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Look at the development side of the business these days and you’ll readily notice that the number of sustainable projects breaking ground has increased exponentially. Green development has the potential for producing buildings that are both friendly to the environment and the bottom line and as such, has become a major focus for many current and future owners of commercial real estate.Late last year, the Building Owners and Managers Association International and the US Green Building Council announced they would be teaming up to promote environmentally sound building practices. The two Washington, DC-based associations signed a memorandum of intent that calls for joint educational programs such as web-based seminars on topics like energy efficiency and green buildings applications as well as sharing best practices.The combination is certain to keep the green building movement at the forefront of commercial development, what with BOMA’s 16,500 members that own or manage some nine billion sf of commercial space around the world and the USGBC’s membership base of more than 7,600 organizations that range from corporations and government agencies to builders and nonprofits.Recently, Rick Fedrizzi, USGBC president, CEO and founding chairman, and BOMA International’s chairman and chief elected officer, Kurt R. Padavano, whose day job is serving as COO of Advance Realty Group of Bedminster, NJ, visited Real Estate Media’s Manhattan headquarters to discuss the new alliance and the rise of the green movement.How did the memorandum of intent come about and what does it mean for both of your organizations?Rick Fedrizzi: It’s really the culmination of three or four years of work. We have stayed in very close contact with BOMA, talking with each other during our conferences and at specific meetings about the opportunities that exist between the US Green Building Council and BOMA members. We are looking to learn as much from them about the existing building market as they will learn from us on sustainable design.Kurt Padavano: Our memorandum of intent was set up so that we would work cooperatively to promote energy efficiency and environmentally responsible building operations and maintenance practices. Because of the quantity of existing buildings and our members’ interest in the operations of those buildings, we have an opportunity to communicate to the staff who operate them the low-cost/no-cost things that can very quickly return dollars to the bottom line as well as take care of a lot of the environmental initiatives we are focused on.Although the alliance is in the early stages, can you discuss some of the things you have planned?Fedrizzi: Collaboration at our conferences, speaking to each other’s audiences, is going to be critical. Conferences today are one of the most important places for people to get information. This ability for us to listen to all of the players—whether it’s the real estate, research or education communities—discussing this new market transformational opportunity and to share notes as to what will or won’t work is going to accelerate the process. I think that is really necessary since the USGBC doesn’t believe we have the time to just casually work toward a certain level of sustainability. There is a fevered pitch about this movement and it has everything to do with climate change, resource depletion, human health and productivity and certainly the financial performance of building portfolios, which are a huge part of the US economy.Padavano: The educational component is very important. We have members across the country that look to us for educational programming on current topics, and right now the single largest demand we have is in the area of energy efficiency. In 2005, we produced BOMA’s Energy Efficiency Program (BEEP). It’s a series of six programs focused on benchmarking and operational initiatives to significantly cut energy consumption. In just over a year, we’ve put more than 5,000 people through that program and we’re going to continue with that series in ’07. That’s something that we see working very closely on with the Green Buildings Council.As Rick noted, there seems to be an increased interest in green building and sustainability. What’s fueling this?Fedrizzi: We started the USGBC 14 years ago and for the first seven years it was somewhat flat-lined growth. We couldn’t get building owners and managers or the development community to take us seriously. No one had a real good sense of what green buildings were. And then a couple of things happened. In the late ’90s, Douglas Durst announced he was building Four Times Square, which is one of the most highly publicized green buildings of all time, and then in 1998 we introduced the LEED ratings system. People now had a framework and a knowledge base from which to work.Today, there are 5,372 LEED-registered projects and 734 LEED-certified buildings. There are case studies that show the solid bottom-line financial performance of those buildings. Research indicates the level of improvement in human health and productivity as a result of these properties. For instance, kids in green schools are performing 20% better on test scores, and patients in green hospitals are leaving their beds on average two-and-a-half days sooner after major surgery. Shoppers in green retail settings are purchasing more per sf. Some studies show it’s seven to 10 times more than just an average store. Workers in green manufacturing settings are producing greater output with higher quality levels and less incidence of workplace injury. In an office setting, you can improve productivity by, some studies suggest, as much as 6% to 16%, and you can decrease absenteeism, the amount of medical claims and insurance costs. Green buildings go way beyond just the energy efficiency story; that’s only the beginning. When you start looking at what these buildings can do for us, it’s really a no-brainer. It’s not whether you should build green or not, it’s why wouldn’t you?Padavano: Increased awareness of green buildings, the environment and sustainability are certainly part of it. However, for the real estate investment community, a greater catalyst may be the ongoing costs to maintain and occupy an office building. Utilities account for the single largest expense. For our industry alone, electricity costs are an estimated $24 billion a year. We need to do things to start to control those costs. How can we be more competitive, attract more tenants, get a bigger return on our investment? It’s by being efficient.When prospective tenants compare the five or so space options they have in the market, they want to know what the annual operating expenses are. If I am one of those five buildings, I want mine to be the lowest. Therefore, I need to educate my staff and market my property correctly. I need to make sure that if I have opportunities to retrofit lighting or other equipment, I do it.In the investment arena, it’s all about returns but you can achieve both desired returns and the goals of sustainability. And that’s why I think it’s so important that we work together on this. The USGBC really is taking the lead in educating the corporate community on some of these issues and we need that awareness to migrate into the investment sector.Fedrizzi: Kurt mentioned the marketability of a green building, and that’s one of the biggest driving factors for people that plan to keep these assets in their portfolio for some time. They have higher tenant retention and higher lease rates. There’s a real story here that makes this a solid investment strategy.But at this point, aren’t most LEED buildings owner/occupied?Fedrizzi: Yes, but I think that’s changing every day. There are private developers that do own real estate for the long term and those folks know that green buildings are good investments.Padavano: The investment community always needs a push from the demand side and we’re starting to see that. We don’t have nearly the adoption that the corporate users do, but I think we’ll get there. There’s still a challenge with regard to some of the lease structures that exist today for commercial space, where the landlord doesn’t always get the financial benefit of capital improvements done for energy efficiency. Some of those things will change as we are able to better educate the marketplace.Are you seeing an increase in the number of tenants looking for more environmentally friendly buildings? Are they mostly larger corporations?Padavano: Yes. We are seeing more questionnaires come through from search and brokerage firms asking exactly what landlords are doing with respect to sustainability, energy efficiency, conservation and indoor air quality. It’s generally the larger corporate users. It hasn’t progressed down into the smaller, local users yet.Fedrizzi: We are starting to see this trend happen in a big way. Hines says that about 50% of its build-to-suit clients are asking for LEED-certified products, while half of its tenants are seeking elements of sustainable design in its buildings. And look at Larry Silverstein. His Seven World Trade Center project was a spec development and not only did they achieve LEED status, but now tenants are asking about building it out in a LEED-CI (commercial interiors) format. People see the emphasis on green technology and its direct connection to the mitigation of carbon dioxide and greenhouse gasses. Everybody wants to be a part of the solution—whether it’s purchasing compact florescence in your home, driving a hybrid electric vehicle or just living or working in the kind of space that uses less energy.Are we at the point where an owner can charge more for a LEED-certified building?Fedrizzi: We have hundreds of examples of people charging more per sf for LEED-rated projects. I don’t have a straight percentage across the board, but I do know that developers from Chicago to the Pacific Northwest are building out and leasing up in record time at higher lease rates per sf.Padavano: I don’t think it’s prevalent at this point. A lot of times it is not even a choice for tenants. In many cases, none of the buildings that fit their profile are green.Fedrizzi: You have to realize that I’m talking about 5% of the total market—and that may be pushing it a little bit. So you got the other 95% of developers that are still on the fence. But that very small percentage of the certified building market comprises 30% or 40% of all practitioners; there are 36,000 LEED-accredited professionals today. I think you’ll see a tipping point and greater numbers join year after year. But Kurt’s right. A large percentage of the marketplace needs more education, more information and better opportunities.Padavano: One of the benefits to having all these LEED-certified professionals is that even though not every building they are working on is LEED, they’re using that knowledge. There’s a lot more being done out there than has been reported because of the number of certified professionals.Several municipalities, such as Washington, DC and Boston, are looking at legislation that requires private-sector buildings of a certain size to meet green standards. What implications does this have for the industry?Padavano: BOMA is in favor of incentive-based programs. Let market forces be the driver for landlords and property management firms to adopt these measures and move them forward so that they’re competitive in that next lease transaction. Mandates historically have not hit the exact goals they’ve tried to accomplish. They’re difficult to implement, monitor and track.We promote incentive-based programs like the Energy Policy Act of 2005, for example, which we fought very hard at the legislative level to get implemented. We’ve been successful in getting a one-year extension, and we’re continuing to fight to get it extended on a permanent basis.Fedrizzi: When state and local governments mandate LEED for their own buildings, they’re doing that as a portfolio manager. Why wouldn’t they mandate the highest level of performance for their properties? Those cities that are contemplating standards for the private side are typically basing it on whether any city dollars are being used in the project.But for the most part, when you talk about private developers, incentive-based programs, like density bonuses and accelerated permitting, are best. That approach has been working very well.Many developers say, “I’d like to go green but it’s a little bit expensive.” It seems there is still some debate as to whether going green makes sense.Padavano: I’ve seen enough case studies and spoken to so many of my peers to know that it is not the issue anymore. People have gotten comfortable with the cost of green development and the reasons not to do it are disappearing. People just need to figure out how to sort through the information that’s available and use it effectively.Fedrizzi: The reason it did cost more 10 years ago is there were not enough suppliers of green building materials or educated practitioners. You had a very inexperienced team trying to integrate systems, which is where a lot of the cost savings are, and it is a very difficult thing to do.Today there are multiple cost studies out there in the marketplace. We can say without a doubt you can build the first two levels of LEED certified in silver for not a penny more than conventional construction. When you go to the gold and platinum levels, there’s an incremental cost: 2.2% on average for gold and maybe up to 6% for platinum. However, there are some developers that say, “Wait a second, we’re doing platinum for just 1% above base cost.”Is there as strong a movement now to retrofit some of the older stock to keep up with the LEED-certified buildings in the marketplace?Padavano: Because all building systems at some point need be replaced or repaired, there is the opportunity for us to educate architects, owners and developers on the products that are available to make buildings more sustainable or energy efficient. There are a lot of low-cost and no-cost solutions in terms of the way you operate buildings. We’re educating our membership in those areas and working on the legislative side to make sure that we can voice the concerns of the industry on the laws, codes and standards. We believe there are opportunities in the existing building stock, and we need to get our members up to speed.Fedrizzi: We have a LEED program for existing buildings that allows for a complete overhaul of the operating systems, and we are also starting to formulate a portfolio program that would allow owners to incrementally change out systems within their portfolios over time and work toward a LEED rating for all their assets. For example, if I’ve got 30 buildings, it may be more cost effective for me to do a lighting retrofit of all the properties at the same time and then maybe a year later, upgrade all of the mechanical systems.Where do you see the green building movement heading?Fedrizzi: The organizations involved in green building are doing it for the right reasons and it’s a good leadership thing to do, but it is also a solid business decision. It’s not about saving whales, not that there’s anything wrong with that. This is about business meets the environment in a very effective and positive way so that ultimately, we can get out of this dangerous spot we’re in.One thing I want to mention is the development of Ashrae Standard 189, which will provide minimum requirements for the design of sustainable buildings. It’s being developed primarily to affect building codes across the US. As you’re pulling plans for a new construction or renovation project, there will be certain requirements such as the holistic integration of energy and water, indoor air quality, materials and so on. That will bring the building stock up to a level of performance that’s much higher.Padavano: In the last 12 months, we put together an environmental initiative task force inside of BOMA International to study these issues from a strategic standpoint. As an industry, where do we need to be heading, and how do we as an association support the needs of our members? How do we identify partners like USGBC, like the EPA and their Energy Star program and a variety of others in order to bring forward as many resources as possible? These are the kinds of initiatives that can move an industry forward, and these kinds of partnerships can accelerate the movement significantly.

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