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U.S. GREEN BUILDING COUNCIL: Commercial Markets Update

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Winter 2010

Green Building and a Climate Regulated Future

The beginning of the new year marks the passing of a decade when significant attention has been paid to sustainability and the environment worldwide. As the United States continues to work with international leaders after the conclusion of the Copenhagen Climate Conference, it marks the latest in a flurry of environmental activity that took place in 2009. With the U.S. House of Representatives passage of the American Clean Energy and Security Act of 2009, passage of the Clean Energy Jobs and American Power Act of 2009 by the Senate Environment and Public Works Committee, and the Environmental Protection Agency’s (EPA) endangerment finding on emissions, which supports reductions in greenhouse gas (GHG) emissions, the debate around the environment, and in particular climate change, appears to be reaching a fever pitch. In tandem, talks of environmental technologies and movements have become ever more pervasive.

Companies from across the country and globe are stepping up to be part of the solution by voluntarily reducing their energy use and emissions. Recently, businesses have begun to form independent coalitions in favor of efforts to mitigate climate change. One group consisting of approximately 25 corporate members, including heavy emitters such as auto companies, as well as large firms like Siemens and General Electric, is US-CAP. By voluntarily changing business practices and shifting to a more environmentally sustainable business model, corporations are able to take more time in implementing changes and are learning how to operate in a sustainable manner today. There also continues to be ample opportunity for even greater economic returns - a recent McKinsey report found that an investment of $520 billion today in existing building energy retrofits could yield an energy savings of $1.2 trillion by the year 2020.

In uncertain times, green building continues to show itself as a versatile solution to many of our challenges, both financial and environmental. As the landscape in which businesses must operate rapidly evolves, green building and the LEED rating systems continue to offer an environmentally responsible means of building and operating high-end, healthy, and efficient buildings, guarding against erratic energy prices and the impacts of environmental legislation and regulation.

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Green Venue Selection Guide

Green Venue Selection Guide Green Venue Selection Guide: Integrating LEED into Travel & Event Management

Using environmentally responsible meeting, event and lodging facilities makes business sense and can be an important part of an organization’s commitment to sustainable policies and operations. Green venues are fundamental to reducing the environmental impact of organizations’ meetings, events and travel. The “Green Venue Selection Guide: Integrating LEED into Travel & Event Management” helps travel, meeting and event planners incorporate LEED’s approach to measuring buildings’ environmental attributes during the RFP and venue selection process. It will also help venue sales staff communicate their facilities’ environmental efforts and accomplishments when submitting proposals to potential customers.

The guide includes background information on green building and hospitality, as well as a five-page “Hotel & Conference Center Environmental Questionnaire.” Travel, meeting and event planners can use the questionnaire during the RFP process to identify and select the greenest facilities based on LEED criteria.

Free Download of the Green Venue Selection Guide »

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Practical Strategies for Existing Offices

USGBC’s “Practical Strategies for Existing Offices” guide will soon be available for free download from the USGBC Commercial Real Estate Web page. “Practical Strategies for Existing Offices” provides office owners and managers with examples of green strategies that helped other projects achieve LEED certification. All of the included strategies are from office projects that successfully achieved LEED certification, information that can help project teams and real estate executives better understand and pursue LEED for Existing Buildings: Operations & Maintenance.

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Finding LEED and Green Building Knowledge and Training Just Got Easier

USGBC’s new course catalog at www.usgbc.org/courses helps you find relevant, innovative courses and trainings offered by USGBC and its Education Providers. Search by subject, format or the LEED or other industry credentials you need to earn and maintain.

All Education Provider courses in the course catalog have been reviewed by USGBC reviewers, so they satisfy GBCI’s credential maintenance requirements for LEED Professional Credential continuing education (CE) hours. Each course listing clearly identifies the GBCI CE hours and other industry credentials’ credits the course provides.

View the course catalog »

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New from USGBC: Learn to Develop Green Building Education and Training

USGBC can help you develop high-quality green building education and credential maintenance opportunities for the 140,000 LEED Professionals in the marketplace, your employees and others. Build your capacity to deliver quality courses with USGBC’s Education Development Services (EDS). The first training will be Jan. 28.

Learn more and sign up today »

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From the Desk of James Finlay, Commercial Real Estate Appraisal Manger, Wells Fargo

Wells Fargo has provided more than $3 billion in financing to support the development of buildings designed to LEED specifications. As an appraiser on Wells Fargo’s Environmental Initiative Team, I have reviewed, managed or worked on a number of these transactions. Below are some observations from my desk of things that worked, a few that didn’t and what I am keeping an eye on.

Discounted Cash Flow
When looking to specifically identify the precise impact of high-performance design in a value analysis, nothing works better than an Income Approach 10-year discounted cash flow [DCF]. There are five major sections: income, vacancy, expenses, risk and often “extras” like solar photovoltaic onsite power. As the appraiser enters the (long) list of inputs into a cash flow program like Argus, there are about 18 specific places (the “Green 18”) where high-performance design might make a difference. Not on the list are true externalities like corporate image value, the business value of claiming to be more environmentally or socially responsible than the competition.

Standardized Reporting on Retrofits
Green building labels like LEED and ENERGYSTAR are a key step to the creation of a standard energy/water/waste use report format. LEED for Existing Buildings: Operations & Maintenance financing and return on investment (ROI) calculations are being hampered by the lack of a widely accepted standard analysis, a “resource appraisal.” Right now is a bit like the hazardous waste world before Phase I and Phase 2 environmental reports. Detailed reports by solar photovoltaic (PV) power, daylighting and other energy companies give an appraiser the first costs, operating costs, savings over alternatives and overall ROI. But report quality and completeness on building retrofit projects vary, making it difficult to understand the long-term value these upgrades create. In a perfect world, these documents would be produced by independent third parties and subject to peer review just as appraisals and Phase 1 reports are today.

Transparency in Building Performance
Energy efficiency is joining with the growing field of behavioral economics to show the impressive changes in demand that can come from simple feedback loops. As buildings install high-performance resource management systems, the thoughtful display of that precise data has the added bonus of being able to modify occupant behavior. People respond to stimulus, which is why cars have speedometers and gas gauges. Information they display will generally impact how someone will drive. Buildings currently operate like a car with the speedometer hidden in the glove compartment, and the gasoline bill at the end of the month. Displaying building performance data will boost system performance just by the fact that it is visible.

For example, I’ve evaluated a large cold storage facility certified under LEED for New Construction that can produce reports showing energy use on a minute-by-minute basis. The custom system integrates the large solar PV array with line power, constantly checking power costs, which vary throughout the day. It generates ice during off-peak power consumption, allowing the building to completely eliminate grid power at peak cost periods. This level of energy resource control is not uncommon in net-zero-energy buildings. The records these systems produce are exactly what appraisers and buyers/sellers need to reliably determine value.

Accelerated Depreciation
A mid-rise LEED for Core & Shell spec office building used a state-of-the-art tenant improvement demising and raised floor system that is more than 95 percent re-useable. Due to its bolt-on design, the walls and floor were considered equipment with a much faster depreciation schedule than if the walls were traditional stud and sheetrock. The system also provides faster reconfiguration of walls, HVAC, power and data lines, which reduce rollover tenant improvement build-out time and costs. The accelerated depreciation did not fit into the appraisal, but the lower tenant improvement costs and faster space re-configuration did.

On-Bill Financing
I have been tracking the rapid growth of “on-bill financing” where loans are made by a city, county or utility and then repaid via tax or utility bills. What is unusual is that they are not “due on sale” like a bank loan, but remain an obligation to whoever has title to the property. On-bill financing is still not common and in the meantime a reasonable energy upgrade loan is a simple business line of credit, which is generally flexible and sufficient to cover most small building upgrades. Rolling the costs of a good energy/resource study and financing can extend the repayment horizon, but for much low-hanging fruit the numbers still make tremendous sense.

So measure, manage, keep good records. Be prepared for appraisers and loan underwriters to provide the best documentation possible on the high-performance features in your building. And remember, the best way to avoid the functional obsolescence of a building is to avoid doing nothing.

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