The Green Building Finance & Investment Forum: First Movers, 9 Ideas & Some Challenges
So today is a two post day, just to stay on top of the info deluge that is besieging my inbox. I’d posted before about the Green Building Finance & Investment Forum, which took place the latter half of last week.
The focus of the conference was for the green first movers to share experiences from their particular vantage point.
Most Talked About Green Building Ideas
- Be green or be obsolete. You have heard this one here many times before. It was reiterated throughout every panel and presentation. Leanne Tobias used the term “future-proofing†to refer to how green is being seen as a way to mitigate the risk of obsolescence. It became one of the most repeated buzzwords throughout the event.
- Think abundance - apply sustainability to grow the top line. Tom Paladino gave a wonderful case study about how his firm uses sustainability to create specific features that increase the rent premium owners can get on their buildings. This runs contrary to most people’s focus on using green building principles to reduce expenses.
- Sustainable markets – the downtown premium. Jonathan Rose presented his company’s approach to investing, which includes focusing on smart growth locations. They’ve got it down to the point where they have established relative return premiums for various markets.
- LEED branding is gaining economic value. Transwestern’s Greg O’Brien pointed out that investors were seeing a particular value in green building being certified. It is not enough for an investor to just say that they had made specific improvements to the property, but that LEED certification was being seen as a ‘good housekeeping’ seal of approval on the asset.
- Think beyond the net zero building. On the technology and innovation panel, panelists talked about thinking in terms of a net zero community, not just individual buildings. Bill Sisson, of United Technologies and the World Business Council for Sustainable Development and Laura Rodormer, of Swinerton Management Consulting talked about the need for the investment community to enlarge its view of how far we can go with net zero energy.
- Go for the low-hanging fruit. Immediately adopt low cost green strategies. Several panelists said that there were many high ROI green moves that can be immediately implemented at little or no cost (and without an investment committee’s approval). Changing lightbulbs might sound boring, but the energy savings generate a great return.
- Metrics measure what matters. Several investors pointed this out. We will not have positive financial, environmental and social outcomes unless we are measuring portfolio performance on all of these dimensions. Real estate investors now have the challenge to integrate measuring environmental and even some social outcomes within their portfolios alongside financial returns.
- Use government incentives, subsidies and tax breaks to your advantage. Steve Grant, of the Bond Companies, was in the audience. He stood up in the middle of a presentation and pointed out how his company has gotten quite strategic about how they source and apply incentive dollars. It can be a significant source of financing that is often overlooked by investors.
- The green building tsunami is just beginning. State of California Treasurer Bill Lockyer commented that a year ago the investment officers at CalPERS and CalSTRS (our state pension funds) hardly ever heard about green building investments. Now they get about two proposals a week, requesting their investment in a new green fund.
And then there are still challenges
- Diagnosing with LEED-EB: Lots of investors talked about how implementing LEED for Existing Buildings is a very challenging, highly imperfect endeavor. Not only just to green a building, but they are also applying LEED-EB (now LEED-EBOM) as a screen for potential investments. No solutions were offered, this is an open point for all of us to follow. However, it was interesting to note that several
consultants in the audience were muttering that the investors difficulties stemmed from trying to force LEED to fit their organization’s existing investment approach (i.e. put LEED criteria into the organization’s existing checklists) and not the other way around. There are lots of efforts underway throughout the industry trying to tackle this problem, so I’m sure we’ll see lots of movement here in the coming months.
- Underwriting, Appraisals & Standards: When it comes to talking about underwriting standards, the industry talk sounds like the City of Babel. Lots of confusion. We still lack formalized underwriting standards that the industry can apply in order to understand green buildings financially, but there are groups, such as the Green Building Finance Consortium, that will be putting out papers about this topic in the coming months. Tim Lowe also presented a detailed analysis of what needed to happen in order for real estate appraisers to adequately value green properties. In short, there is lots of education still needed within the appraisal industry.
2nd Call for Responsible Property Investing Meeting
A few weeks ago, I mentioned an upcoming forum for Responsible Property Investors. And now I’m seeing more evidence that this emerging discipline’s momentum is accelerating.
ULI just announced an RPI ‘casting call‘ on their blog. They are currently forming a Responsible Property Investing Council that will be added to their existing council structure. That should get off the ground in May. This represents some heavy hitting strengthening of triple bottom line investing’s status within the commercial real estate industry.
And now here’s a repeat of my pitch for the meeting:
If you are a real estate investor who is already involved in RPI or wants to get involved, try to attend the upcoming forum being held this March 25-26 in Boston.
I think RPI is getting more attention because acceptance of green building’s environmental principles by mainstream commercial real estate investors also fosters acceptance of RPI’s focus on positive environmental and social outcomes.
It is exciting to see the space get long overdue attention from the investors. Visit the RPIC website and sign up for this important meeting!
Photo Credit: Flickr/MadelineFox - Row of Habitat Houses
Green Real Estate Champions: Do You Know the ‘1% Rule’?
How does green building knowledge spread inside your company? Does the company focus on formal technical training? More on triple bottom line values? Concentrate the new knowledge on a ‘chosen few’ and leave it to them to transfer their green building know-how to others? Or is it a viral, water-cooler kind of movement?
The big real estate investment companies are making serious moves to adopt green building and sustainability and I’ve been talking to folks who ask, how’s it really spreading?
In any case, these industry pacesetters shoulder the greening of trillions of dollars of real estate not to mention (re-)educating thousands of professionals all over the globe. And they are doing this while the industry is turning on a dime to go green. So these companies’ competitiveness is riding on the success of their approach.
And back to the question –Â how is green building knowledge spreading in real estate companies?
We don’t have the silver bullet answer, yet. In the meantime, I’ll share a hypothesis about knowledge ‘makers’ and ‘users’ from Church of the Customer – the ‘must read’ blog for marketers.
They call it the ‘1% Rule‘. It describes their theory of knowledge creation and sharing within communities. Paraphrased, it says that
roughly 1% of the people in your ‘community’ create nearly all the content. Roughly 10% of the employees actively synthesize it.
Basically, the authors observed that it is usually a small group of people who are having the most powerful effect on the knowledge that is created and spread within a certain community. If you believe them, then you will spend time and resources identifying this group of employees, customers, suppliers, etc. and engage them heavily. And give them a platform to engage you. Relying on formal tools like employee surveys and job descriptions is not useful for really getting to the people most likely to embrace and spread the gospel. They are motivated by other things.
And here’s one catch: the 1% Rule uses the phrase democratized community in the definition. Everybody in these communities has equal access to the information and equal opportunity to contribute their own opinions.
So what about spreading green building knowledge in investment real estate firms? A few questions:
- Is your company going for the mass marketing approach to spreading green building know how?
- Do you have democratized knowledge creation and sharing in your company?
- Do you know the sustainability 1%-ers in your firm, beyond the ones who have sustainability directly in their job description?
- Are you the green building 1%-er in your firm?
- Could and should the 1% Rule apply to spreading green building know how within investment real estate firms at all?
Share what you think with the Green Journey community!
Photo Credit: Flickr/Sue Richards - Knowledge
Tangible Integrity: Why Google Leases Green Office Space
I went to a local ULI Green Trends Program last night. Kacey Clagett, of Field Paoli, moderated a panel consisting of David Radcliffe, Sustainability Director for Google, David Johnson, West Coast Director for William McDonough & Partners and Richard Springwater, Head of The Prado Group, the developer who built Foundry Square. Great discussion overall on why going green makes sense from the perspective of a tenant, architect and developer.
David Radcliffe’s comments on why Google leases green space stood out. Not only is leasing green space consistent with the general corporate philosophy, but he took the time to detail Google’s thinking process about green space. You can imagine that Google can throw a great deal of brain power at anything they want to study. It is safe to say that a couple of those brains went into overdrive deconstructing their “green space = value†proposition. Here’s a short summary on their perspective:
When Google evaluates space decisions, they look at their total cost of occupancy, which is made of:
- Base Rent
- Additional Rent – operating expense reimbursements
- Workplace Services, overhead
- Other related costs
Google studied their total costs of occupancy for leasing green space and figured out that they were paying a higher Base Rent compared to non-green space. However, since Base Rent was only 34% of their total costs of occupancy, the increase in rent for the green space increased their total occupancy costs by only 1.7%. So, the additional cost of green space is negligible in their view.
They also looked at one of their most important activities, attracting talent. They ran various tests attempting to isolate what mattered most to employees and linked it to sustainability initiatives, including occupying green space.
You gotta keep Google’s hiring scale in mind as you read this: Radcliffe pointed out that Google is hiring on a scale of 200 employees per week (!!). The right or wrong hiring equation has massive business implications for them, so they spend lots of energy learning and making sure they are delivering on what the right talent cares about.
They isolated several key variables of what their employees and talent care about the most. Tests revealed that a company’s integrity is THE most important variable to the employees and recruits. Integrity trumped pay, career development and every other traditional measure of employer relevance to Google employees. And the employees and recruits interpret green working facilities along with other green initiatives as being visible evidence of Google’s integrity.
So, for Google, leasing green space provides huge upsidewith very little or no downside. Not a bad deal at all.
Photo Credit: Flickr/Keso - Google logo
Responsible Property Investing & Green Building
While living in Hamburg, I made friends with some people who were refugees. They lived in a part of town most of my other friends avoided — Wilhelmsburg, with about 49,000 inhabitants. 25% of those were either unemployed or living on public assistance. Many were foreigners with little education. They had come to Germany to escape violence and economic desperation in other parts of the world. They told stories that were tragic and fascinating. And they lived in dreary apartment buildings like the one above. There are approximately 8,000 public housing units crammed into Wilhelmsburg. News reports about the area usually contained words like: crime, ethnic tensions, language barriers and undocumented workers. Sound familiar? Getting an informal education on the German public housing and social system helped me to see more clearly the connections between similar issues and the real estate industry here in the US.
The Responsible Property Investing Center represents institutional real estate investors who are applying triple bottom line principles to their activities within the many Wilhelmsburgs here in America. It takes on the challenge of creating value in investment real estate across ten dimensions, all of which either directly overlap or indirectly support green building. Here’s a few:
- Energy conservation
- Smart growth
- Urban revitalization and adaptability
- Environmental protection
- Voluntary certifications (like LEED)
With so much in common with green building, why does RPI matter?
I only showed you a few of RPI’s dimensions above. When you look at all of them together, you will see a heavy stress on how people are treated and corporate accountability. There is less emphasis on the technical construction requirements of the property. Green building fulfills many important RPI criteria, but green building is not the exclusive goal of RPI. Both however, strongly advance triple bottom line investing. They complement and strengthen each other. And that’s a good thing.
Upcoming RPI Convening in Boston
Here’s the link to the Responsible Property Investing Center’s website. (Disclosure: my firm is involved as well). The growing support for the RPIC indicates that there is a belief within institutional real estate that triple bottom line investing is not a philanthropic move, but a credible investment strategy.
The RPIC is also having a meeting in March and investors with a triple bottom line focus are welcome. If you are an investor with activities within this field and want to meet your peers, I urge you to sign up and attend.
