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Paying For Green

Article written by Jack Carr, P.E., R.S., LEED AP, Criterium Engineers
 
Managing condominiums should often be looked at in the same light as other types of investment or commercial properties. One cannot help but notice – every building magazine, every professional publication these days has at least one article on green building technology. After the 2008 energy roller coaster, it seems appropriate to put some of this into perspective. 
 
In 2007, and again in 2008, the Building Owners & Managers Association (BOMA), Real Estate Media, and the U.S. Green Buildings Council (USGBC) conducted a survey of real estate investors, owners, and managers. As evidence that the subject is gaining attention, 87% of the respondents in 2008 said that the greening of their portfolio was a high priority, versus 81.5% in 2007. In terms of putting their money where there their mouth is, in 2008 80.6% said that their firms had allocated funds toward sustainable practices vs. 63.9% in 2007, and 86% said that they would spend the same or more next year. In terms of what they are doing, 90% report employing some kind of energy conservation measures, 88% recycle, 82% have some kind of water conservation program and 62.2% have indoor air quality (IAQ) programs. All are up from 2007 except IAQ, which remained about the same.
 
While all this point to the increasing role of sustainability in existing buildings, not everyone is convinced that green technology makes economic sense. The evidence that tenants (or unit owners) are demanding it is anecdotal and inconclusive for the most part. And there remain skeptics about whether it is worthwhile or necessary. Still, if such measures involved little or no cost, there would appear to be no reason not to include them in the normal operation of all buildings.
 
The national champion of green design is the Leadership in Energy and Environmental Design (LEED) initiatives as promulgated by the USGBC. The program is becoming mainstream.
 
For the property investor, owner, or manager, the financial return is, and will always be paramount. Funding sustainability must be looked at from many perspectives. No single path to supporting the financial investment will likely result in a significant return on investment. But if multiple strategies are considered, the payoff is clearly attainable, depending on the variables affecting the investor.
 
One of the first things to consider when considering green retrofits is the availability of local, state or federal financial incentives. The USGBC lists a total of 179 such incentives around the country. These may be found on their web site at http://www.usgbc.org/DisplayPage.aspx?CMSPageID=1852
 
The savings produced by green technologies are real. A study by the New Buildings Institute found that median energy use of 121 LEED certified buildings was 24% below the national building stock. The U.S. General Services Administration found green buildings had 26% less energy usage and 13% lower overall maintenance costs. A recent industry survey indicated the median payback period was 7 years. However, with many green technologies costing little or nothing to incorporate, the reality is often quite different.
 
In 1999, researchers working for Pacific Gas & Electric and the U.S. Environmental Protection Agency concluded that reductions in energy costs of 20 to 30%. If such measures were incorporated into the appraisal and lending process condo unit market value would increase.
 
Once the decision has been made to employ green technology, the condo board should carefully consider all the technologies available. Some gains may be accomplished at little or no cost. Some technologies may actually compete with each other. It is important that decisions not be made on a salesman’s representation of savings or on person’s pet project, but an overall look at the way a building interacts with its occupants.
 
In the first non-anecdotal study that we know of, the Burnham-Moores Center for Real Estate and CoStar, by the end of 2007, occupancy rates were about 3% higher (91 v. 88%), rental rates were 2 ½ dollars more ($29 v. 31.50), and sales prices were about $40/sf higher in a survey of Class A office buildings which compared Energy Star to non-Energy Star buildings.
 
Studies in schools have shown that students learn more in spaces that are comfortable and well lit. Studies in the commercial environment are more limited but in 2007, Capital E Analytics estimated that lower absenteeism, fewer headaches, greater retail sales and easier re-configuration of space resulted in savings 10 times the energy savings of green technology.
 
All the above measures are designed to reduce or offset the costs of green building systems. It is also possible to use this technology to improve revenue. At least two Real Estate Investment Trusts are using their significant roof areas – warehouses in the case of ProLogis and shopping malls in the case of Developers Diversified – to install photovoltaic solar panels. The energy generated will reduce operating costs for the owners and but also produce rental income.
 
A knowledgeable consultant should be able to put all these factors together and assist with the process making green buildings part of our built future.
 

© CRITERIUM ENGINEERS 2009