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CoStar Green Report: Making Climate Relevant to Investment

Environmental Business and Economic News for the Property Industry
February 14, 2007
In this issue of the CoStar Green Report, CoStar announces it plans to begin adding Energy Star ratings to buildings in its property database. We also report on: UBS Wealth Management's climate-relevant investment strategies; one San Francisco bank's plans to cut lending rates for green projects; and a host of other news and new green development projects getting under way.

CoStar To List Energy Star Rating to Property Database

CoStar Group Inc. will begin adding the Energy Star rating - the most recognized national metric for evaluating building energy efficiency - to properties in its online database, which currently contains more than 2 million researched and verified commercial properties of all classes and types.

Andrew C. Florance, founder, president and CEO of CoStar Group, announced the program last week at his acceptance as the Public Company Trendsetter of the Year by Transwestern during the Trendlines 2007 real estate conference in the nation's capital.

"We are announcing a partnership between CoStar Group and the EPA to promote the Energy Star program to our tens of thousands of online clients," Florance said. "This is particularly apropos to announce here because Transwestern was a trendsetter on this issue when they became one of the first EPA Energy Star Partners in 2002."

"This summer, we’re planning to unveil a new product called Showcase that will help our customers market their LEED-certified and Energy Star properties on our web site at no cost," Florance added.

"With the help of Energy Star, we believe commercial property professionals across every spectrum of our industry are improving the energy performance and, thereby, the financial value of their properties," Florance said later in prepared remarks to the press.

According to the U.S. Environmental Protection Agency, energy consumption from the operation of commercial buildings accounts for 18% of all greenhouse gas emissions in the United States. In a typical office building, energy represents 30% of operating costs - its single largest and most manageable operating expense. On average, Energy Star partners experience a 10 to 30% reduction in their operating costs through changes in building management strategies and capital investments with acceptable rates of return.

"I can't think of a more efficient, unbiased way of bringing easy-to-interpret data on energy performance, financial value and climate stewardship to the commercial real estate market," said Stuart Brodsky, EPA program manager for Energy Star commercial property markets. "CoStar's integration of the Energy Star rating into its database will give industry professionals direct access to the nation's leading system for evaluating the environmental efficiency of commercial properties. Continuous improvement in energy performance is a key indicator of superior asset management practices, and tracking a property's rating on an ongoing basis through CoStar will bring this information to the broadest possible market."

Last year, CoStar began highlighting commercial properties that are LEED-certified by the U.S. Green Building Council throughout its database so that subscribers could pinpoint high-performance green buildings. So far, more than 200 LEED-certified (Leadership in Energy and Environmental Design) properties have been added to CoStar's database.

Together, the LEED certification and Energy Star rating will enable every CoStar subscriber to know the extent to which properties are truly green and energy efficient.

UBS Highlights Green Equity Investment Strategies

Investors who seek to incorporate climate change risks and opportunities into their portfolios have options that span a wide range of asset classes, according to a new research report from UBS Wealth Management Research.

The report "UBS Research Focus - Climate Change: Beyond Whether" taps into the most up-to-date research on climate change to offer a detailed, sector-by-sector breakdown identifying key investment opportunities and risks for the individual investor.

"Whether or not you agree with the view that human activity is influencing the climate system is largely irrelevant to the investment thesis. What is important is that numerous policies to combat the threat of global warming are converging to influence people's behavior, alter the risk profile of various businesses, and improve the investment outlook for others," said Klaus Wellershoff, global head of UBS Wealth Management Research, and Kurt Reiman, head of thematic research for UBS Wealth Management Research.

Equity-related strategies include:

  • Underweighting sectors, industries and companies that are highly carbon-intensive and have little potential to adapt to new technologies;

  • Investment in companies exposed to renewable and low-carbon energy production and energy efficiency;

  • Investment in theme funds focusing specifically on climate-change mitigation;

  • Investment in equity baskets, certificates and indices on specific investment areas such as white biotech, photovoltaics, and biofuels;

  • Investment in venture capital firms and private equity funds focused on environmental technology;

  • Socially responsible investment (SRI) funds and indices that follow one of three approaches: one that includes only the best companies, one that excludes laggards in the field, and one that focuses on the highest improvement potential;

  • Fixed income strategies that reduce exposure to companies that face heightened credit risk because of future policy measures and un-hedged exposure to severe weather events, such as hurricanes and floods; and

  • Investment in renewable bonds issued by governments and project development companies to finance specific clean energy projects.

UBS Wealth Management Research notes that although technological solutions to lower emissions are available, global policies to create incentives to reduce emissions are virtually nonexistent. The most important driver for mitigating climate change, and consequently the most important driver for the resulting investment risks and opportunities, is the future regulatory framework.

It is the prospect of individual behavior proliferating on a large scale, combined with more stringent regulation of greenhouse gas emissions, which makes opportunities related to climate change mitigation a compelling investment case, UBS said.

New Resource Bank Cuts Lending Rates for Green Projects

New Resource Bank in San Francisco started a new program to offer financial incentives for green building projects. The bank will provide more money at a lower cost, with incentives that include lower interest rates and higher loan-to-value to help developers and investors profit more from building green.

The bank will provide a one-eighth percent discount on loans to green leadership projects in the commercial or multi-unit residential sectors. Even for a relatively small building, this could mean significant savings over the life of the loan. For a $5 million loan, this could translate to more than $60,000 of savings over 10 years and more over a longer period. This boosts returns for developers or investors in a sector where reducing costs is important to returns.

To further help boost the financial return of developers and investors, the bank will also provide more money to green projects. For example, instead of providing a typical construction loan of up to 75% of appraised value, New Resource Bank will fund up to 80% loan-to-value (LTV) for projects that are designed and built to green leadership standards.

To do this and to continue to be on the cutting edge, the bank plans to actively keep track of how returns on high performance building investments justify greater leverage. In addition to construction loans, the higher LTV also applies to green commercial real estate in refinancing or acquisitions.

To determine green leadership, the bank will initially rely on criteria established by the US Green Building Council. However, the bank is open to alternative approaches to demonstrate green design excellence.

Raleigh Experimenting with LED Lighting

Cree Inc., a U.S.-based leader in light emitting diode (LED) solid-state lighting components, and the City of Raleigh, NC, announced a joint, city-wide initiative to test, deploy and promote LED technology focused on a variety of general lighting applications.

Both Cree and Raleigh public officials expect the initiative to serve as a model for other cities that are considering implementing energy-efficient infrastructures.

The "LED City" initiative is designed to create a "living laboratory" to deliver the economic, environmental and usage benefits of LED lighting to the residents of Raleigh. The first project is focused on validating both the cost savings and technology capabilities of LEDs through an installation of LED lighting in the City's Municipal Building parking deck.

Raleigh plans to deploy LED lighting to serve a number of lighting applications, including garage and parking lot lights, street lights, architectural and accent lighting, portable lighting and pedestrian and walkway lighting during the next 18 months.

Nanak's Solar Power

Nanak's Landscaping has been operating on solar power since Jan. 19 of this year when it switched over to its new 20.1 kW Solar PV System at its Orlando facility and corporate headquarters.

In the week following, Nanak's avoided emitting 1,734 lbs. in greenhouse gases (CO2) into the atmosphere. This is equivalent to the energy required for powering 28 homes for one day, or the energy needed to operate a television for 5,442 hours (227 days).

"Nanak's is setting a leading example of the progress that is possible when business and government work together to solve our country's energy challenges," said Sampuran Khalsa, president of Nanak's Landscaping.

Nanak's is part of the Florida's Alternative Energies Technologies Grant Program.

"The program helped by making suggestions on the quality of materials required and provided a solid profile of what would best suit the grant qualifications," he said.

"We are actually making more energy than we need and selling the excess power back to the grid," said Mike Swaggerty, Orlando branch manager for Nanak's. "Our electric meter is actually spinning backwards!"

Green Development Projects

Lerner Enterprises, one of Washington, DC's largest private real estate developer, is expanding its Green Initiative Program by purchasing wind power for Dulles 28 Centre, a 300,000-square-foot retail center now under construction, in addition to the Residence Inn - Dulles Airport at Dulles 28 Centre, a 157-room hotel, both located in Dulles, Loudoun County, VA.
Lerner is quickly becoming one of the leaders in eco-friendly building efforts by purchasing wind energy, designing new development projects to meet the stringent LEED certification standards, and implementing energy conservation efforts throughout its portfolio of office, residential, retail, entertainment and hospitality assets.
Lerner previously announced that two of its newest developments, 2000 Tower Oaks Blvd. (a joint development with The Tower Cos. of North Bethesda, MD) in Rockville, MD, and 20 M St. SE in Washington, DC, were designed and have applied for the prestigious LEED Gold Certification.

Miami's Foram Group plans to develop Brickell Financial Centre, a two-tower office and hotel landmark of 1.5 million square feet. The property is South Florida's first LEED-pre-certified commercial office building at the solid silver level.
The area's first major office project since 2000, Brickell Financial Centre will unfold in two phases with groundbreaking set for April 2007. The $245 million first phase (completion fall 2009) will consist of 600,000 square feet in a 40-story tower - the first floor for lobby and retail space and the second 11 for parking, topped by 28 floors of class-A office space. The second tower, rising 68 stories, will include retail and office space, and a 300-room hotel.
The 30,000-square-foot plaza (two-thirds the size of a football field) fronts Brickell Avenue, and is designed with grand proportions and social programming comparable to New York City's Rockefeller Center. Ground floor retail and restaurants will encourage public usage.
Tenants of 'green' buildings benefit from lower operating costs, a result of energy efficiency, and improved employee well-being, a function of natural light and better air quality. Brickell Financial Centre's architects and engineers have designed the windows to withstand heavy wind loads, while diesel generators will ensure continued operation in weather-caused power outages.
Foram Group is also developing one of the first green luxury apartment projects in the US, "The Bartram" in Gainesville, FL.

Pennsylvania Gov. Edward G. Rendell announced a $1 million Growing Greener II investment that will help finance a major brownfield redevelopment project on Pittsburgh's East Side.
The money will pay for cleanup of the former Nabisco plant in Pittsburgh's East Liberty section and it will help prepare the land for the development of retail and office space, as well as a 120-room hotel. The development, to be called Bakery Square, is expected to create 1,600 new jobs.
The Regional Industrial Development Corp. of Southwestern Pennsylvania, or RIDC, will use the grant, along with $335,000 of its own money, to clean contamination from the former Nabisco plant. The state funding will be used to remove asbestos, PCBs, lead-based paint and other hazardous materials from the site.
Development plans for the 6.5-acre area call for the creation of 223,000 square feet of office space, 165,000 square feet of retail space, and the hotel.

MacKenzie Commercial Real Estate Services has successfully represented KCI Technologies Inc, in the leasing of 120,000 square feet of office space in Sparks, MD.
KCI, the largest employee-owned, multi-disciplined consulting engineering firm in Maryland, will be moving to 936 Ridgebrook Road after 15 years in its current location at 10 North Park Drive.
This building will be a LEED certified silver-rated building. The project will be a five-story building; 100,000 square feet will be used for office space and 20,000 square feet will be used for storage.
Cignal Development Corp. will be the developer and construction manager for this 120,000-square-foot build-to-suit.
KCI currently occupies 75,000 square feet in their Hunt Valley location. The company is slated to move into this new 120,000-square-foot building in December 2008.

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