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CoStar Green Report: Building Green Becomes the New 'Black'

Environmental Business and Economic News for the Property Industry
April 4, 2007
In this issue of the CoStar Green Report, Ernst & Young predicts that green principles will become synonymous with real estate profits; Bank of America introduces reduced rates for green borrowing; Vail looks to build the U.S. first environmentally friendly neighborhood; plus news that IKEA will phase out plastic bags by charging for them, and more news.

The New 'Black'

Green will become the new black in 2007, predicts Ernst & Young. Green building - once dismissed by major developers as "too expensive" will become almost a necessity as tenants, lenders, residents, and even investors push for sustainability. Nor is green restricted to building.

Look for green principles to become synonymous in the real estate industry with solid, cost-efficient operating principles.

"If you aren't at least meeting LEED (Leadership in Energy and Environmental Design) standards in new construction, there's an increasing risk - one likely to accelerate in the next five years - that your project may falter," say the authors Katherine Hammack and Rick Sinkuler.

Most cutting edge developments in the years ahead will, like Vancouver's Jameson House, a 37-story luxury residential condo project under construction today, look to exceed LEED - not just meet it. Because, they argue, green is no longer a luxury.

Look for energy and design solutions driven by sustainability to filter down quickly from high-cost projects such as biotech labs to more mundane office and retail projects as the green movement gains further traction.

San Francisco, New York, and Chicago are fostering green building, fast-tracking developments that meet green standards; even smaller cities such as Buffalo, NY, are looking at ways to encourage this trend.

The implications of the change are huge for real estate and lenders are only now coming to grips with green building's underwriting implications.

Hammack and Sinkuler say even see the day when the markets will see the first green REIT or CMBS issue.

Bank of America Commits $20 Billion to Green Lending

Bank of America launched a $20 billion program to fight global warming over the next decade by financing companies creating low-emissions technology, lending money for green building projects and creating the ability for customers to trade carbon credits.

The bank will spend $18 billion on commercial green lending and finance while another $2 billion will be spent on consumer programs and efforts to reduce the greenhouse gas emissions and environmental impact of its own operations.

Later this year, Bank of America will offer an "eco-friendly" credit card - a percent of each purchase will be donated to an environmental organization to invest in greenhouse gas reduction projects.

Homebuyers can apply for a "green mortgage" with a reduced interest rate or a rebate if their new house meets energy efficiency standards.

The bank itself will spend $1.4 billion to ensure all new offices and bank branches meet green building standards.

Earlier this year Bank of America offered $3,000 rebate to any of its 185,000 employees that buy a fuel-efficient hybrid car.

Vail Planning $1 Billion LEED-Certified Neighborhood

Vail Resorts Inc. is undertaking an ambitious green development project to be called "Ever Vail." The $1 billion project will transform a 9.5-acre site, currently known as West LionsHead.

The name was chosen to reflect the project's guiding principle of sustainability. If approved, Ever Vail will be the largest LEED-certified project for resort use in North America and is one of the first proposed projects for consideration in LEED's new "Neighborhood Development" certification program.

Ever Vail will encompass approximately 1 million square feet and include between 600,000 and 700,000 saleable square feet of residential and commercial space.

The site is currently occupied by Vail Mountain's vehicle maintenance shop yard and warehouse, a retail and office complex and a gas station, offering the opportunity for a brownfield redevelopment.

The new resort village plans call for 150-250 whole ownership condominium units, 75-125 fractional ownership condominium units, a 100,000-square-foot-room hotel, 100,000-150,000 square feet of commercial retail, office, and restaurant space and a 100,000-square-foot mountain operations facility. The project will also include a gondola to serve as the fifth base portal to Vail Mountain, a public park and a new public parking structure.

The "LEED for Neighborhood Development" rating system, was established on Feb. 1, 2007, and integrates the principles of smart growth, urbanism and green building into the first national standard for neighborhood design.

Currently there are no projects registered in the LEED Neighborhood Development program. Ever Vail would be one of the first projects under this newly formed certification. Vail Resorts plans to develop 100 % of the project's buildings to meet LEED criteria.

The company's plans for Ever Vail are still being finalized and have not been approved by the Town of Vail. The company does not anticipate beginning any real estate sales on the project until 2009.

CalPERS To Commit $400 Million to Cleantech

The California Public Employees' Retirement System (CalPERS) plans to commit $400 million each to a new private equity focusing on clean energy and technology investments.

The investment will be managed by specialized teams within Pacific Corporate Group, based in La Jolla, CA, subject to final contract negotiations.

"We have great confidence in the management teams at PCG to find promising cleantech and emerging market investments for CalPERS," said Charles P. Valdes, Chair of the CalPERS Board's Investment Committee. "We anticipate solid returns consistent with the double-digit gains that we have experienced in our Alternative Investment Management (AIM) Program in recent years."

The clean energy and technology program will concentrate on energy, water and material technologies, products and services that reduce carbon emissions, conserve natural resources and improve energy efficiency. CalPERS will be the anchor investor in the PCG cleantech fund, which will seek to raise capital from other institutional investors.

The fund will pursue investments in cleantech partnerships as well as co-investments in cleantech companies alongside other general partners.

The new investments will augment the AIM Program's current Environmental Technology Program, which has $200 million in cleantech commitments to seven partnerships.

JPMorgan Launches New Global Warming Bond Index

JPMorgan and Innovest Strategic Value Advisors launched the JPMorgan Environmental Index-Carbon Beta (JENI-Carbon Beta), the first bond index designed to address the risks of global warming.

The JENI-Carbon Beta, a United States high-grade corporate bond index, enables credit investors to make return-driven investment decisions that systematically take into account risks and opportunities issuers face as they address climate change.

"Until today, bond prices did not reflect an increasingly important financial risk: climate change," said Edward Marrinan, managing director and head of investment grade credit strategy. "With climate exposures factored in, companies' risk profiles - and their bonds - will more accurately reflect the trade-off between risk and return."

The JENI-Carbon Beta is meant to serve as a benchmark for mainstream investors concerned about the financial impact of climate change and related regulation, as well as for funds mandated to seek out investments that meet particular environmental criteria.

"Awareness and concern among major investors have been growing exponentially," said Matthew Kiernan, Innovest CEO. "What's been missing - until today - have been sophisticated investment tools and products to help them translate that concern into concrete investment decisions and actions. We expect this innovative new index to have a major, positive impact."

IKEA 'Bagging' Plastic Bags

Sweden's IKEA has begun charging U.S. customers 5 cents for disposable plastic shopping bags in what the international furniture giant said was a first step to ending their use altogether.

IKEA said the decision to stop giving away free bags to customers aimed to reduce the estimated 100 billion bags thrown away by all U.S. consumers each year.

IKEA is believed to be first retailer in the United States to undertake such a program, according to National Retail Federation spokesman Scott Krugman.

Concern about widespread pollution caused by the bags has led cities and countries from Ireland to Australia and Rwanda to ban their use. Bangladesh outlawed plastic bags after they blocked drains and contributed to flooding.

Taiwan uses 80 % fewer bags after stores began charging for them.

Environmentalists say the bags add unnecessarily to landfills, clog drains and endanger wildlife.

IKEA currently provides some 70 million free bags to its U.S. customers; it expects to cut that by half in the first year and to eventually eliminate the use of the bags.

The company said it will also cut the price of reusable bags to 59 cents from 99 cents to encourage their use. The program began March 15 at the company's 29 U.S. stores.

The money from bag sales will go to American Forests, a conservation group.

Last June, IKEA began charging its U.K. customers for plastic bags, and has reduced its bag consumption by 95 %, said spokeswoman Mona Astra Liss.

The average American family of four throws away about 1,500 single-use polyethylene bags, which do not degrade for around 1,000 years, IKEA said. Less than 1% is recycled.

"We believe Americans are starting to be more conscious of the environment," Liss said. "Our objective is to get people to really think about the impact of the bags which are strangling the planet."

LA To Expedite Green Building Projects

The Los Angeles Department of Water and Power (LADWP) Board of Commissioners took action to expedite services for building development projects that have less impact on the environment by using fewer natural resources.

The approved policy provides accelerated water and electrical connections for buildings that meet the U.S. Green Building Council Leadership in Energy and Environmental Design (LEED) standards.

The commission also adopted a policy to build only "green," with the requirement that new LADWP construction projects will meet a minimum of a LEED Silver Standard, as certified by the U.S. Green Building Council.

Builders and developers can take advantage of the LADWP Green Building Incentive that offers up to $250,000 in financial incentives to assist a building in becoming more green and meeting LEED standards.

The LADWP will work in concert with the Los Angeles Department of Building and Safety to shepherd a project through the necessary steps to completion.

The LADWP also has additional energy efficiency programs, such as the commercial Lighting Program and the Solar Incentive and Green Power Programs that can assist a project in earning points towards LEED certification.

The LADWP will also work with the U.S. Green Building Council to develop Los Angeles-based standards that would further focus on water conservation, storm water run-off and other local issues.

Projects submitted to the LADWP that are for new construction or for retrofit, that meet the designated Silver LEED standard will be labeled as a "Green Building" on LADWP applications. This designation will allow the project to receive priority treatment through the construction and water/power connection process.

In addition, LADWP will work with the projects to see if there are LADWP efficiency and conservation incentives or programs that can increase the LEED level or further enhance the environmental benefit of the "green" project.
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