Zeitgeist: Fuel scarcity makes the bus cool again and the media’s suburbia deathwatch

So today I drove all the way over the Golden Gate bridge to get gas at the supposedly “cheap” gas station and paid $4.02/gallon. And that’s a good deal - closer to my house, gas costs about $0.20/gallon more. So I’m happy to chime in on the collective griping these days about rocketing fuel prices (excuse the cheesy pun).

The media has also picked up on our collective gasping about the high price to feed ourselves and power our lifestyles. Today’s post is a mashup of the latest pieces highlighting the swing in public opinion – with energy costs, land use and sustainability themes swirling throughout.

My Bus Pass Costs Less Than Yours

According to the media, one of the more interesting side effects of high gas prices is a removal of the social stigma associated with car pooling and the use of public transit. Apparently, instead of keeping up with the Jones’, you can now one-up them by cutting ahead of them in the bus line.

Not only is car pooling and public transit better for the environment, but research has shown it boosts employee moral and productivity as a great by-product. Companies such as Microsoft and Google provide ‘in-house’ transit systems and others encourage their employees to skip the commute all together by working from home.

Here’s one of the best employee transit programs that I heard about today: At the Getty Center, employees get a vacation day for every 100 days that they use alternative transporation – that’s three extra vacation days per year!

The Endangered Suburban Strip Mall

Now journalists say rising gas prices are accelerating the decline of ‘suburbia’ as we know it, Suburbs are a direct product of cheap, plentiful oil and land. Neighborhoods were literally built on the outskirts of cities – why not? It was convenient to jump in your car and drive wherever you needed to go. Now it turns out that rising fuel costs and oil shortages are forcing big-box stores and strip malls out of business. An article I read recently, based upon an interview with twelve time author James Howard Kunstler, claims the end of suburbia is near. Kunstler predicts that small towns built around a retail hub (like back in the ‘old’ days) will enjoy revitalization as our society grows noticeably less affluent than it is today.

When the suburbs and giant cities that were built back when fuel was cheap are forced to deal with an extreme fuel shortage, what is going to happen? Our economy is going to suffer as the fuel supply dwindles, and the amount of petrol needed to keep everything running is not available. Kunstler predicts this will affect any system built on a grand scale – schools, government offices, hospitals and farms. It will mean changes in the way we produce food, a change in where we live and how we conduct business as well.

You can find the article about public transportation becoming cool here, and the article about the possible end of suburbia here.

I would love to hear your thoughts.

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.

Hope to see you there!

Photo Credit: Flickr/Hochhaus Stadtteil - Hamburg Wilhelmsburg

Our (2007-2008) Green Journey - 9 Ways Green Building is Revolutionizing Commercial Real Estate

Happy New Year from Berlin’s Prenzlberg! The former East Germany is a great place to reflect on transformation and my usual year end questions are “how is my life different now than a year ago?”, and “where should I focus my attention in the coming year?”. The Green Journey approach to understanding green real estate finance and investment trends is not much different:

• What changes in real estate and green building are making us talk and act differently now as opposed to a year ago?
  

• What issues will shape what we say and do about green real estate  in 2008

2007 - The Sustainability Revolution

9 Building green is now a requirement, not an option.
At the end of 2006, green building was a futuristic concept - not a critical component of value creation. Now that is over:

• Studies from Davis, Langdon and United Technologies show the cost of building green can be comparable to non-green buildings, making the benefits of green building accessible to every real estate owner.
• We also covered industry pacesetters, such as Digital Realty Trust and GE Real Estate, who are already out of the gate with investment strategies centered on building, acquiring and greening their assets.
• Going green became a cool investment move recommended by mainstream economists by the end of 2007, making it clear that green is also competitive and profitable.

8 Uncontrolled and undisclosed carbon emissions are a legal and economic risk.
Aggressive legal and regulatory action kicked up some dust in 2007, showing that cities and states are regulating Corporate America’s carbon emissions, regardless of the political winds at the federal level. As one fund manager put it, “[carbon emissions regulation] is not a question of if, but when“.

• Real estate investors should check out Post Carbon Cities and pay special attention to the advice being given to municipalities on aligning local zoning and land use policy with sustainability and climate change goals.
• We posted before about the evolving requirement of disclosure of material risks associated with climate change and greenhouse gas emissions to shareholders.

7 Green financial pilot projects make first spflutters
While the credit markets went sideways on us, that didn’t stop some forward thinking groups from taking on the challenge of accelerating capital flows to green real estate. Nothing tangible is out of the gate, yet, but they still deserve our praise and attention.

• We posted about Sustainable Capital’s green residential mortgage backed securities platform, Green Bonds as well as the Clinton Climate Exchange’s $5 billion kick start of the building retrofit finance market. Expect a vigilant birddogging of these initiatives, since increased capital flows to green building is the critical validation needed for further expansion of sustainability.

6 National credit crunch =  Has anybody seen my lender?
Unfortunately, for a lot of the banks, “the beatings will continue until morale improves”. The latest post from The Real Estate Bloggers says it all. The silver lining for green building? Capital markets volatility forced us to hit the ‘pause’ button on business as usual dealmaking. Survival in ‘08 requires excellence at old school fundamentals: operations, tenant retention, and value creation. We posted about whether “subprime was good for green real estate?” with the answer that ‘cash is king’, meaning that green real estate is in a better position to generate more cash flow.

2008 - ‘The [Sustainability] Revolution Will Be Standardized’

5 Institutional Investors: Insufficient green product & at what price?
Constrained Debt has a cousin named Lotta Equity and she has a couple of frustrating problems — there’s not enough green projects out there to buy and no one has figured out how much to pay for it. A colleague forwarded a great article from the San Jose Mercury News, where a RREEF’s Andrew Nelson outlined the dilemmas:

“There just isn’t much green real estate to buy, making it tough to determine the value of green… “All the initial construction was owned and built for governments and you can’t turn around and sell that, so there has been very few - almost no transactions of green buildings,” he said. “When investors think about the business case for green buildings, they want to know: How do they sell? The answer is we don’t know.”

4 The Rise of Sustainable Markets: Know your city’s climate change, resource and energy agenda

With our post on San Jose, we considered cities that use sustainability to compete for talent, investment and to maintain long term viability. They have become sustainability’s cowboys, driving their own resource, energy and climate change policies, since the federal government can not deliver a comprehensive enough solution that preserves their viability. Since real estate has been outed as the big consumer of city resources and energy services and the big contributer to regional carbon output, it is fair to say that investors will have to think about investment markets in terms of resource and energy sustainability in addition to classic real estate fundamentals so that they can remain relevant to their municipal partners. Check out the U.S. Conference of Mayors website where you’ll see the cities strut their stuff on resource, energy and climate change.

3 Real Estate Innovations: Compete using adaptive reuse and explore overlooked construction methods

We posted here about moving beyond simply building brand new LEED-certified buildings. Eeking out profits from existing real estate and focusing on other construction methods must since the cost side of new construction is not expected to decrease ever. Check out these two posts as food for thought:

• Dave Stejkowski, aka The Dirt Attorney, blogged about a compelling Economist story on lifestyle centers. Nothing for me to add here. Read the post and the article for the full picture.
• Howard Liggett posted about ‘The Myths of Modular Housing’ - a lower cost building method long in use in Germany and other countries, but still stigmatized and misunderstood in the United States.

2 LEED & Beyond: We need transparent performance assessment of building performance

We stay abreast of the EU’s moves on greenhouse gas and energy policy to understand the various ways green buildings are being adopted. And we concluded that ‘transparency makes a market’. No particular rating system in and of itself completely informs an investor about the true performance of a green building. In addition to increasing the certification of green buildings, there will have to be a focus on establishing transparent disclosure of the actual performance being achieved by green buildings, to remove the risk of investors and tenants overpaying for substandard green buildings in the coming years.

1 Land use policy is the new civil rights movement.

I was at a recent function where an executive said “Land use is what will change our children’s future”. His position was that we overfocus on individual green projects, forgetting that the greatest impact on a development happens within zoning and land use planning forums, since this is where decisions on use, infrastructure, transit, density, energy and resource use are made. And these decisions determine the quality of life and livelihood of ordinary citizens and businesses for generations. Sustainability as a movement is changing our individual assumptions about fairness, rights and responsibilities at every level of society. Local officials and citizens are now more vocal about the fair allocation and continued provision of resources and energy as a part of their basic rights  — and are becoming increasingly active in shaping land use decisions to defend those interests. Real estate investors are already very familiar with land use and environmental issues in general, but the growing notion of citizens perceiving resources and energy access as part of their moral rights is an additional level of complexity that sustainability brings to the land use planning. Read ULI’s The Ground Floor to keep abreast of the (r)evolution of sustainability within land use policy.

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I think a nine point countdown is enough for a year - plus we can never be sure what else is around the corner. If you have any more burning issues that you think we should be covering, please drop us a line! We would love to hear your thoughts and perhaps share your contributions the rest of the Green Journey crowd.

So much success in in 2008 and we hope for an exciting year in green real estate!

Photo credit: flickr/inky Bob - Compass and Map Mono

San Jose’s 50 Million Square Foot Vision

CoStar and others featured San Jose Mayor Chuck Reed’s big ten point vision that will green San Jose in fifteen years by 2022.

Called the Green Vision, this plan artfully concentrates the vision’s outcomes around “10 far-reaching goals that address energy consumption, water use, greenhouse gas emissions, and other environmental impacts“.  Sounds nice, but the real estate market underwriter in me still makes me roll my eyes a little because it is intuitively doubtful that such big numbers can be achieved. Plus success will be measured several city administrations into the future leaving me wondering whether realistic accountability can be implemented.

Nevertheless, it was still interesting  to do a little fact checking to better assess San Jose’s current real estate and sustainability context. Keeping this type of info in mind helps with future assessment of the Green Vision as it evolves.

What Kind of Impact Will Retrofitting 50 Million Square Feet Have?
The vision calls for retrofitting 50 million square feet in 15 years, or 3.33 million square feet of commercial real estate per year through 2022. Rosen Consulting puts the total size of the metro San Jose commercial real estate market at just under 552 million square feet .  So mathematically, the mayor’s retrofit proposal addresses roughly 10% of the current day San Jose commercial real estate market. 90% of the commercial square footage remains untouched for the same fifteen year period, making this objective not as exciting as it appears on the surface. But it may still be tough to meet. Rosen Consulting reports metro new construction amounts to less than 2 million square feet for 2007 with lower levels projected in the immediate years ahead. So somehow, this vision requires existing owners of commercial real estate to immediately begin retrofitting properties at the rate of more than 3 million square feet per year. Hmmm…. How and for how much paid by whom?

Is San Jose a ‘Sustainable City’ in the First Place?
San Jose ranks #23 — between Phoenix and Dallas — in Warren Karlenzig’s How Green is Your City, where SustainLane ranks US Cities according to their sustainability criteria. San Jose gets lots of credit here for adopting far reaching sustainability measures way ahead of many US cities. 62% of all waste is already diverted away from landfills and the mayor’s vision increases that to 100% in 2022. Air quality already ranks #7 in the nation and water is pretty clean at #12. The city’s leadership has proven repeatedly that they get the tight connection between offering a top quality of life for residents and preserving the region’s status as the hub of high tech. That said, room for improvement lies with a severe affordable housing shortage and a widespread allergy to public transportation. Nevertheless, city actions to enforce living wages, incorporating LEED standards into public buildings, and install five new renewable energy systems in 2008 are what make SustainLane praise San Jose as being a city “best situated to promote - and reap the benefits of - a transition to a greener economy.”

So while I’m not a big fan of grand statements, it helps to see a city with a positive track record try to push itself harder to stay competitive.