Green and the Bottom Line

The Washington, D.C.-based Urban Land Institute (ULI) held its annual Developing and Investing Green conference in Charlotte, NC, earlier this month. The transformation from a single year is unprecedented, in my opinion. Last year, the overall theme was “making the business case for green.” The sessions were predominately case studies of successful green-development projects, and the questions from the audience largely centered around making the business case for green: “Is there really an issue, and what’s it going to cost me to do anything about it?” The momentum this year: “How do I incorporate sustainability into my projects and into my business model?”

Not only were we talking about how to incorporate the environment into development projects, but also how to make existing buildings (like the Empire State Building) more energy efficient. In addition, how do we design and develop truly sustainable communities, and how in the world are companies like USAA and Transwestern well on their way to LEED^® certifying large portfolios of existing buildings?

And, it didn’t stop there. Conversations covered not only the impact of man on the environment, but also our impact on one another. Yes, the third leg of responsible developing and investing – the social implication – is now on the table. Organizations such as TIAA-CREF, Bank of America, and the Jonathan Rose Cos. talked about the social aspect of real estate development and investment. The Urban Land Institute, which organizes membership around its elite councils, is evaluating the addition of a new council: Responsible Property Investing (RPI). Under RPI, we consider profits, people, and the planet. If you find RPI interesting, I highly recommend joining the Responsible Property Investing Center (www.responsibleproperty.net).

At this ULI conference, I moderated the “Greening Your Portfolio” session. The panel consisted of Bill Maher with LaSalle Investment Management, Vance Voss with Principal Real Estate Investors, and Commissioner David Winstead with the U.S. General Services Administration (GSA).

With $50.4 billion in real estate assets under management, and as an international player, the LaSalle organization recognizes that there is:

Widespread corporate understanding of the importance of sustainability, globally.
Significant and immediate opportunity.
Surging velocity of change.

In response, LaSalle is:

Evaluating the energy efficiency and greenness of its existing real estate portfolio.
Dialing in LEED-EB audits into its acquisition underwriting.
Using LEED-EB for renovation projects.
Developing to a LEED Silver standard.

With responsibility for $44.8 billion in real estate assets under management, Principal Real Estate Investors’ investment criterion dials in sustainability by focusing on:

Major metropolitan markets characterized by above-average population and employment growth.
Markets that are underserved from a green commercial building supply perspective and characterized by higher-than-average projected user demand for green buildings (such as markets with a large presence of large corporate, government, or other uses that are likely to require or favor green space).
Cities that embrace green-development opportunities by providing incentives.
Dense urban or suburban infill markets with a limited supply of available land for development, competitive barriers to entry from a future competitive supply perspective, and sites within close proximity to mass transportation.

Principal is currently pursuing LEED certification for a number of development projects: Ballard Blocks, a 380,000-square-foot retail center in Seattle; Columbia Gateway, a 205,000-square-foot office building in Columbia, MD; Energy Center, a 636,000-square-foot office building in Houston; and Discovery Tower, an 873,000-square-foot office building in Houston. The organization has established an in-house green team,charged with greening Principal’s existing managed portfolio; it already has seven LEED Accredited Professionals on staff.

If you currently develop buildings for or lease space to the GSA (or desire to), take note: Leading the way, the GSA already has 24 LEED-rated buildings and 118 ENERGY STAR^® buildings. And, these numbers are about to increase substantially. Of the GSA’s 8,619 owned and leased assets (50-percent owned/50-percent leased), comprising 352 million rentable square feet across the United States and serving 1 million federal employees at 60 different agencies, the GSA has, once again, been mandated by Executive Order to be more energy efficient and more green in both its leased and owned real estate. The GSA’s path to energy efficiency began in 1973, but recent mandates (such as the Energy Independence and Security Act, signed by President Bush in December 2007) require the following:

A 55-percent reduction in fossil fuel by 2010.
Federal buildings to be carbon neutral by 2030.
The requirement that the GSA lease space in ENERGY STAR-labeled buildings.
The creation of the Office of Federal High-Performance Green Buildings within the GSA.

Other recent mandates (such as Executive Order 13423) require new construction and major renovation projects to comply with the Guiding Principles for Federal Architecture. Like many employers, attracting and retaining talent is increasingly difficult. The GSA recognizes that, to do so for the federal government workforce, it has an imperative to provide healthy, environmentally friendly, and progressive workspaces that reflect the government’s commitment to sustainability. The GSA put in place its own Green Lease Policy, requiring a LEED-Commercial Interiors Silver rating for all new leased spaces.

And, while one of the sessions at the conference focused on the various green-rating systems, Principal, LaSalle, and the GSA (among many others) have committed to the LEED rating system. The GSA evaluated five different rating systems and concluded that:

LEED is the most credible and workable approach.
LEED is applicable to all GSA project types.
LEED is verifiable by independent professionals.
LEED has a well-defined system for incorporating updates.
LEED is the most widely used rating system in the U.S. market.

One of the audience members asked the following question of Bill Maher: “Do you think we are at the tipping point (for green)?” Maher responded, saying we are past the tipping point. When I think of America’s history, moving from the industrial age to the technology age, as we move into a new era, standing on a three-legged stool is surely our best footing.