Attending Greenbuild 2011 in Toronto earlier this month, the U.S. Green Building Council’s annual conference proved itself once again to be the must-attend event for the green building movement. And while our industry at large continues to grapple with post-recession issues, including the lowest levels of new construction in decades, the significance of green building as a vibrant and growing force was affirmed shortly before the event when the number of LEED-certified commercial projects crossed the threshold of 10,000 this past August.
What was most apparent to me was how quickly we are moving from an era when green building was considered somewhat of a radical notion to a much more sophisticated and widely accepted approach redefining how we make and live in buildings. As one speaker put it, instead of our major focus being converting people to build green, we are moving more and more towards accepting the value of green building and joining discussions on the different genres and levels of green and the best practices for making them work in the real world.
This was made abundantly clear by Dan Winters, managing principal of Evolution Partners Real Estate Advisors, who provided an outtake to his thoughtful article on green buildings and their potential value for institutional investors set to be published in the third quarter 2011 edition of the PwC Korpacz Real Estate Investor Survey.
Winters noted that green buildings continue their market penetration as a result of persistent increases in energy and water costs, and continuing changes in regulatory requirements. He said for institutional investors, green building investment strategies present opportunities for greater asset-based financial returns and a reduced risk profile and said that investors who embrace a green building strategy with their private equity manager selections and fund allocations will be well-positioned to achieve superior returns from their real estate portfolio.
The return profile delivered by green building strategies stems from three primary areas: 1) Green buildings employ strategies that save money; LEED and Energy Star provide roadmaps to these savings, resulting in comparatively lower operating costs of the underlying assets, 2) Continued increased asset desirability in the leasing markets, and 3) Reduced incidence of asset obsolescence during the fund's life.
"Taken together, these and other tangential factors provide tremendous value potential to incrementally increasing a private equity fund's income return over the holding period, reducing overall portfolio risk, and positively impacting asset valuations upon fund exit," Winters wrote.
This year's USGBC event featured a wide range of educational sessions, hundreds of exhibitors and countless opportunities to learn about the latest trends in green building practice and technology. One major theme that emerged in my personal experience attending this year's conference was the exceptional interest in green retrofits.
In 2011, the number of LEED for Existing Buildings certifications continues to surpass LEED for New Construction, not surprising given the extremely limited amount of new construction since 2009. The strategies underling these certifications range from no/low-cost management best practices to undertaking deep retrofits -- and how to attain positive returns at all levels.
Dr. Nils Kok, affiliated with University of California, Berkeley and a panelist at Greenbuild on this topic, along with co-panelists Peter Morris at Davis Langdon and Dr. Norm Miller of the University of San Diego. The panel noted how the appeal of LEED-certified space has grown in the marketplace. "Using CoStar data, we have found consistent evidence on the significant impact of LEED retrofits on rents and occupancy levels in commercial buildings," stated Kok. "Quite clearly, tenants find LEED-certified more attractive than otherwise comparable buildings nearby."
For the commercial property market, LEED continues to be an important factor, he continued.
Effectively implementing a successful retrofit project requires a multidisciplinary effort, and at Greenbuild we heard the latest property owners and managers provide on-the-ground experience. Success is often based on the ability to coordinate operations, technology and financing mechanisms. These three interconnected areas compose what one panel termed the "Retrofit Triangle."
Daniele Horton, sustainability manager for Thomas Properties Group and a founder of the USGBC-LA Existing Buildings Committee, served as a panelist on this topic, along with James Finlay with Wells Fargo and Aniruddha Deodhar of Autodesk. "Existing building retrofits offer the lowest cost and highest payoff for addressing our pressing environmental and economic challenges," Horton said.
"Our panel discussed the necessary collaboration of technology, operations and finance in any successful deep retrofit program. Normally these three disciplines operate as silos within an organization. In a Retrofit Triangle program, they need to be integrated, eventually becoming a flywheel driving a building-wide data flow that improves the overall asset management and bottom line creation."
Greenbuild also included opportunities to learn more about LEED 2012, the next update to the family of LEED rating systems. Among other changes, LEED 2012 will include new credit categories (Integrative Process, Location and Transportation, and Performance), and a more toward a performance-based structure.
Anthony Guma LEED-AP is a Research Director for CoStar Group in Washington, DC.