Why Developers Don’t Go Green – and What You Can Do to Change That

LEED, or Leadership in Energy and Environmental Design, is a term that most people are familiar with. The number of LEED-certified offices, retail spaces, hospitals, schools, industrial facilities, and homes is greater than ever. It’s quickly becoming a building industry standard across the world. We all want to be leaders in energy efficient design… right? Not always. As sustainable building consultants, we are often asked the contrary: “What is green building anyway ? Why should I pay for it? This seems like it’s going to cost way more than I want to spend... I just don’t see the value in it.”

It can be difficult for sustainability consultants and owners to see eye-to-eye on projects, and fully understand the lifecycle analysis and holistic approach associated with green building and third-party certifications. Fortunately, Sara Neff, Vice President of Sustainability at Kilroy Realty, and Jennifer Berthelot-Jelovic, President and CEO of A SustainAble Production, LLC (ASAP) spoke about it a few weeks ago at the USGBC 2015 Greenbuild Conference. They covered the many hurdles that sustainability pros face in working with real estate owners, and how we can help demonstrate the value and importance of sustainable building design.

Owners often voice common concerns when implementing green technologies and features into their building design. Below are some of the key takeaways from Sara and Jennifer’s presentation to help address those concerns.

Know your Client

The Edge: World Example of Sustainable Building Design from OVG Real Estate.

The Edge: World Example of Sustainable Building Design from OVG Real Estate.

Different types of owners have different incentives. Long-term owners want a low-maintenance building: lower costs, happy tenants. Short-term owners are interested in creative, attractive buildings and their ability to sell. Constructing to suit offers the most flexibility because you can work with the tenant who will be occupying the space. You achieve your rating system requirements together and can ensure the space fits their needs with the features of their choosing. Building a speculative project offers little flexibility in design because the end user is unknown. The owner wants flexibility in space use and type of tenants to whom they can lease.

Knowing what speaks to your client’s interests is vital to making newer technologies appealing. For example, real estate investment trusts (REITs) are exempt from corporate income tax because they pay dividends. Therefore, offering them solar tax incentives would likely not appeal to them. Another example is the split-incentive issue with utility payments. Owners may not be interested in water and energy savings because they don't receive the payback, the tenant does. These improvements may be an unrecoverable cost to the owner. But though they may not pay utility bills, they do pay the building engineer. Implementing power and water-saving technologies with longer lifetimes reduce the building’s overall maintenance and repair costs, therefore reducing costs to the owner.

And speaking of REITs, while they don’t pay income taxes, they do pay first costs. In some states and cities, incentives exist for pursuing LEED or other certifications that expedite the permitting process. This speeds up the construction timeline and the time that owners can collect rent checks. Check if there are tax abatement programs available for various technologies like chillers, efficient HVAC or mechanicals, LED’s, etc. In existing buildings, this provides the financing and adds great marketing and value to the property at the time of sale.

 Know their Concerns

Long-term owners are constantly concerned about risk management, primarily the flexibility and maintainability of their building, and the potential liabilities associated with implementing innovative technologies. Counter these concerns by expanding the conversation. Have them talk to their broker about building flexibility into their tenant contract. For example, leasing their roof to solar panels with a buy-out clause protects the flexibility of the roof’s use. Suggesting a modular roof garden that can be moved around, rather than a living wall, is another example. Also, make sure to include the building engineers when discussing any of these new technologies, as they're likely the ones involved with the outcome and maintenance.

When you familiarize your clients with the options and implementations of green features - perhaps even by taking them to previous projects - they can then see how these technologies can work for them.

Customize Your Conversation

In order to turn those NO!’s to YES!’s, frame recommendations to your client’s needs and concerns. At the end of the day, owners typically care about up-front costs and the Pro Forma, a financial statement predicting cash flow of the project. The Pro 17123254699 c2f412c9ee zForma factors in vacancy rates, turnover, how long it will take to occupy the space, etc. It also provides the budget for the project. As the consultant, you need the Pro Forma to reflect the value of the certification and technologies. You know that technologies have payback from many angles other than investment costs (i.e. reduced turnover, maintenance, increased employee productivity, etc.), but the accountant does not. In valuing the building, the accountant generally doesn't communicate with the sustainability consultant, but they do listen to the real estate broker. So bring that broker into the design meeting!

Get Everyone on the Same Page

Puzzle meeting resized 600Everyone is accountable for something in a green building project. With LEED, the idea behind the charrette is that all parties involved collaborate and design together. All aspects of risk and design elements are taken into consideration from the beginning. The architect may spec a bunch of innovative technologies for the project, but might not know the true costs associated with them. Before promising something that is outside or between scopes, involve your general contractor (GC) and identify the funds. The GC knows what is attainable and affordable for the project, and has an idea of lead times for various products.

Evolving the Industry

Green building, sustainability, LEED, energy efficiency - these are more than just buzzwords today. Third-party verification and pursuing green building certifications are evolving as the new building standard. Code buildings are the lowest performing buildings allowed by law, but the green rating systems today are in place to help motivate and drive our industry forward. 

There are numerous resources available regarding sustainable design, the holistic approach to building design, and the products that go into these buildings. We applaud those who continue to innovate and inspire the industry. Should you pursue a green building certification for your next project, Eco Achievers is here to guide you in choosing your “shade of green.”

 

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