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Amidst Deepening Recession, Green Fights Back

Green Building has Shown Uncommon Resiliency Through First Year of Recession
December 3, 2008
The expo floor at the Greenbuild convention on Nov. 19 in Boston.
The expo floor at the Greenbuild convention on Nov. 19 in Boston.
Despite a slowdown affecting nearly all segments of the commercial property industry, green building is positioned to withstand the deepening economic recession and possibly emerge as a more influential force than before, sustainability advocates say.

The optimism stems from a groundswell of popularity that carried green building to the forefront of the industry heading into the downturn, as well as the idea that sustainability can help building stakeholders cut costs.

Lately, the financial case for green buildings -- that they are cheaper to operate and display better fundamentals than conventional buildings -- has become the chief rallying cry for the movement.

“There’s been a focus shift from just ‘green, green, green’ to actual feasibility,” said Shannon Sentman, a real estate attorney at Holland & Knight in Washington, DC, who specializes in green building. “People are realistic. Most realize that this is a bottom line issue and it’s not only economical to do it, it’s bad for the bottom line if you don’t.”

That argument has become more credible as new studies suggest a stronger correlation between green buildings and lower energy costs, which has appealed universally to both tenants and owners and translated into leasing and selling advantages in many markets.

A recent survey by corporate real estate trade group CoreNet Global and real estate advisory firm Jones Lang LaSalle (JLL) found that 70 percent of corporate real estate executives identify sustainability as a “critical business issue,” up more than 20 percent from a year ago.

Those executives “realize they can meet sustainability goals and save money at the same time,” said Dan Probst, chairman of Energy and Sustainability Services at JLL.

In one of the strongest indicators of the resiliency of green building, participation in the two most popular sustainable building programs -- the U.S. Green Building Council’s (USGBC) LEED system and the government’s Energy Star label for energy efficiency -- have increased dramatically this year, even as economists this week confirmed that the U.S. officially fell into recession last December.

U.S. Environmental Protection Agency (EPA) data shows that roughly 2,000 buildings received the Energy Star label in the first 11 months of this year, which is a quarter of the total number of labelings in the program’s 10-year history. More than 2 billion square feet of U.S. commercial space was benchmarked through Energy Star in the first half of the year alone.

On the LEED side, certified projects have doubled so far this year to more than 2,000, and more than 15,500 projects are registered for certification, according to November tallies from USGBC.

Policy makers are contributing to those numbers by mandating LEED-certified development projects or Energy Star benchmarking in cities such as Dallas, Portland, Los Angeles, San Francisco and Washington, DC.

But in a way, the surge in LEED and Energy Star is self-sustaining: the programs are big business for green product manufacturers and service providers, and as those sectors have expanded it has vastly increased the number of stakeholders who contribute to green building’s rise.

According to a new report on the impact of green building by Greener World Media, LEED certified projects are already directly tied to more than $10 billion of green materials. That figure could exceed $100 billion by 2020, the report said.

At Greenbuild, the green building convention hosted by the U.S. Green Building Council last month, exhibitors said they clearly see the effects of LEED on the market.

“Most architects we talk to want to know how many points they get for a green roof,” said Don Russell, the sustainable business manager for green roofing company Xero Flor America.

Wade Mosby, a senior vice president with the sustainable timber company The Collins Cos., said that LEED points for certified wood has helped generate business in an industry that has already been hit hard by the collapse of residential construction. “LEED has been a boon,” he said.

In the real estate services industry, a movement to capitalize on sustainability has been underway for several years, and the field is becoming crowded.

“People are jumping into the consulting business,” said John Humphrey, chief technology officer of Sustainable Energy Partners, a clean energy consulting firm that advises clients on energy efficiency, LEED certification and renewable energy. “It wasn’t nearly as competitive three years ago. That’s why we started, because there was a void.”

Yet, even armed with momentum and a business case, green building is not wholly immune from recent events.

Stakeholders are paying close attention to predicted declines in new construction, the sector that accounts for almost 70 percent of all LEED-certified buildings and 60 percent of registered buildings.

Nonresidential construction dropped 0.7 percent in October, the Commerce Department reported Monday, its third decline in four months.

At a roundtable of financial officers from construction and engineering firms hosted by Ernst & Young in September, more than 90 percent of respondents said the credit crisis has made access to capital for real estate construction “more difficult or nearly impossible” to find. Forty percent of respondents indicated they have already placed construction projects on hold.

ProLogis, the world’s largest industrial property developer, said last month it has stopped as much as $650 million in new construction that was planned in the third and fourth quarters, with more delays possible next year.

All of those facilities would have been designed and built for LEED certification under a company-wide policy.

Yet, a slowdown in new construction may hasten a full-fledged shift by green markets to existing buildings, where recent gains have been promising.

LEED certifications of existing buildings have doubled this year to about 160, and another 2,000 buildings are registered.

According to Dave Pogue, national director of sustainability for institutional and corporate services at CB Richard Ellis, the amount of new green building deliveries is already forcing the existing market to adjust.

“Most new buildings are being built to LEED standards. If you’re going to compete today at the upper end in most of these markets against new product, that requires existing buildings to also be more sustainable,” he said.

Opportunities to promote energy efficiency are also greater in existing buildings, where structural changes can be difficult and costly, particularly if tenants are displaced.

At a school in California where Sustainable Energy Partners helped lower energy costs, Humphrey said the biggest solution was one that involved no costs at all -- just some training.

“A lot of teachers were running the thermostat continuously on high heat. And it wasn’t even necessarily that they wanted it that way. They just didn’t know how to operate the thermostats.”

If there is a pitfall of energy efficiency, Humphrey said, it is that saving money is so easy sometimes, it is overlooked.

“You talk about replacing light bulbs and people start dozing off. There’s nothing exciting about insulation,” he said. “But you say, ‘Look, you’re paying $1,000 a month now, let’s do these things and then you’ll pay $700 per month.’ All of sudden people are excited.”

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