Gone Green Yet?

By Sarah Hoban
Cire Magazine
November/December 2007

Sustainable design is making its way into every market.

There’s no question that green commercial building is grabbing its share
of headlines these days. Major corporations such as Toyota, Goldman Sachs,
Hearst Corp., and BP have built and moved into environmentally responsible
buildings. National commercial real estate companies such as Liberty
Property Trust, Hines, and Transwestern are developing and managing
sustainable properties. A 40-story green office tower in Chicago, built
for $200 million in 2005, was sold for $350 million, or $422 per square
foot in 2006, setting a market sales record. These are just a few examples
of the green movement’s impact on the commercial real estate industry.
“The market is incredible for green commercial,” says Jerry Yudelson,
principal at Yudelson Associates, a green building consulting firm in
Tucson, Ariz. “The sea change in attitude in the development community in
the last 18 months is just breathtaking.”

The value of green building construction starts is expected to exceed $12
billion in 2007, according to the U.S. Green Building Council, citing
McGraw-Hill Construction Analytics. Since launching its Leadership in
Energy and Environmental Design building rating system in 2000, USGBC has
registered almost 8,000 projects and certified nearly 1,000 buildings,
encompassing more than 1 million square feet. At the same time, more than
38,000 professionals in the commercial building industry have become
LEED-certified, the USGBC reports.

But the push toward green isn’t just in major markets with big-name
developers who are certifying their projects. Commercial real estate
professionals in smaller markets, on smaller scales and budgets, also are
developing environmentally friendly properties for all the same reasons as
the headline-grabbers: energy savings, healthier indoor environments, and
smaller carbon footprints.

Proposed mixed-used development 321 North in Plantation, Fla., is part of
the Leadership in Energy and Environmental Design Neighborhood Development
program, which is creating a national LEED rating system for
community-wide design and development.

Conservation in California’s Capital

Aguer Havelock Associates is the leasing agent and has worked on the
development of a 12-story office building scheduled to break ground this
fall and open in spring 2009 in Sacramento, Calif. It’s already been
certified LEED Silver.

Although the city is only 100 miles from San Francisco, “Sacramento is a
little behind the Bay Area in LEED certification and sustainability,” says
Thomas C. Aguer, CCIM, SIOR, president of Aguer Havelock. In fact, he’s
fielded calls about the building from brokers and corporate real estate
reps unfamiliar with LEED, he adds.

But Sacramento also is home to a number of LEED-certified state government
buildings and a high-profile governor who’s made water conservation and
environmental concerns top agenda items. So when Aguer began working on
the Natomas Corporate Center Gateway Tower and the architect recommended
LEED certification, the choice seemed like a good fit. The architect’s
firm had a LEED-certified designer and the project’s general contractor
had a LEED-certified engineer on staff.

The 340,000-sf building, which Aguer believes will be the first privately
funded LEED-certified office building in Northern California, is located
on Interstate 5 between downtown and the airport. Aguer describes the area
as a “suburban office park close to downtown, with about three million sf
of class A suburban office buildings in the area. Most are two to six
stories, so this will be a big step up.”

The building’s green features include the use of recycled and regional
construction materials; the recycling of more than 75 percent of
construction debris; preferred parking spaces reserved for low-emitting
vehicles; and design and construction guidelines to help tenants with
green build-outs.

Water conservation and indoor air quality are two major green elements of
particular interest to Aguer. The building will save five million gallons
of water a year by using water-saving plumbing fixtures as well as a
cooling system that can reuse water and then irrigate the outside
landscaping through its runoff.

And the heating, ventilating, and air-conditioning system, is “hospital
quality — it runs 85 percent to 90 percent clean, whereas most office
buildings run at 35 percent,” Aguer says. The filters are a thick
felt-like material designed to pull 90 percent of the particulate matter
out of the air, he adds. Ducts for the system are washed and cleaned at
the factory, sealed in plastic, and shipped to the project, so they’re
never touched until they’re installed in the building. All carpet,
adhesives, and paint will be low volatile organic compounds, and daylight
will be available to 75 percent of the space.

The quality of the indoor environment is an important marketing draw for
the building — and for all green buildings. “Studies are showing the
increase in efficiency of employees. People working in these clean
buildings are healthier, happier, and more productive, and that’s going to
get corporate America’s attention. Social responsibility is great, but
when you show them that they will be 2 to 5 percent more efficient, that’s
a huge number when you run that out on a major international corporation
with hundreds of thousands of square feet,” Aguer says.

The Green of Green

While improved productivity can bolster a company’s bottom line in the
long run, tenants also must weigh their upfront costs, which for Gateway
Tower are competitive, Aguer says. “It’s a new building and rents will be
comparable to new buildings being built downtown,” he says. He estimates
lease rates to be about $36 psf. As of July — two months before
construction was slated to begin — no tenants were signed, but there had
been substantial interest. “I’ve had managing partners of law firms,
accounting firms, and service companies look at the model, listen to the
presentation, and say, ‘If this building were up today, we’d be moving
in,’” Aguer says.

A green building can be price competitive because “if you make a building
LEED-certified from day one, it doesn’t add substantial cost,” Aguer says.
“You’re still going to have to put in bathroom fixtures and an HVAC
system. Maybe you’ll add some additional incremental costs, but if you
start from day one, it’s not that big an impact to your budget.”
It also helps that the building’s developer is not an institutional
developer, but “very innovative — a very entrepreneurial person,” Aguer
says. At the same time, he says, explaining LEED to investors “isn’t too
tricky. It makes sense economically and socially as well. It’s pretty hard
not to buy into this. And if you look at the rewards you generate, it’s
definitely worth the investment.”

Green building consultant Yudelson concurs. “We’re learning how to do
high-performance buildings on conventional budgets, so we’re cracking the
cost barrier,” he says. Add to that energy savings, productivity gains,
marketing and public relations benefits, and faster lease ups, “and you
have growing recognition of the business case for green in all dimensions.”

It’s a learning process, he adds. “If you’re a developer doing a few
buildings a year, for your first few projects you’re going to have to
budget extra money to do the learning. But once you figure it out, you can
deliver a rated green building for the same price that you’re now
delivering a so-called standard building. So if this is where the
marketplace is going, then I tell people you’ve got to buy your way in.

You’ve got to build expertise.”

Marketability in Minnesota

That’s a process that’s underway right now in central Minnesota. The
Fairview Office Park in Baxter, Minn., is a planned development laden with
sustainability features. Eventually, eight Arts and Crafts-style buildings
will cluster around a park-like bioretention area on a 4.4-acre site. The
first building opened this spring and a solar power panel already is in
place, powering the servers of the technology company occupying the
building. The buildings’ interiors will feature low-VOC materials and
high-efficiency mini fluorescent lights, which reduce energy use. Outside,
native plants cut down on water, fertilizer, and lawnmower use. Rain
barrels capture rainwater, which is used to irrigate the landscape.
The developer is a family-owned business with a strong environmental
interest, which has been the project’s major driver. However,
marketability is the main consideration, says Rod Osterloh, a commercial
broker at Close-Converse Commercial Properties in Brainerd, Minn. “We
helped them with site selection and we’ve been trying to advise them all
along the way on the economics of it,” he says. “While it’s easy to find
people to spend your money to do a green project, you always have to look
to what the market is going to support.

“While we’re in a very environmentally sensitive market, in the lakes and
forest area of Minnesota, I’m not sure if we’re ready for goats on our
roof, so to speak. So we need to be cautious about what the market is
going to accept.”

Part of the project’s marketability is its visual attractiveness, Osterloh
says. “They’ve worked with their builder and designer to create an
energy-efficient building style that is also attractive. It’s not a weird
sort of design.”

Even so, there are drawbacks to blazing a trail. “There are no other green
buildings in our neighborhood,” Osterloh says. “Consequently you can’t
find appraisers with local experience who can do a good job of appraising.
But because this project looks normal and standard, getting appraisals and
financing has been much easier.”

When finished, each building will range in size from 3,500 sf to 5,000 sf.
Six of the sites are for sale, with prices from $129,000 to $179,000.
Lease space in the second building, now under construction, will go for
$21 psf gross for finished space.

But one thing the office park won’t have is LEED certification. “They
really don’t have the intention of making it [LEED-certified], because of
the high cost of resources in terms of time and money to go through the
certification. But part of the philosophy is that even if you’re not going
to be a LEED-certified project, there are still a lot of small steps that
you can take,” Osterloh says.

The property will be open to the public for conservation design education
and as a resource for other interested builders and developers. “There is
a lot of information out there,” says Christopher C. Close, CCIM, a
commercial broker at Close-Converse Commercial Properties in Brainerd. “It
can be a challenge to take this complicated process and simplify it so the
end user can see the direct results of it. It’s everyone’s intention to do
what’s best for the environment, but they want to have a balance between
doing what’s best for the environment and keeping costs feasible.”

The developers “really tried to focus on doing simple, cost-effective
techniques that the average businessperson actually could implement and
not have to break the bank or have a Ph.D. to understand,” Osterloh adds.
One method of cost control has been partnering with a number of
environmentally focused groups, ranging from the University of Minnesota
Extension Service to the Master Gardeners of Crow Wing County, Minn.
“Partnering with other groups is certainly an advantage,” Osterloh says.
“There’s so much information out there that trying to sort through it
requires experts. You can pay for that expertise, or by strategic
partnering, you may be able to get a lot of that expertise and the right
information a lot faster and more cost-effectively.”

Learning in Louisville

Finding the expertise was precisely the problem that Daniel A. Huneke,
CCIM, ran into when he started planning a 30,000-sf office condominium
project in Louisville, Ky. President of Dancor Commercial Properties in
Louisville, Huneke wanted to incorporate some energy-efficient features
into the project, but found it frustrating to track down useful

“Everybody is still on the learning curve,” he says, “and these building
techniques and products haven’t integrated themselves into the familiarity
of the average developer.” He wanted to install solar panels on the roofs
of the two buildings in the development, but couldn’t find local experts
to help him evaluate the economics of such a move.

Instead, Huneke attended a trade group seminar of local companies selling
energy-efficient construction products and learned about Icynene, a
formaldehyde-free, spray-in foam insulation material. He’s decided to use
the product in the office condos and believes that it will do a better
insulating job than fiberglass insulation. “You may have an R19 wall bat,
but after a humid summer here, it drops to about a 4 or 5.” The foam, on
the other hand, expands as it’s sprayed in and retains its insulation value.

“It’ll be a little extra cost, but it will tighten up the building and
reduce energy cost to tenants,” Huneke says. He’s also installing a white
membrane roof to reflect radiant heat, solar tubes for natural lighting on
the second floor, and electrical outlets in the parking lot for owners to
recharge electric cars. “It’s nothing dramatic, but it’s a first step,” he says.

Will it pay off when the condos go up for sale? Huneke is hopeful. He
predicts a three- to four-year payback savings to buyers. “In an office
condo, it’s a sale point for me to offer to buyers. It’s up to them to
decide whether it’s worth it — and how much they’re willing to pay.”
And that can be frustrating in his market, he says. “It’s so tempting to
take the easiest route,” he says. “Everyone is so cautious about spending
too much money on their buildings, so they have a building that costs them
a lot of money for a long time versus spending a little more upfront and
having something that’s less costly to operate.”

That thought process will have to change, say green building proponents.
“If you’re a long-term holder — and certainly more of the institutional
money is looking long term — you have to think about what happens when
your leases come up for renewal in three to five years, and you’re
surrounded by certified green buildings,” Yudelson says. “What’s that
going to do to your leasing? What’s that going to do to your rents? You
have to think of it as a risk management step: What’s the risk that I’m
going to be more expensive to operate? Tenants aren’t stupid; they’re
going to ask you to cap their energy costs at what other buildings offer,
and then you’ll have to eat the difference.”

“We have an opportunity to sell higher-quality projects in the same market
without spending more money.” Yudelson adds. “You have got to be
competitive. This is no longer exotica.”

Sarah Hoban is a Chicago-based freelance writer. She has written for
Commercial Investment Real Estate on mixed-use and transit-oriented

Rehabbing Green

Owners of existing buildings also can enjoy the benefits of sustainable
facilities, including lower energy and water costs, healthier work
environments, and lower overall operating costs. And while there’s still a
perception that retrofitting can be costly and time-consuming, the real
estate industry is learning that’s not necessarily the case.

Consider the JohnsonDiversey global headquarters in Sturtevant, Wis. The
manufacturer spent $73,800 — or 27 cents per square foot — to implement a
series of green improvements in the 277,440-sf building constructed in
1997. These included measures to increase energy efficiency, as well as
instituting a recycling program, revamping its cleaning processes, and
even collecting storm water for landscape irrigation. The company says
it’s achieved an annual net savings of $137,320 — or 49 cents psf — and a
15-year life cycle net savings of $4.87 psf. It’s reduced its energy costs
by $90,000 a year, uses two to four million fewer gallons of water a year
to irrigate landscaping, and recycles more than 50 percent of its
site-generated solid waste.

The case study is featured in “Deliver the Green,” a booklet published by
the International Facility Management Association, that details how
facilities can become Leadership in Energy and Environmental
Design–Existing Building certified. The booklet is online here.
The LEED-EB rating focuses on ongoing maintenance issues in buildings,
such as energy and water efficiency, indoor air quality, recycling
programs, chemical use, exterior maintenance programs, and systems
upgrades to various green performance standards.

“What has happened is that those who have really explored the LEED-EB
system have found out that the return on investment is huge on doing these
comprehensive quality assessment programs,” says Jerry Yudelson, principal
at Yudelson Associates, a green building consulting firm in Tucson, Ariz.

“That’s because it forces you to benchmark everything you do — it’s a
whole game plan.”

Besides the environmental and economic benefits, Yudelson sees greening
existing buildings — and the LEED-EB certification in particular — as a
valuable marketing tool. “If I were a developer or property owner with
some older properties, I would look at it as a rebranding tool,” he says.
“You can take an older property and really bring it up to better standards
and rebrand it as a green building. What a great opportunity — it’s
cheaper than putting money into more advertising.”

The 64-story 340 on the Park, designed by Solomon Cordwell Buenz
architects, is Chicago’s first green residential highrise to achieve the
U.S. Green Building Council’s Leadership in Energy and Environmental
Design Silver certification.

The Arts-and-Crafts style of this office park makes it easier for
investors and tenants to accept its less-traditional sustainable design

Low-use plumbing fixtures installed in the Natomas Corporate Center
Gateway Tower in Sacramento, Calif., will save five million gallons of
water a year.

The JohnsonDiversey headquarters in Sturtevant, Wis., reduced its energy
costs by $90,000 a year after receiving the LEED-EB certification.


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