Top 10 Rules for Green Success

By Mike Russo, Contributing EditorGreen building is not recession-proof, but its roots appear to run deeper than the current economic downturn can reach. For developers who have adopted sustainability as a core value, LEED (Leadership in Energy and Environmental Design)-level construction remains mission-critical, particularly in Class A work. Even for companies who are less committed, green building has simply become too pervasive to ignore. In order to gauge the recession’s effect on green building, MHN turned to the winners of its 2008 Green Initiative Awards, as well as research from other industry experts.First, The Top 10 Rules for Green Success:1. Use well-established protocols, such as the BOMA (Building Owners and Managers Association) Canada and Canadian GBC (Green Building Standards) standards, where applicable.2. Utilize expert interdisciplinary teams for construction, finance, energy, legal, marketing and building operations.3. Plan ahead by incorporating all green features into design, construction, renovation and operating plans.4. Conduct resident market research during the design phase to find out what features residents value most.5. Use green features as a market differentiator.6. Train your leasing brokers to sell green.7. Consider greening your resident leases, including resident responsibilities, recoveries, etc.8. Green your contracts, contractor performance clauses;,energy-savings performance contracts.9. Use incentives to offset costs.10. Operate smart: Use resident staff manuals and a regular training regimen.Going beyond ‘green’Last year, the Tower Companies earned a Green Corporate Initiative Award from MHN for its “Beyond Green” program. A three-generation family-owned business, The Tower Companies is based in Rockville, Md. and was an early proponent of green building, pioneering new concepts such as wind power. The Tower Companies built The Blairs, America’s first LEED-certified apartments in Silver Spring, Md. As an Environmental Protection Agency Climate Leaders Partner, the Tower Companies pledged to reduce the atmospheric admissions attributable to its buildings and become carbon-neutral by 2012. It reached this goal in 2008.“Any developer today building at less than the LEED Silver level is installing products that are already obsolete,” says Marnie Abramson, principal of The Tower Companies. “In many jurisdictions, it’s almost impossible to develop commercial or residential space that doesn’t meet the minimum requirements of LEED.”While Abramson is not advocating that all buildings should be LEED-certified, she worries about the financial viability of Class A properties that don’t meet minimum LEED requirements.“I’ve been hearing very similar stories from other developers,” says Dr. James L. Hoff, DBA, president of TEGNOS Research Inc. in Carmel, Ind. “The motivations are more one of fear: If you don’t build Class A space ‘green,’ it will quickly become a Class B or C space.”Fortunately, it has become much easier for developers to obtain the LEED-rated carpets, paints, light fixtures, low-VOC materials and other green products that architects are specifying in the multifamily market.“The biggest obstacle in the beginning was the lack of green or sustainable products, but that industry has blossomed,” says Abramson. “When we started out on The Blairs, the standards that existed at the time were designed for commercial offices. It was much more difficult back then. Now we are doing office buildings at the LEED Platinum level with no problems.”The biggest challenge for The Tower Companies right now is determining the best way to generate on-site energy for new developments. The Blairs project was unique in that it used energy produced at a wind farm, but these facilities are rarely co-located with the development.Recently, the company considered building a structured parking lot featuring two acres of photovoltaic (PV) solar panels on an upcoming LEED Platinum level office building. However, in the development’s mid-Atlantic location, the solar system would only have generated 10 percent of the building’s power needs, with a lengthy 99-year payback.“What we really need to see is larger tax incentives for the multi-housing industry,” says Abramson. “There is a huge opportunity here. But these write-offs need to be made more available to help developers with the larger infrastructure investments we need to make.”To its credit, the company had to satisfy itself with a 16-year payback on energy-saving window renovations for The Blairs. “For us, this was mission-critical,” recalls Abramson. “But if a developer could write these improvements off in seven years, it would be a no-brainer for most.”For example, the executive recalls a 2003 energy tax credit offered by the State of Maryland that allowed developers to write off up to 8 percent of project costs directly from their personal income taxes.Abramson also credits the Obama administration for earmarking $5.5 billion for new construction and retrofit of federal buildings.“It’s great to use the bailout money to create more sustainable buildings for the federal government,” says Abramson. “But we need more incentives for the private sector, because our industry is self-sustaining.”Despite the financial challenges and uncertainties facing developers, Abramson encourages more companies to pursue green initiatives. “It’s understandable that a developer with no green experience will worry how much sustainability costs, and how much more time it will take,” says Abramson. “More importantly, they also worry about building in a way that they are unfamiliar with.”The company recently partnered with Lerner Enterprises on a LEED Platinum level building, even though Lerner had no experience with sustainable construction. At it turned out, the $1.8 million in income tax credits paid for the green enhancements.“In this case, Lerner was not charged for learning to build green,” recalls Abramson. “It’s really a one-time ‘knowledge’ premium. Companies who learn to develop smarter and in a more sustainable manner tend to continue to do that in the future. That’s why even a one-time tax credit is so important for our industry.“You only see a cost premium for LEED-level construction if you choose to certify,” Abramson continues. “And even then, it’s usually less than $1 per square foot.” The Tower Companies may be more altruistic than most developers, but the firm considers its green initiatives more than just a marketing strategy or stamp of approval. “We’re creating a sustainable, long-term benefit to the communities where we build,” says Abramson.By recycling, the company says it can divert 90 percent of construction waste from landfills. That’s equal to 400,000 pounds of garbage on an average 160,000-square-foot new construction project.“Recycling, water conservation and sustainable building design is not that difficult,” says Abramson. “It all seems like an extra step the first time you do it, but it becomes a habit—like brushing your teeth every morning.”Post expands sustainability initiativesAlthough Post Properties doesn’t have a lengthy list of LEED-certified multifamily projects in the works, the company’s energy-saving and recycling strategies continue to bear fruit.Post Properties garnered a Green Services award from MHN last year for the recycling portion of its “Post EcoActive” program. Although the city of Atlanta is Post Properties’ only market requiring an industry-wide recycling program, the company has used its Atlanta program as a model for nationwide expansion since 1995. Now, recycling centers are available in all Post markets for residents to recycle everything from newspaper to glass, aluminum, steel and plastic.“Anything that requires a significant ROI is being looked at very carefully right now,” says Terri L. Sherrod, director, brand and advertising, Post Apartment Homes L.P., Atlanta. “However, we are planning to have a LEED consultant come and work for us going forward.”In the meantime, Pos
t has been nurturing a long list of sustainable initiatives from the recycling of carpets to the use of organic pesticides and cleaning products. Energy savings and water conservation are also top priorities at Post. For example, the company recently instituted an internal energy-savings awards program, and the results were dramatic.Twice a year, the company’s Ancillary Services Group looks at energy-saving opportunities across all their properties, which include garden, mid-rise and high-rise buildings. Last year’s winner cut electrical consumption in its leasing and common areas by 18.6 percent.“All we had to do was educate and encourage people, and we got very good results,” said Sherrod. “It doesn’t require a significant investment from the company, either.” The savings were achieved mostly through the use of compact fluorescent lighting in office spaces and other common-sense conservation efforts. The company is also considering using LED lighting for parking garages.“For us, the biggest part of developing ‘green’ is high efficiency HVAC units and a ‘tight’ building envelope,” says Sherrod. “Developers don’t always monitor the build quality on every project, and we’ve found that to be very important.”Post weighs the costs and benefits of sustainable design on each and every project, but so far the company has found that renters are not willing to pay a premium for a LEED-certified building.“In a purchasing situation, buyers will pay a premium if it adds to the retail value of their home and saves on energy,” says Sherrod. “In the current economy, we need to see a long-term benefit in order to implement any green initiatives.”However, commercial clients may be more open to paying a premium for LEED-certified surroundings. According to “Green Space,” a pre-recession (2007) study of corporate commercial buyers by Jones Lang LaSalle of CoreNet, 77 percent would pay more for ‘green’ office space.“Unfortunately, any time the economy is bad, developers are tempted to cut rents or offer concessions to get renters into their apartments,” says Sherrod. “We’re seeing management companies offering several months of ‘free’ rent, but we don’t advertise these types of concessions. At most, we’ll offer some marketing initiatives or discounted fees on certain upscale floor plans at a property.”For Post, it’s the smaller sustainability initiatives that have had the greatest benefits. These include the deployment of water-saving toilet valves in common areas, the company’s award-winning recycling program, and the use of recycled wood floors and other sustainable building products. The company has also reduced paper consumption by using Internet billing instead of sending residents paper statements in the mail.“We agree that in areas where energy costs are very high, green building is an economic requirement,” says Sherrod. “We’ve found that even small utility savings can have a huge impact on our operating budgets.”Forest City follows green ‘roadmap’Cleveland, Oh.-based Forest City Enterprises Inc. continues to adopt the principals of sustainability into the projects it develops and the properties it manages. The goal is to balance environmental resources, economic objectives and social systems–-the so-called “triple bottom line” of people, planet and profit. Its efforts earned the company MHN’s Green Corporate Initiative Award last year.Forest City’s approach to sustainability evolved from its redevelopment of the Stapleton Airport in Denver, a 4,700-acre mixed-use project. Stapleton’s dramatic results inspired the company to adopt sustainability as a core value.In 2006, a Sustainability Department was established to drive progress. By reporting directly to the CFO, board of directors and investment committee, the department ensures executive commitment and accountability.Sustainability was called out as a key initiative in Forest City’s 2008-2011 strategic plan. In January 2007, Forest City began requiring new development project teams to submit a sustainability “dashboard” for internal review.Another objective is devoting green resources to the managed portfolio, including well over 45,000 residential units. A utility tracking system informs decisions across geographies and product types and allows calculation of Energy Star ratings and carbon footprints per property.The company’s Green House Web site (http://www.fcgreenhouse.net) offers a plethora of information for residents, including recycling, water conservation and Ride-Share programs. A monthly online newsletter, New Leaf, is also available for download and includes more tips for sustainable living.Green building: A powerful asset classWith the advent of investment funds funded on green buildings, green mortgage-backed securities and the new Dow Jones Sustainability Index, developers are taking sustainability seriously—even in a down economy.“There is now quantitative evidence that green buildings are more valuable, while conventional buildings are at risk of accelerated obsolescence and devaluation,” says Leanne Tobias, founder and principal of Malachite LLC in Bethesda, Md.Tobias, one of the few real estate investment and management professionals accredited by the U.S. Green Building Council’s LEED program, also sees green building costs becoming more competitive.“Because green products are new products, they tend to be more expensive, but that is changing,” agrees Abramson.In a presentation at the University of Toronto’s Rotman School of Management last May, Tobias shared several reasons why developers should go green, including:–Green building reduces annual operating costs–Sustainable construction is a sellable consumer amenity that enhances revenue streams–Green buildings produce higher and more predictable cash flows for developers and property managers–The investment potential of green buildings is superior, especially for a long-term hold.“This leaves ‘brown’ buildings in a state of functional obsolescence, with declining curb appeal, and at risk to regulatory changes,” says Tobias.For Cushman & Wakefield, a recent initiative to retrofit 64 buildings to LEED Platinum standards actually made the company money. According to the Green Building Council, the company spent an average of $1.64 million on each retrofit and received almost $400,000 in rebates. Each building yielded an average of $1.2 million in annual energy and maintenance savings, all in a 10-month payback cycle with an ROI of 121 percent.At the same time, RCLCO (Robert Charles Lesser & Co.) of Washington, D.C. says wellness and health are the strongest real estate market drivers today, with buyers in this group more affluent and educated. RCLCO also found that 91 percent would pay more for green features, and 41 percent would pay more even if there was no financial payback.In a more recent March 2008 study, The CoStar Group found that LEED-certified properties increased occupancies by 4.1 percent. Rents on these properties averaged $11.24 per square foot higher, with sale prices rising to $171 per square foot. (The poll’s national sample was controlled for property location, product, size, class and age.)“This is not a new conversation, and there are no more excuses for developers to ignore sustainable design,” says Abramson. “If they do, their properties will be ‘dinged’ down the line. You just can’t compete anymore without a green and sustainable strategy.”