Monday, November 2, 2009

LEED Commercial Real Estate

I have high hopes for LEED/Green building to drive our future. I believe it allows a developer to have a huge market place as government regulations have started to require less water usage, energy usage and carbon emissions. My guess is that in the future this will not only be the general trend for new construction but existing buildings as well. It will allow existing buildings to sustain value. Very key areas that I see it most benefical is for attracting new tenants, building classification and saving investors on cost to rebuild older buildings to compete.

Areas like East Downtown will not be converted into parking lots as quickly inviting blight areas of town that once were. But rather maintain an even level of activity in older areas of development as it will make financial sense for commerce to continue in these ares. This could slow production but I think the major metropolitain are you march toward it will be the 1st area to sustain a continous rapid increase in population to sustain the "old" and the new development in its submarkets such as levels seen in early American migration like the gold rush.

Why? because of sustainability of the immediate enviornment for future generations to live in. We are in the information age now, that includes the hockey stick production curves in technology and rapid advancements in commerce never believed imaginable.

Our major set back is cost. Who will design the processes and source the work so to make LEED/Green development work in masses and become the best and highest use?

Here are some local Dallas opinions.

Q How has the economic downturn affected investor demand and tenant demand for “green” or Leadership in Energy and environmental design-certified buildings?

John Alvarado: Owners are more than ever interested in LEED certification and receiving high Energy Star scores. This is partly due to the economic downturn and partly despite it. Many tenants want to be in a green building but few are willing to pay a rent premium for it. When the leasing market was strong, most owners were unwilling to invest in LEED certification because they could not see a payback in terms of higher rent. With the economic downturn, owners are now concerned with attracting and retaining tenants, and sustainability is viewed as an important differentiator. Assuming that the rent and location of two competitive buildings are comparable, tenants will choose a green building over a traditional building. If sustainability means the difference between a fully leased building and one that is 25% vacant, the cost of LEED certification is negligible.

The problem for owners is that bringing an existing building up to LEED standards may require up-front cash that they don’t have, and have not been able to get in a credit-constrained market. Jones Lang LaSalle project managers are very busy conducting feasibility assessments, going through buildings to help owners quickly determine what level of certification is within reach and at what cost. In most well-run buildings, certification is affordable and owners give us the go-ahead to pursue certification.

Energy Star, the EPA’s energy benchmarking program, is also becoming very important to tenants making a location decision. A high Energy Star score translates into lower operating costs to the tenant. And owners are discovering that improving their Energy Star score does not have to cost much.

Sam Gillespie: When tenants select properties, cost and location are always the primary decision factors. A recession does little to alter these priorities. In all market cycles, tenants will use cost and location as their primary selection criteria. Sustainability becomes a factor only for tenants who need to further differentiate between properties that offer similar options in terms of cost and location. During a recession, green practices such as energy conservation can be a more important factor for owners striving to reduce operating costs than for tenants seeking a desirable space.

Greg Greene: The green movement continues to have legs, despite the economy. However, we see many instances where a tenant will prefer to be in the green building, but not at an occupancy cost premium. So, all things equal, tenants prefer the LEED certification and therefore investors will also. However, it does not appear the certification will translate to a significant increase in rents. It might attract the tenant that would otherwise go elsewhere.

P. Michael Hardage: To be honest, I’ve yet to have an investor request or even ask me if a building was green or LEED-certified. I understand that certain tenants are currently demanding that a building be LEED-certified, however management and leasing personnel tell us that most tenants want a green building but don’t want to pay extra for it. I definitely think it will become more important in the future, as it should. But in this environment, the most cost-effective option wins — green or no green.

Sam G. Kartalis: Other than the fact that new development/construction projects have “screeched” to a halt, the future will definitely be dominated by LEED-certified buildings.


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