The Greening of America

Cities large and small are racing to mandate sustainable building practices, while developers and property owners are discovering that “going green” makes good business sense.

When Mayor Antonio Villaraigosa signed a comprehensive green building law in April, Los Angeles became the largest American city to date to enact strict environmental standards on private-sector construction. It joined a growing list of U.S. cities that either require or offer incentives for companies to “go green” by building or retrofitting their facilities using sustainable designs and materials.

Washington D.C., through its Green Building Act of 2006, was the first major U.S. city to mandate green construction for all privately owned real estate, requiring that all new development in the city conform to the standards of the United States Green Building Council’s (USGBC) rating system, known as LEED (Leader in Energy and Environmental Design).

Washington is expanding this mandate in 2008 to include all publicly financed buildings, and construction of private buildings of at least 50,000 square feet, starting in 2012. The city has since 2006 offered an array of incentives, including expedited permit reviews, grants, and technical assistance for green buildings.

Boston went a step further than Washington last year when it adopted a zoning code that brought renovation projects for existing buildings into the fold. Boston has since January 2007 required all new and rehabilitation projects of more than 50,000 square feet to earn either LEED certification or approval by the Boston Interagency Council, which incorporates LEED checklist items and Boston-specific credits involving transportation, energy, historic preservation and groundwater recharge.

Numerous other jurisdictions, big and small, across the country have jumped on board the green building movement, crafting a diverse array of laws designed to lessen their communities’ impact on global warming by reducing greenhouse gas emissions.

GREEN BUILDING IS NOW THE NORM

This is just the beginning, says Brooks Rainwater, director of local relations for the American Institute of Architects (AIA). Rainwater’s recent study, “Local Leaders in Sustainability,” reveals that 14% of U.S. cities with populations of more than 50,000 have green building programs, and many more are about to follow suit.

“We have been seeing this happen at an impressive rate over the last few years, as cities across the country pass green building laws that focus not only on public buildings, but [which] also incentivize green development in the private sector,” Rainwater says.

“From 2003 to 2007, the number of cities with green building programs grew by 418%, from 22 to 92. Another 36 cities, as of last summer, were in the process of developing green building programs. The future for green design looks bright, as we move toward a sustainable build environment that would not be possible without local leadership and strong citizen involvement,” he adds.

“Going green” is no longer the wave of the future—it increasingly has become a central feature of today’s building practices. Developers and corporate executives have recognized that sustainable, energy-efficient buildings may come with a cost premium, but can also bring immediate and long-term financial rewards. Green development increasingly has become a prime agenda item in boardrooms when new construction is being discussed. For a developer, returns can come in the form of higher sales and rents; tenants can save on energy and utility costs.

According to Kenny McDonald, executive vice president of the Charlotte Regional Partnership and a member of the National Association of Industrial and Office Properties, building with sustainable design yields cost savings for companies committed not only to following the proper guidelines, but who also set out to plan their buildings in ways that will save money.

“The whole rationale is to cut your energy usage and to conserve more,” McDonald says. “Your waste disposal is going to be smarter and hopefully that will reduce your cost, and there also are tax credits that provide direct cost advantages.”

Major players who have emerged in green building include Bank of America, Wachovia, and Toyota. “These companies are deeply committed, but they’re also very smart about how they do it. Companies that are [superficially going green] to gain a marketing advantage probably are not saving much money right now,” McDonald notes.

Most companies that go green do so by following the LEED rating system. Under the USGBC program, the nonprofit group awards silver, gold and platinum levels of certification based on a checklist of environmental components which have become the nationally accepted benchmarks for achieving sustainable buildings through design, construction and operation.

LEED has six major categories of review: sustainable sites; water efficiency; energy and atmosphere; materials and resources; indoor environmental quality; and innovation and design.

John Madden Co., a 40-year-old real estate development firm based in Denver, CO, has a history of incorporating open space and green practices into its business properties, and now designs its buildings to achieve LEED certification. Steve Brown Jr., vice president of project development, says the company increasingly is hearing the call for LEED certified development.

“LEED is not a buzzword—it is important to everyone we’re talking to,” Brown says. “I have not heard one person say: ÔOh you’re not on that stupid bandwagon too, are you?’ You can’t just ignore it if enough people say they want it.”

Madden is nearing completion on Palazzo Verdi, a 15-story office building in Denver that is expected to receive LEED gold certification, and has received approval for phase one of the Madden Research Loop in Fort Myers, FL. The Florida project is being designed for LEED certification and will include 275,000 square feet of office and lab space in multiple buildings for bioscience and research technology. Madden has budgeted $80 million for the first phase, with 4% of that paying for components to achieve LEED certification.

Stirling Capital Investments, which is building 60 million square feet of commercial and industrial space at the Southern California Logistics Centre in Victorville, CA, has registered the project with the USGBC and plans to meet LEED standards. The future warehousing and logistics operation would become the first project-wide development in the High Desert region to be certified.

Brian Parno, vice president, says the company, which is a joint venture between Stirling and DCT Industrial Trust Inc., is working closely with a LEED consultant and has integrated the required components from the start of the architectural planning process to help control costs. The company has a department monitoring design and construction to ensure that LEED is achieved. Implementing LEED is adding about 1% to the project’s budget, says Parno, noting that while this amounts to a sizable sum in a project with overall costs “in the hundreds of millions,” the decision to pursue sustainable design and building practices was a relatively easy one to make.

“We have a long-term project. We want to attract the best companies in the world. Most of those companies are going in this direction themselves in their businesses, so it’s part of the overall marketing platform,” Parno says. “If we’re going to lead and attract those people, we have to have a project that lines up with their values.”

Parno also has found that most prospective tenants now take into consideration whether a building will be LEED-certified, though he stopped short of saying clients are demanding it. “But everybody is asking,” he says. “An investment of this magnitude, from our side, you can’t afford to miss.”

Brown, at John Madden Co., says his clients are willing to pay a premium for sustainable design.

“Companies have come to us and said it’s a mandate from their board of directors that all new leases must be in LEED-certified space when available, or they have to get board permission to go a different route. If you’re talking about two buildings, and one is $24 a foot and LEED certified and the other is $22 a foot [and uncertified], you are going to choose the LEED certified project because you don’t have to go back to the board to get permission for that one,” he says.

While improved image, potential cost benefits or the goal of helping the environment are strong incentives for companies to build green, the green-building regulations now emerging from state and local governments and other agencies are having an across-the-board impact.

21st CENTURY ZONING

According to Rainwater, the measures enacted in Boston are “a concrete example of how a large American city can move its zoning code into the 21st century.” In the “Local Leaders” study, Rainwater noted that the regulations had an immediate impact on building in Boston:

“The inclusion of green building standards directly into the code dramatically [increased] the number of green buildings constructed, as the number of permits issued by the city for green buildings in the first half of 2007 far outstripped the number of all green buildings constructed [in the previous year]. This also [speeds] the momentum as the remaining cost differential between green and standard buildings diminishes.”

New York City, which has required LEED standards for public buildings for several years, now offers incentives for private green building practices, with grants for “green” roofs and brownfield redevelopment. The city also has adopted strict codes for energy consumption. Mayor Michael R. Bloomberg’s wide-ranging PlaNYC proposal calls for a 30% reduction in carbon dioxide emissions in the city by 2030.

Stephen T. Del Percio, whose gbNYC.com Web site explores green building and related legal issues, says the city is seeing an increased number of projects applying for LEED certification, thanks in large part to Local Law 86 requiring most public projects to earn a LEED silver rating.

“There are still less than 20 projects [in New York City] that have earned the rating from USGBC, but given the number that have applied in recent months, we anticipate seeing that number increase,” Del Percio says. “While our local green building legislation doesn’t apply to private development yet, Local Law 86 has been successful in getting project teams up to speed with the green building learning curve. Private developers recognize the marketing advantages that the LEED label provides them, even if they remain skeptical of the financial benefits of green. Almost every new commercial building that’s going up in Manhattan is applying for a LEED rating.”

California has some of the strongest green building policies, according to Rainwater’s study, with northern cities like Pleasanton and Livermore mandating green building for residential and nonresidential construction, and Santa Cruz and San Rafael requiring green construction.

In Santa Cruz, building permits go only to those projects that earn seven LEED points, but those that earn 33 points (LEED gold certification) get expedited reviews, and projects that achieve at least 40 points receive a Green Building Award to use as a marketing tool.

THE GREENEST OF THEM ALL

Los Angeles and San Francisco are in a race to have the greatest impact in reducing carbon emissions from buildings. San Francisco Mayor Gavin Newsom is expected to sign a law requiring new commercial buildings larger than 5,000 square feet, and renovations of buildings greater than 25,000 square feet, to comply with LEED standards, along with new residential buildings taller than 75 feet. The rules would be phased in, giving developers until 2012 to fully comply with the strictest levels of the green building codes. Newsom hopes that, by that time, the city will have reduced carbon emissions by 60,000 tons and saved 220,000-megawatt hours of power and 100 million gallons of drinking water.

Los Angeles’ new ordinance requires all projects of 50,000 square feet or more to meet LEED standards. In exchange, the city will work with builders to speed up approvals and remove obstacles in the municipal code for elements of sustainable building design, such as green rooftops, cisterns and permeable pavement. Builders who pursue LEED silver will receive expedited processing through the city Planning and Public Works departments. Mayor Villaraigosa says the new law will reduce the city’s carbon emissions by more than 80,000 tons by 2012, the equivalent of taking 15,000 cars off the road.

“The laws are a good first step for the city,” says Kenneth R. Lewis, president of AC Martin Partners Inc. and board member of the Los Angeles Business Council. “I view it as a starting point that will get contractors, architects, engineers, developers, building owners, material and service providers and the city Department of Building and Safety staff trained in aspects of sustainability. It raises the awareness and begins the conversation on what will it take to make Los Angeles a sustainable city.”

Lewis, who believes the codes will only get stricter over time, says the business community is responding favorably, noting that a sustainable workplace brings reduced energy costs and improved worker satisfaction, productivity and retention.

Eric Stavriotis, a vice president with the Chicago-based real estate management company Jones Lang Lasalle, prefers to see cities offer incentives such as fast-track permitting, tax credits or grants for green building rather than create laws that result in penalties for noncompliance. Incentives are far more helpful, Stavriotis notes, for a company that is paying a 10% premium for building to LEED’s highest status, platinum.

“In Chicago, if a project commits to designing around LEED standards they go to the top of the stack in terms of permitting, which in some communities across the country can save you up to 120 days of project time,” Stavriotis says.

“Putting a financial incentive on the table is always helpful, particularly in gaining approval from CFOs. A close second to that is helping a project get through the regulatory and permit maze in an expeditious fashion.”

Ashley Katz, communications coordinator for USGBC, notes that her organization also sees incentives as a better way of addressing the need for sustainable design and operation. Still, she lauded the many cities that have enacted laws to increase the number of green buildings.

“It’s increasing the number of green buildings and it’s working toward our mission, which is market transformation and changing the way that buildings are built,” Katz says.

Finance always will be a determinant in private-sector construction, and if going green cuts costs and increases revenues, as is stated in a recent study by Jones Lang Lasalle and CFO Research, the green building movement will continue to grow. The study found that most finance executives believe their companies are likely to enjoy financial benefits through sustainability.

Rainwater also notes that lease and resale rates of green buildings consistently are higher than their counterparts.

“The business case for building green is growing stronger,” he says. “Many building owners do not want to build a building that will be seen as out-of-date and not a true Class A property five years from now. If [they] aren’t building green, then this is a real possibility.”

USGBC “LEEDS” THE WAY

The U.S. Green Building Council was founded in 1993 as a nonprofit group whose members include corporations, builders, universities, government agencies and other organizations. It established the third-party LEED certification program to encourage sustainable green building and development practices.

Research indicates that LEED buildings cost an average of 2% more to construct, though location and other factors play a significant role. New buildings certified under LEED perform an average of 25 to 30% better than other buildings in energy use, according to the New Buildings Institute. And a study completed in March by the real estate service CoStar Group says that LEED buildings command rent premiums of $11.33 per square foot more than non-LEED facilities, and have a 4.1% higher occupancy. Projects seeking certification can be registered online at the LEED Web site, www.leedbuilding.org.