More Calls for Sustainability Financing Districts
Photo credit: LA WadCalifornia Assembly Bill 811 fans: here’s another update.
Yet another call was issued recently for a sustainability financing district; where the city would offer residential green tech financing via property tax assessments - one of my super faves among the green finance moves out there.
Back in May, I posted about how legislation authorizing cities to create sustainability financing districts has been gaining traction.
That traction continues.
In this latest item, you basically have a key staff member of a state senator’s very green leaning Santa Rosa district, calling for a sustainability financing district for their city. I’m not saying that enacting this type of program is a no brainer, but given the headway already made by Berkley, San Francisco and others — Santa Rosa should have an easier time envisioning how to get it done and reaping the benefits. Once legislation authorizes them to take action.
I can’t stop singing this song: AB 811 represents one of the best new strategies in green real estate finance. It can foster the rapid adoption of green technology via sharing a city’s cost of capital with homeowners. It empowers cities to step up and address climate change using their own unique financial advantages.
As a result, the proposed sustainability financing districts could create a mega-win for the cities, homeowners, green tech companies and the future green collar job holders involved.
Oh yeah, and let me sing my other AB 811 song: Banks and other consumer financiers, that currently shy away from residential lending should be taking notice of a very big horse that has taken another step out of the barn in California.
Competing for Green: JLL’s Big Move
Earlier this year, I posted about how the big players in commercial real estate were under enormous pressure to figure out how to deal with the mass greening of their real estate portfolios.
You can see in this linked story that the major investment management firms are not being shy about making big moves in order to stay ahead of the curve on this developing area of real estate practice.
And those moves now include acquiring the consultancies who are responsible for developing the green buildings ratings system tools. Case in point: Jones Lang LaSalle’s purchase of ECD Energy and Environment Canada, Ltd., the developer of the Green Globes rating system.
The Co-Star story plays up a USGBC LEED vs Green Globes competition. However, I didn’t see much of that competitiveness within the quotes from USGBC’s Mark Heisterkamp and JLL officials. They all politely downplay that aspect.
The Green Journey Take
Acquiring a consultancy is not a new thing, I know. Buying the folks responsible for developing the key technology used to assess a property’s greenness represents a new milestone on the path to
sustainability that deserves watching.
Think about it: what if a major global real estate investor-manager, or even a Microsoft-like tech
giant bought the entire development team of Argus, but left the Argus software itself intact and separate with a non-profit? What would “the rest of us” think? While Green Globes is not as prolific as LEED (or Argus) here in the U.S., it has been relevant to the groups who, for some reason or another, have not been able to embrace LEED. The Co-Star story focuses on the potential competitiveness between the two ratings systems, but it is missing the broader competitiveness issues sustainability is triggering among real estate investors.
The move by JLL underscores sustainability’s credibility with top-tier investor-managers: the fact that major commercial real estate investors are putting serious dollars into enterprise technologies to green their assets, even though much of the evidence about NOI and valuation benefits is still anecdotal and technically inconclusive about the exact benefits these investors will ever realize. The investment community has already decided and are not waiting around for the “real” proof.
What is also interesting is that this particular type of move — buying the particular consultancy which developed a ratings tool, also highlights the point of pain (and value) in our industry. That’s the enormous unfilled demand within commercial real estate for new talent, best practice and structured, efficient approaches to transitioning the modern property operation into a sustainable one.
In other words, professionals who already “get it”and have embedded “sustainable intelligence” into their treasure chest of commercial real estate talents are probably in hot demand.
Jean’s Question: Anybody Actually Getting Carbon Credits for Green Buildings?
Gotta love the creative local church marketing campaign! Photo credit: Mykl Roventine
In any situation, you always wanna hang with the folks that ask the tough questions — they’re usually closer to the real answers. Like Green Journey reader Jean Shia, of Avant Housing, a CalPERS fund based here in San Francisco.
She asks,
“We are interested to see if anyone has been able to figure out a way to get carbon credits on their green buildings. Is there anyone pioneering this area?”
Fascinating! We were pretty sure that lots of people would be curious about this one. And a big thanks to my colleague, George Vavaroutsos, for putting in some research time, talking with a several carbon traders to get the real story on what’s happening. Here’s the deal:
You’ve Missed Nothing So Far, And Now’s the Time to Stay Alert
Turn’s out that there is limited information in the marketplace about sustainable real estate and the carbon markets. No wonder, since there are significant challenges to property owners and developers who want to receive credits for greenhouse gas (GHG) reductions. Carbon trading experts we spoke with cannot identify a single sustainable real estate project in the US that received credits for GHG reductions.
So what’s the holdup? There are a few issues:
Measuring and Verifying GHG reductions: Measuring reductions, and the ownership of these reductions, is one of the biggest challenges. Quantification is an involved and difficult task, and there is no guarantee that auditors will accept reductions. In addition to verification being prohibitively expensive, current methodologies and standards for measuring GHG reductions do not cater to real estate.
If a developer wants GHG credits for sourcing, production, and transport related GHG reductions, it may be a challenge to quantify and satisfy ownership requirements for these reductions. Additionally, the GHG reductions may not be enough to justify the cost of verification. Note: Talk directly to a third party verifier about your GHG reduction objectives. Here is a link to the California Climate Action Registry Verifiers list.
The “Additionality” Clause: Another major limitation to developers is the “additionality” clause, which requires that in order to receive GHG credits, a carbon-reducing measure would not be implemented if not for the credits that would fund such a measure.
Therefore, if you have a project that will reduce your property’s energy usage, but you will recapture your additional capital outlay with increased operating efficiency over X years and improve your ROI, then the project will not pass the additionality test, and you will not receive the credits. Yep, its pretty technical, we know.
Future Legislation: A US cap and trade system is considered likely by the carbon trading market. I posted a couple of days ago about California already forging ahead. Buyers of GHG credits will not consider many voluntary emission reduction (VER) credits, given the uncertainty created by these expectations. Experts do not expect a sustainable real estate GHG credit mechanism to develop until after a national cap and trade mechanism is implemented.
Industry Pacesetters on the Carbon Trading Front
There are several developers who are pioneering in the field of GHG reductions and credits. ProLogis and Liberty Property Trust, both REITS, are registered entities on the Chicago Climate Exchange, a voluntary cap and trade market.
Both REITS are working to create ownership over the GHG reduction credits their properties are helping to create. ProLogis leases rooftop space on some of their industrial properties in California to Southern California Edison. This renewable power helps satisfy the renewable energy credits (REC) requirements for California utility providers. This arrangement is creating GHG credits, but they are accruing to the power company, not ProLogis.
Stay tuned for more updates — as I’ve already posted, we’re expecting lots to happen on the cap-and-trade front!
