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February 17, 2011

Green is catching on in the real estate industry

  • Owners, tenants and lenders are coming around as the value of sustainability becomes clearer.
  • By CONSTANCE WILDE
    CB Richard Ellis

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    Wilde

    Recently I decided to dive head first into sustainability by becoming a Certified Green Broker.

    I came out ahead on two points: The education completely changed the way I look at my business, and it propelled my personal environmental consciousness in ways I never suspected. This is one instance where what you don’t know will surely hurt you. If not now, later.

    With more than 5 million commercial buildings in the U.S. today responsible for 48 percent of all greenhouse gases emitted and 40 percent of energy consumption, and a clear need to change that, we’ve got our work cut out for us.

    Real estate brokers are on the frontline at the beginning of most property demand cycles. We are the logical navigators of the myriad of sustainable choices for property buyers, sellers and tenants.

    Clients need guidance, so we in the commercial real estate industry need to be educated. Architects, contractors, managers and brokers are arming themselves with knowledge and credentials. Having a basic understanding of building-rating systems, knowing the language and grasping the economics is what will set us apart as agents of change.

    The U.S. Green Building Council’s LEED AP certification and the Commercial Brokers Association Certified Green Broker program are highly regarded accreditations designed specifically for our industry. Improving the sustainability message to building owners and tenants is key, but there is a tougher egg to crack.

    Lenders’ learning curve

    For decades, building owners have been able to analyze the return on improvements to their building with very simple math: Just capitalize the increase in net operating income and compare that to the cost of the improvements. If it is positive, do it. If not, don’t.

    Making the decision to spend thousands of dollars on improvements to make a building sustainable is not just a simple return of, or return on, costs calculation. How do you calculate the lost opportunity when the competitive building gets the tenant you wanted because that owner invested in the future by adding sustainable features to that building? How do you communicate to lenders and appraisers that your recommissioning investment really does add value to the asset?

    Integrating sustainable property practices into the mature real estate industry must necessarily involve many layers of professionals and gateways before the “value” of those practices can be fully realized.

    Owners of existing buildings intuitively know that the energy savings of a mechanical retrofit will save money. But convincing the gatekeepers — the appraiser and lenders — of the benefits, as it relates to value, to get the capital necessary to do the work or a recognized return when they sell the asset is another story.

    Acquisition analysts, appraisers and lenders are going through the same learning curve we are, figuring out how to value the sustainable aspects of investments beyond just the obvious costs savings. The gatekeepers are slowly coming around.

    Sustainable property certifications such as LEED Existing Buildings: Operations & Maintenance and LEED Core and Shell are beginning to be more broadly recognized, which instills confidence in the underwriters to apply the appropriate value to the property.

    There are guidelines in place, and the industry is developing standards to evaluate the return on investment for sustainable buildings and operations. New construction has an easier path to sustainability because governing municipalities are demanding some level of LEED certification.

    Still, the majority of all commercial structures are existing buildings, so the greatest opportunity for meaningful change is in the recommissioning of those structures. To preserve value and keep their buildings competitive, existing building owners should take steps to decrease the carbon footprint of their buildings. Otherwise they will find their assets becoming functionally obsolete as more and more occupiers demand environmentally conscious workspaces coupled with energy savings.

    Some sustainable practices cost little or nothing to carry out. Owners of existing buildings can begin by making changes such as using efficient light bulbs, switching to environmentally neutral cleaning products, using janitorial services during the day and installing recycle bins, nontoxic carpeting and motion-sensory lights.

    Educating building engineers, janitors and tenants is basically free, but can save money and energy. Simple mind shifts can improve not only the bottom line by lowering operating costs and retaining tenants, but can also reap positive social effects. Add to all that the many tax incentives now available for sustainable recommissioning and you have a win-win-win.

    A social message

    Corporate America has already figured out the value of choosing sustainable properties. LEED-certified buildings appeal to employers that recognize their retention and recruiting benefits. Choosing to occupy sustainable properties aligns with the corporate social responsibility message that many are trying to convey.

    The top talent that companies are trying to recruit are drawn to healthy, vibrant workplaces. Employees consistently report greater satisfaction with their jobs when their workspaces offer sustainable features such as personal lighting and temperature controls.

    The U.S. can meet 85 percent of its future energy demand through greater building efficiency, and a national commitment to green building has the potential to generate 2.5 million American jobs, according to the U.S. Green Building Council.

    Retailers are often the first to recognize the cost savings of going green because they occupy such large building footprints. The USGBC’s newest rating system, the LEED for Retail program, offers certification opportunities for retail spaces.

    Retailers are more attuned their customers than most employers are to their employees. Retailers, especially mass merchandisers, are responding to customer demand for putting sustainability into practice. By achieving LEED for Retail certification, businesses distinguish themselves as being environmentally conscious, which resonates strongly with their customers.

    Beyond the obvious cost savings, LEED-driven changes to store design, lighting and materials have a positive effect on the customer experience. Research shows a direct correlation between time and money spent by customers and increased levels of natural light through bigger windows, skylights or solar tubes. Walmart reports higher sales in stores with more natural daylight.

    Sustainability is not just about the building, but the operations inside. Target reuses 92 percent of its hangers, recycles a billion pounds of cardboard and has switched to energy-efficient lighting.

    So no longer is the question “Why green?” It’s “Why not?”

    We have the tools, the resources and the incentive to educate owners, tenants and, most important, the gatekeepers to dispel the myth that greening a building is complicated and expensive.


    Constance Wilde is a vice president at CB Richard Ellis, a Certified Green Broker and a Certified Commercial Investment Member.


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