STATE OF GREEN

Real Estate

Written by Eugenia Canakes Robbins, LEED AP

These days, commercial real estate conferences and industry gatherings boast a healthy representation of breakout sessions, products and services promoting environmental responsibility and the latest in green building trends…and that’s a good thing. But, talking about going green and actually taking steps to transform a building are quite different.

In routinely interfacing with various commercial investors, asset/property managers, leasing agents, tenant rep brokers, construction managers and general contractors, I have noted a rather wide spectrum of comprehension, acceptance and implementation within the DFW real estate community.  

HISTORIC PRECEDENTS

When discussing green building concepts, I often provide a brief a historical summary evidencing that “going green” is not a new idea, which sometimes results in comments like “I never really thought about it that way…” or an occasional “aha” moment. Here are a few factoids of interest:

• Building design concepts that focus on working with surrounding natural elements and harnessing local climate attributes have been around for centuries all over the world – it was a necessity pre-electricity and pre-HVAC.  
• Resource conservation has been embraced by the US Government since 1871 (when the US Fish Commission was established to address the decrease of commercial fish and aquatic animals in coastal and inland waters).
• In a 1907 speech, President Teddy Roosevelt said, "The conservation of our natural resources and their proper use constitute the fundamental problem which underlies almost every other problem of our national life.”
• The Environmental Protection Agency (EPA) was established in 1970 largely due to concerns, at that time, about air and water pollution and rampant use of pesticides.

Momentum in understanding/pursuing LEED® certification and simply operating properties more efficiently has certainly increased.  According to the USGBC, there are 66 LEED® Certified commercial projects and 331 Registered projects (of which 21 and 124, respectively, comprise city-owned buildings, schools and libraries) in North Texas as of November 1, 2009.  

However, there remains widespread confusion and misperception in the marketplace about the various types of rating systems, the process necessary to pre-qualify for/attain certification, how to green-up a facility when certification is not feasible, and, of course, the cost in doing so. While the new and improved (but more stringent) LEED® 2009 rating systems were launched this year, they were promptly met by a nose-diving economy, which initiated a deep freeze on the credit/lending market and a major spike in unemployment – hurting two essential elements that keep the commercial real estate industry humming.

BACK TO THE BASICS

As landlords and tenants reacted to this economic implosion, budgets were slashed, conserving cash was paramount and everyone dusted off their “Back To Basics” rules and tried to figure out how to do more with less – be it human capital, square footage or materials. For building owners, priorities are mortgage payments, having necessary capital to perform basic operational and repair activities, and providing funds for tenant improvements and leasing commissions.

For many corporate tenants, it’s all about staying in business amid sputtering revenues, mitigating a credit choke-hold and meeting financial obligations without additional layoffs. Most already-in-work green building projects stayed on track; however, many scheduled and budgeted forays by landlords and tenants into the green building arena have been put on hold indefinitely.  

Prior to the economic decline, do you recall our nation’s encounter with record high energy and gasoline prices? This price spike effected significant behavioral change among businesses, households and individuals.  Newfound revelation about the efficiencies that could be achieved through everything from commuting habits, energy conserving technologies, recycling permeated the media and discussions, and served to highlight the importance (and operational benefits) of implementing green building practices like never before. Suddenly, certain elements of going green were viewed as more of a necessity than an option.  

GREEN IS HERE TO STAY

This “double-whammy” of financial hits within 2 years created unprecedented grounds for evaluation of traditional practices within the commercial real estate industry and became an impetus for serious dialog about the business case of green retrofit. In the past 18 months, almost all of the municipalities that comprise the DFW metroplex have embraced and implemented some level of green building methodology as part of the building inspection and permitting process, for new and retrofit projects. To quote a downtown Dallas leasing agent, “Green is here to stay.”
Which leads us to today’s conundrum…if there is capital available in a building’s budget, will some portion of it be allocated toward substantive green initiatives or will they be completely shelved until the economy or occupancy improves? How committed are local landlord/investors to embarking on greener paths for their properties, even in this economy? Have we reached a “tipping point” whereby landlords and tenants realize that they can’t afford not to incorporate green strategies into their facility budgets and decisions?  If landlords and investors do develop and pursue green initiatives, what are they and what were the drivers behind those decisions? Are available incentives being optimized? Some economists are stating that we are officially on a path to recovery, although the lending climate remains stymied – so, it seems fair to ask, what is the true state of green in our region?

Inquiring minds wanted to know – namely mine.  

THINK NATIONALLY. ACT LOCALLY.

If you’ve sat through any green building Power Point presentations lately, you’ll note that most data concerning the reasons why green building practices should be implemented often hinges on national averages.  While national averages for energy consumption, waste creation, construction costs, emissions, etc. are good for broad-brush benchmarking and policy change, the state of Texas, and more specifically the DFW region, tends to march to the beat of its own drum.

Local/regional influences on these averages which cannot be ignored are: our central location, favorable logistics infrastructure and cost of living, diverse and resilient economy, land availability, relative temperate climate, strong petroleum industry presence, narrower availability of state incentives for green attributes, our anecdotal tendency to “always build it bigger” and the general attitude that our state’s natural resources will always be available in abundance.

INFORMAL SURVEY

R E R Solutions recently conducted an informal, unscientific survey of a random sampling of over 100 DFW investors, asset/property managers, leasing agents and construction managers of office and flex property to obtain a glimpse into what is really going on in the DFW market concerning green building practices. The goal of the survey was to obtain general feedback from a variety of perspectives and for various building types (Class AA to flex) to formulate a “snapshot” of green building methodology implementation, comprehension and sentiment for the purposes of this article.

Response was robust – almost 40% of survey recipients responded, which is high by typical survey standards.  The respondents represented over 47 million square feet of primarily office property in the greater DFW area.

GREEN RETROFITS

In general, 48% of respondents have already implemented some level of green building retrofit – whether it was in the form of physical improvements or green practices.  Leading areas of emphasis among the respondents were:

• Lighting retrofit and waste recycling programs (each at 81%),
• Green janitorial program and consideration/pursuit of LEED® certification (each at 61%),
• HVAC upgrade or monitoring and landscaping/irrigation modification (50% / 47%).  

All other general categories received less support:

• Building commissioning, construction waste management policy, green building standard finishes and green purchasing programs (each at 29%)
• Roof replacement, use of green power and tenant education (20% / 15% / 14%)
• Common area plumbing retrofit, modified green lease language and green job-site protocol (11% / 10% / 10%)

GREEN INITIATIVES

When asked about the drivers behind these green initiatives, 90% of respondents indicated that their top 3 drivers were:

• Wanted to streamline operations and/or reduce utility costs
• Have a genuine concern for our environment – want to do the right thing
• Would like our efforts to generate positive PR for our company and the clients we represent

Other notably supported drivers were:

• Desire to be an environmental leader in the industry (77%)
• Desire future U.S. energy independence (70%)
• Want to incorporate environmental responsibility into their company’s brand (65%)

Less emphasis was placed on the following drivers:

• Competitors’ green building activities (52%)
• Requirement to meet governmental standards (local, state, federal) (42%)
• Tenant requests or demands (35%)

Based on the square footage and varied building types represented by the respondents, only 9% had attained LEED® certification and 14% were registered for certification under either the EBOM, NC or CS rating systems.  Only 3% had spaces registered under LEED® CI and these projects were in a single-tenant environment.

GREEN CHALLENGES

When asked what was perceived as the greatest challenge (aside from funding) to achieving either [a] LEED® certification under the EBOM Rating System; or [b] creating a green building platform that facilitates tenants’ pursuit of certification under the CI Rating System:

• 84% or respondents indicated that existing building systems were their greatest challenge, followed by 59% who noted asset hold period and 53% who cited existing building/site attributes as major hurdles.  
• Other challenges were current occupancy levels (44%), uncertainty about return on investment/performance claims of green improvements (40%) and tenant demand (35%).  
• Almost 37% of respondents indicated that LEED® certification did not fit with their asset strategy and 29% didn’t know enough about LEED® to answer the question.

“The economy is not good for the program now…too much vacancy and ‘non-spending’ thinking”, said Nancy J. Manar, CPM, VP of Majestic Realty Services Commercial Division.  
As for wether or not respondents were planning on developing a comprehensive green strategy for properties they own, lease of manage:

• Only 7% had completed a strategy in the last 12 months
• 49% had plans to develop one, but 60% of those respondents indicated that these plans were on hold.

Jim Donaldson, VP Senior Project Manager for UGL-Equis indicated, “I don’t see a lot of buy-in from the industry yet”.  Several respondents commented that there is still a significant amount of push-back and outright abandonment of voluntary green initiatives if initial project budget numbers come in higher than expected.  

GREEN ATTRIBUTES

If certain green building attributes were desired or proposed for the respondent’s buildings, the leading attributes that would receive priority were:

• Occupant waste recycling program (76%)
• Lighting retrofit and green janitorial program (70% each)
• Landscaping/Irrigation and HVAC upgrade and/or IAQ monitoring (64% each)

Less popular attributes that would receive consideration for future implementation were:

• Construction waste management policies (35%)
• Green purchasing program (30%)
• Common area plumbing retrofit (24%)
• Incorporating green language into leases (22%)
• Tenant education (20%)
• Green job-site protocol (17%)
• Building commissioning (5%)

John Lancaster, President/Principal of NAI Robert Lynn Management Services stated, “I think more and more are getting on the bandwagon…but the costs are high and not always recoverable.”

To shine a light on the overall perception of LEED® rating systems, participants were asked if they believed that the LEED® Green Building Rating Systems were the best way to achieve, document and measure sustainability and green building performance.  

• 65% of respondents indicated that they were “Not Sure”  
• 29% stated that they felt LEED® was the best system to utilize.
• Several respondents’ comments supported the LEED® systems and described them as “consistent” and “on the right track”, with regard to providing a valuable set of tools and objectives.  However, a few of these responses were tempered by comments reflecting an “uncertainty about the best way to quantify true sustainability” and concerns that the systems are “cumbersome”.

“Sustainability involves the life cycle of a building”, said Mark Wilshire, RPM, FMA, LEED® AP, Senior Property Manager of Bradford Management Company.  “Many investors are only concerned with the immediate impact of a short time horizon and until they are forced by laws or demand (market or tenant), implementing green building practices will be on a limited basis”, he said.

GREEN STEPS

The good news is that green building methodology seems to be appearing on more owners/managers radar screens as more than just a “blip”. Additionally, the business case for green is becoming more plausible with every passing day, thanks to evolving technologies, greener city building codes, more evolved LEED® certification processes, a growing critical mass of environmentally responsible buildings realizing notable benefits and impassioned professionals escorting more project teams down the green building path.  

The challenge before us is that we still need a tremendous amount of market education to effect greater change and achieve improved comprehension of both the self-serving and global benefits of implementing green building practices. While the LEED® Rating Systems represent true progress – the “gold standard” – in achieving and documenting high performance and sustainability in commercial buildings, we cannot ignore the parallel mission of providing creative, affordable and asset-appropriate solutions that will encourage “baby-steps” to be taken toward greener facilities by the large population of building owners, managers, tenants and the myriad industry professionals that support them.