Hines, CalPERS Seed Nation's First Green Fund

HOUSTON-Long-time partners Hines and CalPERS, once again taking an industry lead, have dedicated $120 million of equity as the springboard for the nation's first "Green Development Fund." The leveraged equity will result in $500 million of ground-up construction of LEED pre-certified office buildings in key US markets.

The Los Angeles-based Thomas Properties Group Inc. has been shopping the capital markets to launch a similar fund, but the Hines-CalPERS JV has managed to get out the door first. Dan Rashin, senior vice president and fund manager for the Houston-based Hines, tells GlobeSt.com that the initial fund most likely will result in four office projects in the 250,000-sf to 500,000-sf range with construction tabs of $100 million to $150 million apiece.

The first project slid into the plan in Bellevue, WA when Hines bought controlling interest in the 20-story Tower 333, a 410,000-sf project slated to deliver in fourth quarter 2007. Rashin says a Southern California project is under consideration, but it will be 18 months to two years before all development sites are identified and in hand. The team, though, has three years to decide where and what it's going to build. The criteria are much like it's always been: markets with strong employment growth and rapidly declining office vacancies.

The Hines-CalPERS JV cut its teeth on LEED-certification with 1180 Peachtree in Atlanta, the world's first Silver pre-certified high rise and now the holder of a Gold label. "Hines and CalPERS have done this successfully so going on to the Green Building Fund just builds on the success we've had at 1180 Peachtree," says Rashin, also the fund manager for the JV's National Office Partners LP portfolio. Hines' other LEED buildings are One South Dearborn in Illinois; 2211 Michelson Office Tower in Irvine, CA; and it has five projects registered with the LEED existing buildings pilot program.

Rashin says the Hines-CalPERS Green Development Fund's goal isn't necessarily to be a pioneer with cutting-edge, "green" designs. "The purpose of the fund is to be a leader in showing people that environmentally sensitive buildings are not only good the environment, but can be economically feasible as well," he explains.

Rashin isn't ruling out the possibility that the fund will be expanded, particularly with LEED designs gaining favor with tenants and the public at large. "It does cost more to do a LEED-certified building if you develop an A class building," he says. "If you're careful, you don't need to substitute premium to justify the building." The product will be high-performance, sustainable office buildings in accordance with LEED-CS guidelines. "The real estate industry is finally ready for green," he adds.

Since 1998, Hines and CalPERS have done five joint venture funds. "We have great confidence in Hines based on many years of investments that have given us substantial returns," Russell Read, the pension fund's chief investment officer, says in a press release that stresses its commitment toward conservation of natural resources and the search for alternative energy sources.