I had the good fortune to attend a real estate conference at my alma mater, Yale University, on April 3, 2009, where I got an opportunity to tour their new state-of-the-green-art building, Kroon Hall.
So-called “green” design and construction of commercial buildings aim to save energy and water, create healthier work environments and reduce the environmental impact of construction. But does it make economic sense? Conventional wisdom holds that green design currently adds about 2% to 5% to the cost of new commercial construction, although that premium is likely to decrease as both techniques and material become more mainstream. The payback period on that investment, however, can be quite quick and the long-term economic benefits significant. Here’s my short list of bottom-line reasons to go green:
1. Look for tax incentives: Most states offer some sort of tax incentive to developers of energy-efficient buildings. Check for the possibility of federal incentives as well.
2. Get a ton of publicity: Ok, maybe you didn’t choose to follow the green-brick road for the fame and glory. Still, you’re going to want to rent or sell this building and a little profile-raising can go a long way. One sure way to stand out is by achieving LEED certification for your project. LEED (Leadership in Energy and Environmental Design) is a rating system developed by the U.S. Green Building Council. It provides recognized standards for green construction, and four levels of certification — Certified, Silver, Gold, and Platinum — based on design. Their certification is a mark of distinction worth earning.
3. Find a friendly ear at the bank: Green construction is “sustainable,” which means it should last longer than your financing, and should give you an edge in attracting and keeping tenants. In today’s financing markets there are no guarantees, but these are advantages that should work in your favor to find financing and secure the best terms.
4. Reduce demolition and materials costs: If you’re building on a site with existing structures, reuse some of the materials. You’ll save on the cost of materials, carting and disposal, while at the same time reducing impact on landfills.
5. Reduce construction costs: Passive solar heat and reduced electric lighting will generally mean you need a smaller HVAC system — less costly to install and to maintain,
6. Reduce heating costs: Orient the building to take advantage of passive solar heat. Windows can be recessed or otherwise configured so that they allow full sun to enter in the winter, but are shaded when the sun is higher in summer.
7. Reduce electric costs: Increase natural daylight and thus reduce the number of bulbs and amount of electricity needed to run them. Add daylight sensors to minimize use when unneeded. Add photovoltaics to reduce purchased power.
8. Reduce water costs by collecting rainwater and/or recycling “greywater” from dishwashers, clothes washers, etc. and use this for landscape irrigation and toilet flushing.
9. Increase rental revenue and improve tenant retention: There is evidence to suggest that the healthier environment in green buildings improves worker productivity and reduces absenteeism. A workplace like that can improve a business’ bottom line and hence is more attractive than a similar but not-so-green space. Translation: The potential exists for higher rental rates from the green space, and fewer vacancies as well.
10. Increase property value: Increased revenue plus decreased operating expenses equals a higher Net Operating Income — and a higher NOI translates into a greater property value (read my books, do the math). To sweeten the deal even a bit further, here’s a bit of speculation: Watch for the day when commercial appraisers employ a bonus reduction in cap rate for certified green buildings.