U.S. GREEN BUILDING COUNCIL: Commercial Markets Update

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January 2009

Green Building in a Troubled Economy?

The current financial crisis has arrived in full force and is making its presence felt. One of the sectors that have been hit the hardest by these economic woes is the commercial real estate sector. In times like these, people will rarely deviate from the norm, but sometimes, deviation is exactly what is needed. This article will evaluate the continuing health and viability of the green building movement against the backdrop of the financial crisis.

Many businesses are recognizing green building as a unique opportunity to thrive during economic hard times. In a recent article, National Real Estate Investor Online spoke with Al Skodowski and Rick Walker of the Transwestern Commercial Real Estate Company about how green building will be impacted by a down economy. The general sentiment expressed by Skodowski and Walker is clear: Not only is a down economy not likely to hurt green buildings, but chances are that it will actually help the growth of the movement. Their reasoning? In this time of economic uncertainty, the increased efficiencies and lower operating costs yielded by green buildings help to save money in the long run as well as provide a product capable of attracting and retaining tenants.

USGBC had a candid dialogue with Randy Gaines, Vice President of Engineering for Host Hotels and Resorts, and a Q&A session with Jessica Halvorsen and Lisa Shpritz, from Bank of America’s Corporate Workplace department, who direct Bank of America’s real estate sustainability efforts.

USGBC spoke with Mr. Gaines in an effort to gauge how the organizations that have shown a commitment to sustainability in the hospitality sector are responding to the financial downturn. When asked about whether or not the current economic climate was affecting Host’s commitment to sustainability generally and LEED specifically, Gaines said, “Host still sees value in LEED and is sticking to their commitment to having hotels pursue LEED-EB (LEED for Existing Buildings) certification. We are not backing out of those plans in response to the economic situation. We are still committed to the goal of being a greener company and still committed to green as part of our social responsibility.” Gaines further went on to discuss how Host Hotels has been able to capture a significant ROI through certain green initiatives, something that is of great benefit to the company during financially constricting times. Specifically, Gaines gave an example of how the rising cost of water and sewer treatment in Atlanta pushed them to replace 3.5-gallon toilets with 1.28-gallon toilets, a move that produced a two-year ROI.

The volatility of energy prices is another factor that has pushed Host to maintain its sustainability efforts, prompting Gaines to say, “Tight budgets have encouraged Host to pursue energy savings more aggressively: In today’s environment, Host is going to do a lot more retro-commissioning and we are going to keep fine-tuning our buildings. That’s straight shareholder value – they need every penny we can get out of these hotels. We want to do more retro-commissioning, and focus on operational efficiencies. We need to squeeze more efficiency out of those buildings.”

While generally positive, Gaines was also realistic about green initiatives and how Host decides which ones to pursue. “We are cutting back on some green initiatives. We are doing the ones that are cost-neutral but have to evaluate the ones that have a cost premium associated with them.” That evaluation consists of what kind of ROI they will be able to capture from any given initiative. While not elaborating on which initiatives might get left by the wayside, Gaines did point out that Host is taking a hard look at things like the cost of recycling carpet and vinyl.

Corporate Real Estate's take on sustainability in these uncertain times

When asked how the current economic climate is affecting Bank of America’s green building initiatives, Lisa Shpritz had this to say: “Our commitment to LEED and sustainability remains strong. All of our commitments have been made with an eye to financial stability, so a lot of what we’ve done has been integrated into business as usual.” Both Shpritz and Halvorsen mentioned how the USGBC’s volume certification pilot process has come along at just the right time and that it “makes a lot of economic sense.” Along the same lines, when asked if Bank of America still sees value in LEED, Halvorsen replied: “Green building and sustainability make sense for Bank of America’s business. LEED contributes to the health of the overall community. If our communities and customers aren’t doing well then we aren’t going to be able to do well either.”

Has Bank of America changed the way it operates its building portfolio, and what, if any, low- or no-cost strategies have been implemented? Shpritz said, “For example, in our portfolio, we have continued to implement green cleaning, since it is a cost-neutral initiative. In this economic climate, the focus on LEED for Existing Buildings is that much more important. We have found that LEED-EB is a useful tool for improving the environmental performance of our existing portfolio. When looking at low- and no-cost pursuits, collaboration with vendors is essential. It’s vital to engage in dialogue with vendors and suppliers when trying to manage costs while integrating sustainability.”

Bank of America is following a common theme among corporations actively pursuing sustainable building initiatives. The more efficiently a building is run, the higher a return on investment one is likely to capture while lowering the environmental impact. According to Shpritz, green design and construction continue to serve as vital components of the company’s environmental commitment: “Our standard new construction prototype for banking centers has been pre-certified. Bank of America Tower at One Bryant Park in New York will be fully complete in 2009, and we’re pursuing LEED Core and Shell at the Platinum level. We have also recently received Platinum certification of a banking center in Southern California.”

So far, the sentiment seems to be consistent: Going green in this economic climate creates money-saving (and moneymaking) opportunities – and not the other way around – and is something that will be revisited in further editions of the Commercial Markets Update Newsletter.

Wells Fargo Giving Green for Going Green

Financial services giant Wells Fargo announced Nov. 11 that it has exceeded $2 billion in lending for LEED-certified buildings. Even during a time when credit markets are all but frozen, Wells Fargo has continued to recognize the value of green development and LEED.

Wells Fargo not only continues to lend to green building projects, but they themselves have stepped up to the plate and are using LEED to green their buildings to the tune of 20% energy savings goals and 40% predicted water reduction in all of its new banking stores.

» Read Wells Fargo’s official press release.

Recent Government LEED Initiatives
San Joes, CA

On Oct. 7, the San Jose City Council voted unanimously to adopt LEED as a mandatory standard on all new construction. The standards will apply to all housing projects with 10 or more units, and all commercial buildings of 25,000 or more square feet will have to achieve a Silver rating in LEED for New Construction.

» Read the San Jose Business Journal’s take here.

Gaithersburg, MD

On Sept. 15, the Gaithersburg City Council adopted Ordinance O-11-2008, requiring all commercial or residential buildings higher than four stories between 10,000 and 99,999 square feet to earn at minimum LEED Certification and all commercial or residential buildings higher than four stories and larger than 99,999 square feet to earn at minimum LEED Silver certification.

From the Desk of Doug Gatlin
USGBC Vice President of Market Development

Another Greenbuild has come and gone, and it’s not a cliché to say it just keeps getting better. This year’s event drew more than 28,000 attendees to Boston, a city whose storied past provided a welcome backdrop to this fantastic event. Growth in the turnout at Greenbuild is a reflection of the growth in the green building movement overall, and this has become a truly global phenomenon. Attendees in Boston represented 85 nations, a sharp increase from the 30 countries that were represented as recently as 2005 in Atlanta. Further, the increase in attendees overall represents a nearly 25% increase over last year, and a full tripling in attendance since 2005.

What is fueling this growth? More to the point, how can this be happening even when the rest of the global economy seems to be bracing for a hard decline? It seems that, at least in part, the answer lies in the fundamental promise of the green building offering – the triple bottom line. That promise says that buildings don’t have to be energy hogs to provide comfort, and that environment and business interests don’t have to be in opposition. In fact, the nearly 1,800 LEED-certified buildings currently in existence demonstrate that green building may be exactly the right strategy for a tough economy in which cost reductions and worker morale are worth an even greater premium.

In the commercial real estate market hold-times are increasing due to the decline in financing and escalating cap rates. This is a perfect opportunity to lengthen the payback horizon associated with major equipment upgrades to better reflect hold-times, and it’s also a great time to look for operational efficiencies and greening practices that can ramp up net operating income (NOI), while also delivering a greener building.

What does the future hold? We are well on our way to seeing green building go mainstream. This is reflected in the strong turnout from corporate leaders and key association executives making it to Greenbuild for the very first time. This trend is also reflected in the wave of new exhibitors, nearly a doubling over last year, who chose to join us at Greenbuild even as they have dropped from other events. Of course the real proof of this trend is in the market itself. For example, schools in Ohio and Maryland are now required to achieve LEED certification in order to receive state construction dollars. We are also seeing an engaged group of leaders from the retail and financial sectors moving to deliver green stores or branches as a standard practice, while incorporating green design and operations into their core real estate strategy. Together, they will be bringing literally thousands of LEED-certified establishments to neighborhoods across the country.

Green is being hailed as the bright spot in an otherwise gloomy economy. The strong turnout and positive message of Greenbuild provide a strong testimony that we are in the right place at the right time.

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