Is it a good idea to guarantee LEED certification?

Cheap stunt to grab market share?

Or is this just a sign of how commoditized the LEED consulting market is becoming?

LEED consultants Energy Ace have announced that they guarantee LEED-certification on their projects, which has caught quite a bit of attention around the industry over the past few days.

I am sure attorneys all over the  nation are getting pretty curious about how this firm got comfortable with  making this offer.

As this lawyer writing for GreenerBuildings points out:

Energy Ace doesn’t appear to serve any design or construction role.  Remember, important decisions are made at both the design and construction stages that impact achieving LEED certification.  How can Energy Ace be comfortable that LEED administration is enough?

So what makes Energy Ace comfortable with offering this ? The lawyer writing the article alludes to revealing more information on Friday, and we’ll be checking in to see what that is.

My take on these things is that there is no free lunch and most people do things for rational reasons (most of the time).

So we just need to locate the quid pro quo in this deal and decide if it contains sufficient countervalue for Energy Ace to make this offer.

What limits their exposure on this type of agreement? Possible issues to explore are:

• What does the owner have to agree to contractually to get this kind of protection?
• Is it worth it to the ownership? Have owners really been that skittish  about “certification risk” in the first place, since the real estate industry has largely accepted the need to green their properties already?
• Isn’t there already enough knowledge present in the industry about the certification process that makes a guarantee redundant?
• Does the presence of this guarantee allow them to charge more for services (as they are theoretically offering more protection to the owner for the economic risk they are taking)?
• Is it transferable? When a bank forecloses on a project that Energy Ace is working on, can the lender take over the guarantee and enforce it once they step into the owner’s shoes? Or would the guarantee be void the moment any of the other key parties are no longer on the active on the job (like the general contractor, for example).
• How is liability determined if LEED-certification is ultimately not achieved as promised?

Yep, we’re pretty curious here.

With real estate construction volume and transactions down so dramatically, third parties such as LEED consultants have to market extra hard to win business within the much smaller pool of projects available.

LEED consultants are currently price takers within their sector, as fees have been decreasing in a weak industry. That is partly due to the presence of more firms entering the sector as green building is taking off.

So while the certification guarantee might help Energy Ace win more business, I’m concerned that it opens the strategic floodgate to intensify competition and weaken pricing for LEED consulting services beyond what is reasonable.

It is not a good point in the real estate and overall economic cycle for this intensity of competitive forces to become so active in green building, just as it is starting to take off.

My questions to the (many) Green Journey readers who are LEED consultants:

Do you think that Energy Ace’s guarantee will force others to make the same kind of offers to win business?

Gadgets & Video: Energy Neutral Green Affordable Housing

So while the rest of the known universe makes their new iPhone plans, I’m headed for a Flip Video Ultra Camcorder. And I’ve discovered that green videos on YouTube are the best way to cultivate a new camcorder obsession. But enough about me…

This video’s been out for a few weeks, but highlights a good area of focus since the Multihousing Trends and PCBC 2008 are rollin’ into town next week.

Institutional investors and lenders often think of affordable housing as a niche — “Oh its just a big tax credit play”, they sniff.   What many of these folks overlook is that some of the most clever and effective financial innovations within real estate actually originate from lenders and investors who are active in the affordable housing and community lending sectors.

It is amazing to me that so many of us in finance and investment think that the wheel has to be re-invented to finance green. No — you might not take on all community finance ideas 1:1, but this is an area where professionals have already been forced to get creative about delivering capital to obtain specific social purposes. Now its good that they can add positive environmental outcomes to their list as well.

Green Journey Tip:
And in case you need to step up your download on green affordable housing, by all means subscribe to KnowledgePlex Week In Review. Then sit back and prepare yourself for maximum affordable housing news satiation.

Future-proofing Tip: Use Green Building Rating System Critiques

I have posted before about future-proofing being the hot buzzword for industry pacesetters. Property owners now dedicate an increasing amount of time to (re-)positioning their teams and portfolios for the expectations of a sustainability-conscious world.

But while everybody gets the catchy phrase, how does ‘everyday future-proofing’ actually happen?

I recently met with a group of executives, who detailed their process of moving their firm towards being a socially responsible corporate citizen. They talked about how sustainability has injected elements of excitement and risk into today’s real estate industry. They were happy about ‘going green’, but also expressed frustration about being on a ‘hamster wheel’, since the good green building initiatives they were currently implementing could easily be superceded by “bigger, better, faster” improvements to building science and the regulatory environment.

Fortunately for many firms with this type of anxiety, the American Institute of Architecture has just published “Quantifying Sustainability”, a report in which they have issued new position statements about the Green Globes, LEED NC-v2.2 and SBTool 07 rating systems. It’s a not-too-dense ten pager and a quick read – if you can squint through the 6 point font they are using.

Here are the Cliff Notes from the AIA report:

• On Green Globes: the AIA recommends that Green Globes ratings systems adopt more specific and stringent requirements for energy reduction and building operational performance since these are the two most important dimensions of carbon production. Green Journey Notes: Making recommendations about requiring items which are at the heart of carbon production is a slap.

• On LEED NC-v2.2: The AIA calls for more implementation of Life Cycle Analysis, and would like to see the greater use of renewable energy and a requirement for greater carbon reduction for certified projects. Green Journey Notes: While the report says that the AIA is neutral about all ratings systems, they did take the time to refer to LEED as “providing a measure of environmental achievement” and said that the recommended changes would “continue to make this system an effective resource for architects”. None of the other rating systems evaluated received this level of praise. Second of all, the USGBC has already announced, and we’ve already posted here,  that the next upgrades to the LEED rating system incorporates all of these suggestions in some form of another. I am guessing that this paper was written before the USGBC’s announcement of the changes.

• On SBTool 07: The AIA recommends that this system would be a stronger tool if there was an increase in the number of required items vs those that are simply encouraged and if project documentation were required. Green Journey Notes: Ouch!

So how can this intel improve “everyday future-proofing”?

• Rating system weaknesses can contain clues: revealed by the critiques are direct pointers to the most likely changes that you will see to those ratings systems. They are also a comment about what will define good industry practice in the near future. So there’s your content for potential future proofing. Here’s the core of where you can mine your ideas about staying ahead of the curve in a sustainable world.

• Beware of minimum compliance: Just trying to achieve the minimum certification level leaves your firm open to the risk that your buildings could easily fall outside the newer standards of acceptability, once any ‘tweaks’ are made to the rating system.

• The endgame is low and no carbon: Understand the difference between a single asset checklist process and achieving concrete energy and operational performance targets across your portfolio that are tied to quantifiable carbon reductions. As you can see from the AIA’s position on ratings systems, this is the tough measure that they are applying which means that this the the industry standard they are driving towards, even if the current ratings systems might not reflect it.