December 11, 2008

A green future for savvy developers

  • More tenants and owners are discovering that green buildings not only lower their energy bills, but also help reduce greenhouse gas emissions.
    R.C. Hedreen Co.


    Not all developers will survive this economic downturn, but I believe that those who are in the best position to emerge intact are those who are building green. Of course, there are many other factors involved, but green is a cornerstone.

    R.C. Hedreen is relatively new to green building. Our latest development, Olive 8, a hotel/condominium building in downtown Seattle, was not originally planned as green. But a number of important studies published over the last few years have convinced me that green offers the best opportunity for long-term value. It was important enough from our perspective to do some re-engineering at Olive 8. We now believe that Olive 8 will be certified LEED silver, which means energy and water savings, as well as a healthier indoor environment.

    As I see it, the benefits of green in this economy are two-fold:

    1. Economic performance and sustainability. A green building offers the best long-term investment and will help your bottom line. Green done right means reduced costs for utilities and resource-efficient appliances and fixtures.

    2. Environmental sustainability.Our industry is responsible for almost half of all U.S. greenhouse gas emissions annually.

    Image courtesy of R.C. Hedreen Co.
    Olive 8 is expected to be Seattle’s first LEED silver hotel/condominium project. The hotel portion, operated by Hyatt, is scheduled to open Jan. 5, 2009, followed by the first condo sale closings in February.

    As Charles Lockwood wrote in his 2006 Harvard Business Review article, the owners of non-green buildings “face massive obsolescence.” If you’re not using high-performance, energy-efficient, sustainable materials and technology in the design and construction of your buildings, you are a dinosaur. Last May, McGraw-Hill Construction and the National Association of Home Builders, reported that almost one quarter of builders expect 90 percent of their projects in 2009 to be built to green certification levels.

    But you don’t need research to tell you that the cost of energy and water are only going to increase. Building efficient, high-performance buildings will help inoculate you from rising utility costs.

    Green homes sell faster

    We are lucky. Seattle is at the heart of the green building movement, with experts at all levels to make it easier and more cost-effective. Furthermore, though these are difficult economic times, our market remains better off than many areas of the nation.

    And again, there is good data to suggest that green offers a marketing advantage. Nationally, the McGraw-Hill and NAHB report, “The Green Home Builder: Navigating for Success in a Down Economy,” finds that 56 percent of the builders who responded to the survey believe building green makes it easier to market their homes in a down economy. Building and marketing green projects provides an opportunity to expand market share and ride out this economic slump.

    Locally, we have a recent report that is also positive. GreenWorks Realty just updated its Northwest Multiple Listing Service study of new single-family homes in King County, and it still shows the advantage of building and owning green homes. According to the study, green certified homes — LEED, Energy Star and Built Green — spent up to 30 days less on the market.

    Meanwhile, even in a slump, the trend towards dense downtown living remains strong. Buying a condominium is a lifestyle choice in addition to a real estate one.

    Local condominium marketing firm, Williams Marketing, recently conducted a survey of 1,000 people about their perceptions of Seattle’s real estate market and what factors influence them in their purchase of a home. Nearly 63 percent of respondents said that the price of energy does affect their decision about where to live. Walkability also ranked high on the list with 91 percent saying that being able to walk to conveniences such as shopping, dining and entertainment is a significant factor in the selection of their new home.

    Being able to walk to where you work, shop, eat and play is a big part of the opportunity for in-city green development. Although sales at Olive 8 have slowed recently, its “walk score” of a perfect 100 due to its proximity to a wealth of amenities and transportation options will become even more attractive as “wait-and-see” consumers start buying again.

    We believe that we will be better positioned when the market turns around because of our green credentials.

    Green at work

    In the commercial sector, the return on investment for building green is even greater.

    A June UC Berkeley study found that there is a direct link between energy and profitability of rental properties, with green-certified buildings producing at least an 8.5 percent increase in rent. CoStar Group, a provider of information and marketing services to commercial real estate professionals, also has a 2008 report that identifies the economic benefit of LEED and Energy Star buildings. Green-certified buildings sell for up to $171 more per square foot, command rent premiums up to $11.24 per square foot, and have almost 4 percent higher occupancy rates.

    As the owner of a green building, you are also providing better indoor air quality and more natural daylight and ventilation to your tenants, which will greatly reduce turnover of leased space. And while green buildings can have a higher initial cost, these recent reports show that their profitability, desirability, and buyer and renter demand outweigh that expense.

    Incentives for building green

    Government incentives are also helpful to developers. In 2009, Seattle City Light will double its rebate program, offering an additional $10 million in incentives for the construction and renovation of energy-efficient commercial and industrial buildings. With Puget Sound Energy planning to increase its program as well, there is enough money on the table for us all to be building green.

    At the beginning of October, the Energy Efficient Commercial Building Tax Deduction was extended as part of the Emergency Economic Stabilization Act of 2008. This tax deduction is an incentive to assist building designers, owners and developers in choosing energy-efficient building systems. Owners and tenants of new or existing commercial buildings are eligible to receive a deduction up to $1.80 per square foot if they build or renovate to save at least 50 percent of the heating, cooling, ventilation, water heating and interior lighting energy costs.

    Building green also opens the door for more financing options. Since May of 2007, Wells Fargo has doubled its lending amount for LEED-certified structures to $2 billion.

    Seattle is the leader

    In the face of all the bad news, remember that Seattle will be the number one real estate market in 2009, as forecasted by the Urban Land Institute in its Emerging Trends in Real Estate 2009 report. Seattle tops the list of the nation’s cities as one of the best places to invest in commercial and residential real estate in the coming year.

    As Leslie Williams, president of Williams Marketing says, “Statistics show that in the U.S. housing market overall, there has been only one five-year period since 1963 when housing prices declined. From 2003 to 2008, housing prices gained an overall 21.82 percent. The long view in housing is bright. It always has been.”

    There is no foolproof survival insurance. But making the smart investment in high-performance buildings offers the most hope for the future.

    David Thyer is president of R.C. Hedreen Co., developer of notable local hotels such as the Seattle Hilton and Grand Hyatt Seattle. Hedreen’s current development, Olive 8, will be Seattle’s first LEED silver hotel/condominium, and its upcoming Stewart Street hotel project will be pursuing LEED platinum certification.

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