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–>NEW YORK CITY-What is often referred to as the “business case” for green real estate is beginning to be understood, documented and quantified. No one can dispute the benefits of a building that conserves the earth’s natural resources, but real estate practitioners have a dual challenge of embracing sustainability while maintaining their fiduciary responsibility.

John Salustri, national online editor of GlobeSt.com, addressed these issues on GlobeSt.com’s hour-long Business of Green webinar, held on Monday, March 24 at 12:30 p.m. More than 500 webcast attendees joined panelists, which included Larry Heard, president & CEO of Transwestern; Victoria Kahn, managing director at ING Clarion; Jim Lutz, SVP of development at Liberty Property Trust; Brenna Walraven, president of BOMA International & executive managing director of National Property Management, USAA; and Dan Young-Dixon, director of design at Opus Architects & Engineers Inc.

The Business Case For Green Recorded Monday March 24, 2008, 12:30 PM EDT

The webinar began with the discussion of whether or not one can balance both the need for sustainability and the need to drive profit, which at the same time improves performance. “If we become more efficient in how we operate our business, it will increase returns on the bottom line,” Walraven began. She further explained that tenants will stay longer at green buildings.

Walraven noted the importance of being competitive in today’s market. “What happens when most of the market is moving to green? What happens when you can’t compete?” she queried.

The cost to go green is becoming less and less, panelists concurred. Young-Dixon said that sustainability is becoming best practice, and pointed out that cost for sustainability is becoming less. He explained that “sustainability has bourn down on our industry like a tsunami.” There seems to be a much greater interest from both buyers and sellers, he said, adding that being competitive has in the marketplace has impacted the way Opus Architects & Engineers’ designs buildings. “We have redesigned our systems to incorporate sustainability into our standards.”

Heard agreed that the cost to go green is less, noting that “our data shows the savings are more than we had previously anticipated.” He also pointed out that when a building is LEED certified, it is going to be attractive to more tenants.

When asked if you can quantify the minimal cost involved in designing and building an energy efficient building, panelists agreed that the cost has reduced considerably from what it once was. Lutz noted that cost is an important issue to discuss because “I believe it is still the single largest misconception.” He continued that there is only a small premium and a significant portion is the paperwork, which is getting more effective, he added. “The percentage is so low–around 0.5% to 1% the cost–so it doesn’t make sense not to do it simply because of that.”

Using LEED as a benchmark, Young-Dixon noted that “we can do it for 1% to 2% to cost,” but he explained that “we can green the facility for little or no cost,” and in some cases, even reduce the cost.

Walraven said that certainly there are costs to go through a certification process, “but I think increasingly what you are seeing in the marketplace is that there are tradeoffs to get to a same total budget.” She explained that data has increasingly shown that there is not a cost premium on a total cost basis. “There are more products and supplies available today,” she said. “It made sense that there was a premium in the early days of LEED and of greening, but as people are getting more proficient in it, there does not have to be a cost premium.”

Kahn noted that she believes most if not all class A new product will be green whether it is certified by LEED or any other certification. “Personally I think you are going to see that cost premium–if there is any–will diminish to nothing very soon.” When discussing lease rates, Kahn said that she does not think tenants are less willing to pay for green. “There is a demand for better quality and they are paying more it. Demand from the consumer side is there and I don’t think that is going to go away.”

Heard explained that Transwestern has scored and priced a number of clients’ buildings to go green and has found that the payback could be two to 2.5 years, “and that is conservative,” he said, “but you will have a product that will appeal to a broader cross-section of tenants by being green, so you are adding more value than any other cost that you are seeing.” He added that he has continually seen that the savings has been greater and the cost has been less.

Lutz didn’t think that tenants needed to pay more money, because the cost differential is so small. “Having product differentiation is the think that is going to be the holy grail of the green movement,” he said, “and as more and more studies come out, you are going to have HR [human resources] directors insisting that if there is a green building, they want it.”

Heard was willing to predict that the lending community will ultimately only be lending to construction that is green. “I think that this is such as tidal wave that lenders will join.”

As far as greening other asset types besides office, Kahn said that the cost factors more over the greening certification than anything else. Young-Dixon noted that residential is different because of what the standards are for residential green development. “It is difficult to get a LEED certification on residential buildings because you have to change the standards.”

Heard said that “office is leading the way. They have the greatest environmental impact. Retail and industrial will, over time, follow suit over residential.”

Young-Dixon said that he is hoping that going green will become “best practice for our industry. You will have to get to a point where you will have to identify why a building shouldn’t be green instead of why it should.”

Walraven concurred, noting that “we are going to see sooner than later that new building code will be to a higher green standard that will tie in with LEED but will also tie into other sustainability practices.” She further explained that there are between 10 and 14 federal regulations that have been focused on improving emission reductions and performance in both existing buildings as well as new buildings. “This is where the industry is going,” she said.

“It is important to recognize that the US is lagging in global sustainable environment as far as codes go,” Kohn pointed out. “There are several different standards for sustainability in Europe and another in the UK that are going to cross the bond very quickly.”

Walraven agreed with Kohn, nothing that “we are in a global market place.” If you look at carbon emissions in the European Union, she explained, “sustainability has flowed to utilities.” However when asked whether or not city or local municipalities should mandate the efficiency of buildings, Walraven explained that “if we had a choice, we prefer incentives versus mandated.”

Heard agreed, adding that “we have seen local governments take a leadership role, which is good. …The information pertaining to green will be so overwhelming going forward, but I think having a proactive government behind it to accelerate approval processes and permitting processes in buildings is beneficial.”

Walraven closed the webinar pointing out that larger fortune 500 firms are absolutely choosing green. “They are committed to sustainability for recruitment, retention, HR strategy, and cost savings from operations and from the people side of the business,” she said. “They are not waiting for studies to support that. They see that it makes more sense.”

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