Green Building Takes Root

Green commercial buildings are finally gaining private-sector traction, as owners see real financial benefits from even minor improvements.

February 1, 2009

Green commercial buildings are finally gaining private-sector traction, as owners see real financial benefits from even minor improvements.

When Michael Jeppesen, CCIM, received his LEED Accredited Professional certification from the U.S. Green Building Council in 2006, "I was afraid to tell clients because I thought they'd think being green would be a detriment to business," says the former CB Richard Ellis broker who now develops and consults on green properties at Innovision Property Group in Salt Lake City.

Today it's a different story, Jeppesen says. Green has reached the tipping point in the commercial sector, with owners of warehouses, office buildings, and even retail properties eager to embrace a greener vision of real estate.

In the last two years, the number of commercial buildings with the Environmental Protection Agency's Energy-Star certification doubled to over 5,000. More than 1,300 of those were added in the first six months of 2008. "The interest has just exploded," says Anna Stark, program manager for commercial buildings at EPA.

The U.S. Green Building Council's LEED certification is now held by more than 2,000 commercial properties. And McGraw-Hill Construction reports that green construction starts increased fivefold between 2005 and 2008, and estimates that the value of green buildings will reach $60 billion by 2010.

Real estate associations are adding their voice to the green chorus. The NATIONAL ASSOCIATION OF REALTORS® is one of several real estate groups—along with Real Estate Roundtable, Building Owners and Managers Association International, and the American Hotel & Lodging Association—that have adopted new policies supporting "all commercially reasonable strategies" to promote sustainable practices and energy conversation.

Last fall, NAR launched its green designation, which has a special track for commercial practitioners. Also in 2008, the Institute of Real Estate Management signed a cooperative agreement with the U.S. Green Building Council to discuss legislative and regulatory initiatives to help the marketplace embrace best practices in green construction and management. BOMA has also launched a Market Transformation Energy Plan and issued a "7-Point Challenge" to its members, urging them to reduce energy consumption in their portfolios by 30 percent by 2012.

"If you're putting a property on the ground today that isn't green, it will be functionally obsolete before it's finished," says Joseph Scarpa, a broker-associate with Legend Properties Commercial Real Estate in Mount Laurel, N.J, who recently earned the LEED Professional Accreditation. Major REITs such as ProLogis and Liberty Property Trust have committed to make all future development sustainable, Jeppesen says, and it's only a matter of time before smaller owners follow suit.

Money Talks

While there are a great many outside forces advocating environmentally friendly construction, perhaps the most compelling reason for commercial owners to go green is the promise of improving their bottom line, says Brenna Walraven, CPM®, past chair of the BOMA Energy Efficiency Program Task Force.

"Tenants, especially larger companies, understand that energy-efficient greener buildings will lower their costs, enhance their image, and aid in employee recruitment and retention," says Walraven, managing director of national property management for USAA Real Estate Co., a real estate investment company in San Antonio.

Research backs her up. A June 2008 report by the U.S. General Services Administration on the performance of 12 sustain-ably designed buildings operated by the GSA found that occupant satisfaction in these buildings was 27 percent higher than industry norms. A separate case study by the Carnegie Mellon University Center for Building Performance and Diagnostics found that green features, such as improved air flow and plentiful natural light, could increase worker productivity by as much as 16 percent.

As green goes mainstream, construction costs are dropping, providing yet another financial incentive for commercial owners. "Today, a high-performance green building can be constructed for nominally more than a traditional building and usually operated for less," says Mike Pratico Jr., associate broker with Richardson Commercial, REALTORS®, in Hamilton, N.J. Lower operating costs eventually translate into lower vacancies, higher rents, and better sale prices, he says.

An EPA study on commercial EnergyStar-certified buildings shows average energy savings of about 30 percent, translating into a 5 percent increase in net operating income.

The CoStar Group, a commercial real estate listing site that offers fields for EnergyStar and LEED certifications in its property descriptions, estimates that occupancy rates for green buildings were 2.5 percent higher in the first quarter of 2008 and rents were $2.40 per square foot higher than for non-energy efficient buildings.

Among private owners who lease to tenants, there's still some resistance to spend money on more expensive green initiatives with longer multiyear paybacks. However, energy savings and operational perks, including energy conservation and positive tenant relationships, can have an almost immediate financial return, says Camilla Gunderson, CCIM, CPM®, senior property manager for Opus Northwest Management in Minnetonka, Minn.

Easy Being Green (and Saving Green)

Even with all the headway that's been made in the past few years, buildings continue to devour a huge portion of the nation's energy resources. Commercial buildings consume 72 percent of the country's electricity and 13.6 percent of its drinking water, while producing 38 percent of carbon dioxide emissions, according to the Environmental Information Administration.

The good news is that with some relatively simple, inexpensive measures, most commercial building owners and managers can take a big bite out of those troubling figures and reduce their costs.

"If all you focus on is the low-hanging fruit, it's fairly easy to reduce energy by 20 percent of more," says Walraven. For example, retrofit lighting fixtures with compact fluorescent bulbs and add motion sensors to ensure lights are on only when they need to be, she says.

Other tips: Clean offices during daylight hours and use shades or awnings to block sunlight in south-facing windows.

Fine-Tune It

Even without making green upgrades, commercial owners can improve efficiency and save bucks by having all major building systems fine-tuned so that they're operating at maximum productivity, a service called commissioning, says Brian Sehnert, senior consultant at Green Building Services in Sacramento, Calif.

That, along with regularly monitoring the systems that use the most energy, should be done every five years for all buildings, he adds.

"Energy systems are the biggest wasters of power, but commissioning can save as much as 30 percent to 40 percent of power usage in an older building with a payback of less than 18 months," says Miriam Campos-Root, CCIM, with Prudential CRES IPG in Las Vegas.

And while reducing energy is the first step to going green, according to Stark, other simple green practices—such as using environmentally safe cleaners, paints, and carpeting—also add little or no cost to operating expenses and make buildings more appealing to tenants. Waterless urinals, for instance, can save some 40,000 gallons of water per year per fixture, says Jeppesen. 

At the 270,000-square-foot Crescent Ridge office complex in Minnetonka, Minn., Gunderson has found savings by adjusting heating and cooling schedules monthly so she can turn down temperatures in parts of the building that aren't occupied. Two years ago, she also stopped heating or cooling the buildings on Saturday unless specifically requested to do so by a tenant—a requirement set out in the property's lease. "We've had no negative tenant reaction and saved a significant amount of money," she says.

Even a small step toward being green can positions commercial owners and managers in a better place to compete in today's challenging market. 

"Commercial practitioners are at the hub of the transaction. They're in a unique position to educate owners, tenants, appraisers, and lenders about the benefits of green buildings," says Campos-Root. "In the future, sustainable buildings will be business as usual."

Shades of Green: Voices from the Field

"Get tenants involved."

When Lisa Lunger, manager of real estate services, Colorado Housing and Finance Authority, Denver, tried to start a recycling program 10 years ago at some of the CHFA's 1,500 affordable apartment units, she got few takers. Today, the residents are eager to participate when Lunger approaches them. "All owners should be involved in green initiatives. Even a small property can have a big impact on the environment with some minor adjustments," she says.

Tips from Lunger

  • Kick off recycling with a tenant education party. Cook food in solar-powered ovens and hand out reusable water bottles. Get kids involved by offering cash or prizes for cans.
  • Tell tenants the impact of their recycling efforts with updates in community newsletters. Lunger estimates that a 200-unit property with three occupants per unit creates 3,000 pounds of trash a day. With 50 percent resident participation in recycling, that amount drops to approximately 1,500 pounds.
  • Make it easy for residents to participate by positioning recycling containers in common areas such as laundry rooms and mailrooms. 
  • Reduce water consumption with faucet aerators and low-flow toilets and showerheads—a relatively inexpensive idea with a big impact.

"It's our professional obligation."

Mark E. Casey, president, Casey Partners Ltd., Boulder, Colo., has a design and construction background that served him well in developing a speculative 18,000-square-foot multitenant office and light industrial flex building in a Cheyenne, Wyo., business park. The flex structure is a blueprint for sustainability. "I believe commercial practitioners have a professional obligation to look at how we help shape the built environment," he says. The building, which he says cost about 5 percent more to construct than conventional space, has already attracted interest from a data center and a wind energy firm. It was ready for occupancy in December.

Tips from Casey

  • Use local construction materials—concrete with local aggregates—to lower the cost of transporting building materials to the site, and hire local contractors.
  • Take advantage of the climate. For example, Wyoming is one of the country's windiest states, so Casey had a small, freestanding, quiet wind turbine installed on site to power exterior lights and common areas.
  • Use the sun wisely. Photo-voltaic awnings on south-facing walls reduce heat gain and capture sunlight. Light can be converted into electricity to reduce consumption, and excess power can be sold back to the local utility for a credit.
  • Nourish nature. Casey redirected storm water runoff to nourish a manmade wetland on the site. A pedestrian and cycling path through the wetland serves as an amenity without harming wildlife.
  • Design office and flex-space building interiors for maximum flexibility to reduce need for tearouts of leasehold improvements and to provide options for accommodating from one to multiple tenants.

"Blend with the environment."

Barbara Wingate, CCIM, RE/MAX Commercial Alliance, Evergreen, Colo., took a tour of the National Renewable Energy Lab in Golden, Colo., that opened her eyes to the importance of combating global climate change. Her passion for the environment made her the ideal leasing agent for a new sustainable office building developed by local entrepreneurs Albert and Judy Challenger. The 11,764-square-foot office building with underground parking combines sylvan views with sustainable materials and systems that preserve the site's natural beauty. To blend in with the community's historic downtown, the local wood building materials were blasted with dried corn to create a weathered look. Leasing began in May, and a law firm has moved in as the anchor tenant. Wingate will focus on promoting the building's environmental amenities and expects no resistance to a rental rate that's slightly higher than usual for the area.

Tips from Wingate

  • Use locally salvaged materials, such as rock obtained from onsite excavations.
  • Build underground parking to eliminate heat generated from blacktop parking and reduce nighttime light pollution.
  • Channel storm water runoff into a concrete holding pond to filter contaminants; then use it to water native-plant landscaping or gradually add it to the local storm-water system.
  • Encourage workers to cut carbon emissions by providing bike racks and a shower for cyclist commuters. Locating downtown allows workers to walk to restaurants and services rather than hopping in the car.
  • Use operable windows to give tenants freedom to alter temperatures and cut down on temperature adjustment calls.
  • Add photovoltaic solar rooftop systems with a large-screen TV in the building displaying real-time power usage and cost savings data to tenants and visitors.

"Green is a competitive advantage."

Madeline Abel, CPM® is vice president of property management BECO Management Inc., Washington, D.C., supervising six managers who oversee some 3.5 million square feet of privately held office properties. She recently upped her company's commitment to the environment by hiring a sustainability manager to increase her portfolio's green quotient. "Greener properties are one of the ways we can serve our tenants better than any other landlord," she says. Beco recently kicked off its green initiative with tenant barbeques at 16 properties. Abel is focusing on changes that both enhance tenant experience and lower operating costs. She started small, looking for easy modifications such as converting T-12 fluorescent fixtures to newer, more efficient T-5s. BECO wants its investments to result in cost savings within two to three years so that both savings and costs can be passed on to tenants. After that time period, "expenditures are harder to justify because the current tenants may not realize the savings," Abel says. However, she acknowledges that as energy costs rise and public sensitivities grow, there will be a greater demand for green enhancements.

Tips from Abel

  • Check out EnergyStar's benchmarks to show the impact of improvements before you make any changes.
  • Install variable-speed frequency drives on HVAC systems to keep motor speeds slow. This creates more consistent temperatures and fewer complaints.
  • Encourage waste reduction with biodegradable cups and reusable water bottles at tenant events, e-notices instead of paper, and building recycling programs.
  • Add compact fluorescent bulbs, motion sensors in common areas and restrooms, and reflective lenses that give more light with fewer watts of energy.
  • Start HVAC an hour later in the morning and shut off an hour earlier.
  • Turn off compressors in water fountains and offer room temperature water. "It's amazing how much electricity these use," Abel says.
Mariwyn Evans

Mariwyn Evans is a former REALTOR® Magazine writer and editor, covering both residential brokerage and commercial real estate topics.