Bioregionalism & Green Finance: “It’s the (sustainable) economy, stupid”
At least, that’s what Luke Lowings seems to be saying, in his review of Pooran Dersai’s new book, One Planet Communities. And he’s not making a bad point. It’s time that a solid discussion of finance accompany visionary development.
Dersai’s new book espouses “practical bioregionalism” — focusing on architectural principles for building a whole community — as opposed to just the sustainability of individual buildings. He argues for applying principles of bioregionalism to create sustainable communities (definition of bioregionalism here).
Lowings’ main complaint about One Planet Communities is that its heavy focus on building sustainable communities ignores the parallel task of creating a sustainable economy to support them. My brow furrowed as I realized that, if this was Lowings’ chief complaint, then he’s probably very depressed about everything he reads on sustainable buildings. To date, not many have been able to lay out a cohesive set of principles and practice for the kind of finance that truly supports sustainable communities at a regional level. So I feel Lowings’ unfairly picks on Dersai about a general problem in the market, not for any particular failing on Dersai’s part.
Financial Infrastructure Needs to Support Sustainable Communities
Nonetheless, Lowings still has a good point –> the current availability of financial tools and resources for green real estate developers and investors is more of a swap meet than a market. It does not offer the depth and breadth of organized infrastructure that bioregions can rely upon.
- Recently, there have been a glut of new studies and tools dealing with narrowly defined pieces of individual building-related financial problems — green lease clauses, detailing paybacks on specific retrofit measures, and the potential value-add of third party certification to individual green buildings.
- On the funding side, the owner’s discovery and selection process requires trudging through a a swamp of new incentives, stimulus funding plus the byzantine tax and regulatory requirements that accompany them. To come up with a green business case on their own, they have to hopscotch around, stitching together those new green funding sources with their traditional capital relationships. Repeat that whole process again, for every single building they intend to green.
- It’s no wonder that nearly 70% of the participants who attended one of our recent webinars, indicated that they were not applying for or using any sort of incentives whatsoever. Why not? Too confusing to figure out!
The final wrinkle relates back to our post last week on green building valuation. In order for finance to support sustainable communities, the investment real estate community will have to be able to assign a value to amenities such as community farms and more schools. There would have to be a cultural shift towards more long-term economic stability as opposed to above-inflation rental growth. From today’s standpoint, that is a very tall order.
Bioregions don’t fit neatly into industry accepted conventions of primary and secondary real estate markets. Real estate fundamentals are driven by global and national market forces, not just regional ones. Capital markets these days cannot exist exclusively within a fenced-off business territory.
So I think that the sustainability movement has to acknowledge a certain level of hype that is accompanying the bioregion vision and incorporate a sober view of global demographics and economics in their economic planning.
Case Study: The Preserve - an official candidate “One Planet Community”
Can bioregionalism completely address some of the ills we see within our communities? Hmmm…. maybe.
GlobeSt.com has put out the word on A.G. Spanos’ announcement of a $2 billion “environmentally and economically sustainable” community that will generate 12,000 jobs and over $15 million in annual revenue for Stockton, CA”.
This community, called ‘The Preserve’, is also endorsed under review for endorsement by the One Planet Community, which gave is considering the endorsement in exchange for the development subscribing to its ten principles that address public transit, economics,natural habitats, energy and water, jobs, education and well being.
Two things come to mind as I read this announcement:
#1: Stockton, California has a foreclosure rate of 15% vs California’s 9.5% and the US rate of 6.72%.
# 2: The Stockton, CA metropolitan statistical area posts unemployment of 15.5%. It is ranked 359 out of the total 372 MSA’s tracked by the Bureau of Labor Statistics.
Which leads to my main question:
Can installing a bioregion heal an ailing city?
Seriously. With stats like those above, can the City of Stockton truly afford to support a brand new 1,800 acre community — whose tax benefits won’t be fully evident for many years to come?
My long career of lending other people’s money into many MSA’s has taught me to be cautious when I hear about multi-billion-dollar new developments going into distressed communities — green or not. The US real estate industry is littered with tales of failed revitalization efforts tied to grand master-planned schemes, which absorbed huge amounts of a suffering town’s resources, but actually took a very long time to return relatively little to the residents who needed the relief.
The complete terms of the Preserve development are not yet known, so the jury’s out on the ways in which Stockton will be impacted. But real estate financing history suggests that these kinds of deals only make sense to the developer if they are getting the land at a very low price (or for free) and the city is contributing advantageous financing terms (big infrastructure bonds, etc).
The city hopes for larger tax revenues from the new businesses and residents in years to come after everything is built. Any rewards for the residents won’t be evident for years — after all, houses don’t make long-term jobs. It works the other way around.
Lots of cities forget that. They also forget that, in 15-20 years when the promised development is fully operational, the real estate cycle will be in a much different place than when they signed the deal.
Bioregionalism principles can certainly play a key role in stabilizing Stockton’s economic outlook, but I bet that the City of Stockton could probably accelerate healing of its distress with a large scale, pragmatic energy efficiency financing program for its existing building stock as well as existing businesses to reduce cost of operations, spur green collar jobs and prevent further bleeding of existing jobs. Stockton appears to have a deal in the works with utility, PG&E, but I’m talking about a bigger, farther reaching kind of program which would encompass other forms of green finance beyond that supplied by the public utility.
Long-term healthy jobs and an educated workforce are the DNA of every healthy real estate market — not to mention, sustainable communities. With all due respect to The Preserve, I don’t think that every city needs to necessarily go through the long, expensive process of building big new green communities to get there. And I always have lots of questions when ailing cities start agreeing to these projects, since they are usually in the worst position to really reap the benefits.
The good news is that, “swap meet” aside, there are great green finance options available that, when properly structured, can support cities like Stockton to implement either energy efficiency, new green development, or both. The key is to focus on these options very early in the process and, as Luke Lowings suggested, to make sure that sustainable finance doesn’t take a back seat to sustainable community building.
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Things you might want to know:
- We’d love to hear your comments and suggestions.
- You can get Our Green Journey by email.
- You can contact Galley Eco Capital to discuss or initiate a project here.
- Sometimes you can see what we’re doing on Twitter.
- Photo credit: Stockton, CA Boom Town by Joguldi (Flickr).
Thank you, Ted Kennedy
Ted Kennedy was a vigorous defender of “people, profit and planet” before any of us ever used the phrase “triple bottom line”.
Treehugger has compiled a series of tributes to this “progessive green champion” that is a worthwhile read and great history lesson for those who are new to the green finance and investment world.
Green real estate professionals owe Ted Kennedy a great debt of gratitude.
Our entire business would not even be imaginable, if he had not so persistently pushed for social and environmental justice over the many decades of his political career — long before the idea of a green economy existed.
If you are reading this post on the website (as opposed to by email), you can check out what might possibly be Ted Kennedy’s last great act for the sustainability movement — his endorsement of Barack Obama for president.
Photo credit: Flickr - diggersf
New Paper Highlights Decision Approach on Green Property Valuation
How can professionals approach valuing green buildings, when there is still a lack of performance data?
Lots of folks accuse appraisers of being roadblocks to advancing green real estate because many still don’t provide any recognition for the higher value of sustainably designed projects in their valuations.
Check out a new report, “High Performance Building: What’s It Worth?” by the Cascadia Green Building Council, Vancouver Valuation Accord and Cushman Wakefield.
Co-authored by appraiser and thought leader Theddi Wright Chappell of Cushman Wakefield (covered previously here), this paper provides leadership on this problem via an appraiser’s professional insight into three sustainably built projects.
The authors acknowledge hurdles to green property appraisal up front: modern valuation methodology, like investment and lending as a whole, is solely focused on “economic considerations”.
In their words, “neither the methodology that is practiced by the valuation profession nor the methodology that is typically used by the investment community or major lending institutions includes specific considerations of social or environmental factors. It is largely assumed these are reflected in the price or rent paid in the market”.
They reviewed three LEED-certified buildings in detail, pointing out areas on each project where sustainable design strengthened the property’s marketability and operations, with strong connections to positive valuation support.
The connection between design and its possible value-add was highlighted via comments like the following:
- “experienced a comparatively quick absorption period”
- “high or moderately high” tenant satisfaction feedback
- “higher than average level of occupancy”
- “achieved competitive rents”
Particularly useful, is their presentation of questions that can accompany a particular valuation approach (cost, sale or income), designed to help the valuer incorporate a deeper analysis of sustainable design impacts on the project. These questions will be useful to anyone underwriting a potential investment into a green building. One example:
[For the Income Approach]: Was the building commissioned? Commissioning could impact assumptions relative to both operational and performance risk.
This particular paper’s value (excuse the pun) is in showing the many deciders out there that the lack of long years of economic performance data on green buildings need not be an impediment to increasing financing, investing and appraising green buildings.
By adopting the right review approach, anyone underwriting a project can learn to uncover and analyse the pertinent issues, which can lead to a more accurate investment decision.
Take a look at the paper and let us know your thoughts.
Let’s Talk about Your Leadership - OWA Event Invite
Meeting Details Here
Sustainability is flowing into every business silo and flooding the built environment. It is re-writing the official rules on what (and who) matters as well as how we keep score. This triggers deeper questions:
Is sustainability challenging how we collaborate professionally and conduct our careers? How? What’s your plan of action?
I am pleased to join Kira Gould, co-author of Women in Green and one of Sustainable Industries’ First Ladies of Sustainability, as she moderates a discussion with several other industry pacesetters in engineering, architecture, education, finance and construction to talk about how sustainability is redefining leadership and creating new ways of working for many of us across diverse sectors.
Note that this is not a “women only” event. The forum will explore how both men and women are being affected by and can benefit from tackling sustainability and leadership-related issues in their lives and careers.
You will meet and hear views from the following pro’s (on the photo above from left to right, top to bottom):
- Lisa Michelle Galley, CEO of Galley Eco Capital
- Kira Gould, Co-Author of Women in Green
- Laura Rodormer, Sustainability Consultant
- Marsha Maytum, Architect
- Gail Brager, Engineer/Educator
- Anni Tilt, Designer
For my part, I see a couple of the deeper issues that are making headway into commercial real estate finance and investment:
- Convergence of disparate disciplines: We are now seeing “integrated everything”. Finance, too — possibly with cool, but unexpected implications. What’s up with that?
- Where to activism? The greening of business is supposedly taking consciousness and fist-raising to the cubicle and conference room. In some quarters, its almost fashionable to be an activist at work. But not everywhere. So what’s business activism look like (hint: my finance and investment friends, this could be your moment…)
For extra credit, you can read Kira’s recent commentary about this in Sustainable Industries.
And please join us and contribute your leadership to the conversation.
Meeting Details Here
Need more information about green finance? Read other stories from our blog here!
On the Mandatory Greening of Existing Buildings + EcoTuesday Reminder
Did you catch that hint about possible mandatory measures to require the greening of existing buildings?
In case you missed it, the Examiner put out the word that Mayor Gavin Newsom and San Francisco Supervisor Eric Mar will introduce legislation this week which, when passed, would authorize San Francisco’s own version of an energy efficiency financing district.
Called a “green loan” plan in the article, the loan fund would allow homeowners to receive loans to make environmental improvements to their properties and then pay back the money through extra property taxes.
But you have to read that overwhelmingly positive article a little slower, to absorb the hint buried in a couple of innocent sentences several paragraphs in.
The article focuses on how the upcoming energy efficiency and renewable energy financing plan builds on momentum created by San Francisco’s mandatory green building codes, and also hints at the City’s future actions on greening existing buildings:
Newsom has already pledged to tighten those rules to apply to existing buildings. This latest green idea may provide a way to finance improvements that could soon become mandatory.
Are mandatory energy efficiency requirements really a good idea?
Professionals throughout green building construction, retrofits and public policy have been wringing their hands on the topic of mandatory energy efficiency standards for existing buildings. Many green building colleagues and supporters want mandatory measures to address the problem of owners with “energy hog” buildings, who simply ignore the impact of their wasteful operations on the community.
There are also concerns about mandatory energy efficiency measures unfairly impacting smaller or much older projects, since the owners in both cases might only accomplish the most limited actions to address energy efficiency problems. Essentially, retrofitting these buildings might be too cost prohibitive for those owners.
Finally, the real estate trade associations and other professional bodies have been trying to send tough signals against any form of mandatory anything when it comes to building operations. Fighting any type of cost or administrative burden on owners at any opportunity.
Then there’s the flip side.
We also speak regularly with owners who introduce energy efficiency and green O&M to their existing buildings — only to have tenants blatantly ignore them. They express hope that, in a market with mandatory energy efficiency measures, they can more easily obtain tenant cooperation on O&M, plus they think they will look like heroes to their equity capital partners — who now struggle over how to assess and transmit some form of energy efficiency standards across behemoth national property portfolios run by thousands of local managers and JV operating partners.
The Green Journey Take?
While the retrofit cost concerns of small and very old properties are real, legislation can be crafted which addresses the potential energy efficiency limitations within their projects. They can, and should, get a fair deal.
As for the rest of the industry — we think that mandatory energy efficiency standards — with an appropriate, accessible, cost-effective financing mechanism — can provide real opportunity for competitive owners who “get it”, and need not be as problematic as some groups fear.
What do you think?
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Reminder
Let’s meet next week re: Green Finance for Communities, Campuses & Power
I noticed that several Green Journey readers are already signed up for my upcoming talk at EcoTuesday, next Tuesday, 28 July.
Exciting! You’ll all finally get to meet each other!
I’m talking green finance and how it’s changing our communities, flowing through our science and innovation parks and accelerating the growth of clean energy. And most importantly, how green finance trends can help our businesses and help us to help others.
Are you coming out?
I look forward to connecting with old friends and meeting a few new ones.
Most importantly –> We never accomplish anything alone. A summer cocktail hour is a great time to thank friends and colleagues who inspire us and to encourage them to continue the excellent work they do in transforming our communities and country.
Meeting Details
Date: 28 July 2009
Time: 6:30pm
Location: The W Hotel, 181 Third Street, San Francisco
Sign up here!
