as to the P&L, and our survey respondents clearly don't discount the power of public relations. "We've seen a great increase in positive media and client attention," an associate at a Southwestern-based property owner told us. "I can't say exactly how much billing this has translated to, but it definitely constitutes an invaluable intangible asset in terms of improving our company's reputation."

But where is all of this effort going? Profiling the building stock of our participants, the bulk of their green inventory (35.3%) is suburban office, followed by CBD office at 32.2%. Some 14.7% was classified as "Other," with the remainder—all less than 6%—filed under CBD or suburban retail, industrial or multifamily.

In terms of LEED certification, 85.5% said that as much as a quarter of their building stock is currently in application. Of those that have earned their stripes, the entry-level Certified LEED classification is the most popular, shared by 51.5% of respondents.In their comments, some respondents indicated that they actually have a certification strategy: "We plan on providing a LEED-certified shell so our tenants may apply easily for a higher status with their tenant-improvement package," said a development manager with a REIT that operates in the West. And a Midwestern-based vice president parses out "Gold for offices; silver for production locations."

Environmental initiatives don't come haphazardly, and the survey indicated that an increasing number of real estate companies are adapting a green philosophy. An overwhelming majority (81.5%) claimed that green is a priority for their companies. "This is part of our mission statement and a core value for our company," said one professional employed by an ownership firm in the Southwest. "It is also a key marketing point for us."

But the majority shrinks when asked to put their money where their solar panels are. A relatively low 63.9% of survey participants have actually budgeted for green programs in the current fiscal year. Of those who have, 64.5% pegged it at less than 5% of their CapEx budget. Some 20.9% pinned the current allocation at 6% to 10%.

Or, as a Southeastern SVP of property management noted, it is "candidly difficult to say, because we haven't been segregating the costs in this manner."

Yet others are just starting to implement eco-friendly measures and are still feeling their way. "As we develop our green initiative, we will be able to see more clearly what kinds of funds will be needed to develop our program in the coming years," commented an international development/investment executive.

The good news is that 46.7% of those who can quantify it said such programs will figure more heavily in the 2008 budget. Only 13.7% reported that they will not be allocating funds to green in '08. This, too, could mean that those expenses are being folded into more generalized maintenance allowances.

And what are these CapEx expenditures going for? Recycling came in at number one, used by 86.9% of respondents. This should come as no surprise since it is mandated in most locales. Energy-conservation measures came in second, with 85.5% of the vote, followed by water conservation at 67.1%.

Installation of products is one thing, but understanding their use and proper maintenance is quite another. Those owners and managers who do not train their tenants and staff just edged out those who do, 50.7% to 49.4%.

"We are in the process of implementing several green initiatives in our buildings," observed one senior vice president of a Northeast-based REIT. "We see this as a partnership between us, our vendors and our tenants. It takes all three to be successful."

It seems that many respondents are taking such a collaborative approach. "We have established a green council group of employees that meets quarterly to make recommendations for future improvements," reported an executive vice president with a national ownership firm.Those who don't train staff or tenants might be missing a hidden opportunity, as one of our respondents suggested: "Getting the buy-in from tenants is very important," noted a president from a national development firm. "This is a great opportunity to speak with them. So much management comes from behind the desk, and this is another opportunity to get in front of them."

Most respondents (36.1%) essentially leave the products and systems to do their conservation thing unattended, with no benchmarking or monitoring system in place. And of those participants that do, 18.3% admitted that this is in select buildings only.

On the question of oversight, views on the government's involvement in mandating green applications were surprisingly mixed. Some 51.4% said no, narrowly edging out the 48.6% who think local municipalities should get involved.

On the no side, a Western-based property manager stated that "Building owners should have the right to manage their buildings the way they want to and let the economics determine what is best."

Those in favor of oversight think that the private sector may not be up to the task. Government mandates would "have many positive impacts," wrote an associate at an ownership firm. "These include forcing the architecture and engineering professions to get up to speed in terms of developing the most efficient buildings, reducing overall energy demand, which can cause prices to go down, and reducing the need for more fossil-fueled power plants."

The split between design and ownership on this issue implies the work that still needs to be done to green the US building stock. With this inaugural survey as a benchmark, a follow-up survey, planned for next year, should reveal how much—if any—progress the industry has made.

Instant Insights /

The Green Survey: Greening US Buildings

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