LEEDing Change

Now that you’ve got LEED all figured out, get ready to change — quickly. And if you haven’t got LEED all figured out, congratulations there is even more to catch up on.

Last night, the Northern California USGBC Chapter put on a presentation of upcoming changes to the LEED rating system. The event was so oversubscribed that the Chapter put up the webcast and slides for dowloading. Here are also a couple of highlights discussed, that are more pertinent to the financial underwriting of green investment properties.

LEED for Existing Buildings: Operations and Maintenance

• First of all, the above title is the new name for the old “LEED-EB” — stressing now the ongoing O&M best practices, not just a series of one-off projects to green an existing building once in its lifetime.
• The USGBC has partnered with BOMA to create some forthcoming green lease language. This language will hopefully align landlords and tenants on minimum expectations about environmentally friendly operating behaviors such as: recycling, mandatory lighting and HVAC shut down and using green cleaning products without VOCs.  Green lease language can also deal with submetering, an interesting point for us San Franciscans, since the California Public Utilities Commission now permits submetering of tenant spaces here. The presenters said that this is a great plus for green building because now tenants will be able to directly see the utility costs that their use of their suite is creating — theoretically giving them a vested interest in agreeing to comply with environmentally friendly building practices.  This may be true. I also quietly reminded myself of some conversations with landlords who were angling to pick up any utility savings as additional net rent, boosting the property’s net operating income. That may also be true in jurisdictions where submetering is not permitted. We’ll see how that shakes out in reality.

LEED Core and Shell Update: “The End of the Glass Office Tower in San Francisco”
This is the rating to watch if you deal with spec office development.

• The Energy & Atmosphere Credit, “EA”, has been tightened up a bit, with a particular San Francisco impact. Basically, the combination of achieving EA credits under the LEED-CS, achieving the LEED Gold rating needed to obtain accelerated permitting here in San Francisco and having to design the building to perform 40% better than Title 24 (the California Building Code) results in, as the presenter put it, “the end of the glass office tower in San Francisco”. In short, the energy efficiency of the building has to be improved to such a high standard, that a glass building shell may not be feasible any longer.
• Anecdotal LEED market acceptance info: the presenter, an architect, reported that his firm is working on approximately 60 office projects here in San Francisco and around the Bay Area. He says that on nearly every single one, developers are requesting some level of LEED certification for the project; underscoring his view that LEED is firmly embedded here in the Bay Area as the market standard for new office construction.

Future of LEED: Carbon Footprint Reconciliation + More
Not only are there a) more ratings and b) changes within the various ratings underway, but there will be an overall system revamp of how all the systems fit together plus more — possibly before the end of 2008.

One of the big upcoming changes will involve embedding a carbon footprint analysis within the LEED rating work towards certification. Last week, I recommended that lenders and investors should reconcile any LEED certification achieved with a carbon footprint analysis of the project. Apparently, this issue has been quietly evolving within the USGBC as well.  It was announced last night that in the future, perhaps as soon as Greenbuild in November 2008, the USGBC will adopt some form of carbon footprint calculation in conjunction with the various LEED updates, so that users can see how their green building design and construction choices actually play out on a project’s carbon footprint. No additional details are available as of yet, but we’ll be birddogging this one quite closely.

Please let us know your thoughts. Our Green Journey is a forum for sharing and your perspective is valuable.

Photo credit: Flickr/hoveringdog - The Park, Nottingham, UK (2005)

GE Real Estate Announces Green Initiative

Go big or go home!

That has got to be GE Real Estate’s motto concerning their green real estate initiative, announced at Greenbuild 2007 in Chicago earlier this week and covered in this week’s CoStar Green Report.

Under the new program, GE intends to imbed sustainability into its entire investment and asset management process. They are doing this through a partnership with the Clinton Climate Initiative. That alliance allows GE to “tap into CCI’s resources to improve the environmental performance of properties”.

Initiative Highlights

• Energy audits and retrofits of properties “where profitable”.
• Tracking of environmental and energy metrics alongside financial performance.
• Incorporation of LEED rating system and international equivalents into their ongoing property assessments.
• Sharing best practices with customers.

GE’s $30 billion a year operation is large enough to influence the actions of of their owners and partners throughout the property financial system.

Pay attention to the fact that they limit their commitment to retrofit to situations where it would be profitable. That is one of the biggest questions investors wrestle with these days. As I’ve written before, greening existing investment properties seems to be harder for investors to achieve than building brand new green buildings. It also raises questions about how they will judge the post-retrofit profitability of the property and what environmentally beneficial retrofit work might be avoided on a property because the benefits are not profitable enough in their view.

GE’s integrating energy and environmental metrics alongside financial indicators is a needed best practice. They have the financial strength and platform to cause these types of metrics to proliferate throughout the real estate industry. Of course, we will have to see what exactly those metrics are and hope that they result in transparent, verifiable reductions in their portfolio’s carbon footprint.

The Green Journey Synopsis: The content of GE’s key real estate initiatives is excellent intel on where investors should focus their efforts as they build environmentally responsible investment platforms.

We will not know any of these answers until we see GE’s performance over the coming years, but one thing’s for sure — they have got everyone’s attention.

Industry Pacesetter: Digital Realty’s LEED-Gold Datacenter

Hurray! Digital Realty Trust (NYSE: DLR) recently announced that its datacenter at 350 East Cermak Road in Chicago has earned the first LEED-Gold certification in the US for a datacenter from the USGBC.

Click here to see more details on the property.

Note that none of the information available reports on the targeted performance improvements that are expected because the building has undergone a green renovation.

Digital Realty also reports that they are currently greening several other buildings in Chicago, Northern Virginia and Santa Clara with the goal of either LEED Silver or Gold for all of them.

Green Datacenters are a Great Leap Forward for Green Building

While all green real estate is good, a green datacenter gets special attention due to its deep impact on energy savings over conventional buildings and the great expansion of green building best practices for existing buildings.

Dave Ohara, who writes for Microsoft’s TechNet magazine, reported that “datacenters consume nearly forty times more energy than conventional office buildings”. He went on to say:

A typical US datacenter can account for up to 15%-20% of that company’s operating costs. Several studies report that datacenters in the US are responsible for between 1.2%-2.0% of the nation’s entire energy consumption. That means, if you analyze datacenters together as a single industry, their aggregate level of energy consumption would put them in the top five US industries with the greatest energy consumption.

350 East Cermak’s LEED-Gold certification was earned for greening an existing property – currently a tougher challenge in the industry. I know several investors who have become adept at developing green buildings from scratch, but still struggle with retraining their organizations, collaborating with tenants and raising the capital to green their existing portfolios in a way that generates decent returns. Digital Realty’s announcement of getting this done can provide a positive example of how market driven investors are using the green challenge to their, their shareholders and the planet’s advantage.

Get the Green Datacenter Video

Interested in best practices for greening a datacenter? Digital Realty’s Vice President of Engineering talked with InfoWorld about his company’s initiatives in greening datacenters a few months back and provided lots of specifics that help to better understand the decision process involved with greening this asset type. For practitioners serious about greening their assets, this video is definitely worth the time spent.

Now I can’t help but look ahead to the next question:

How will greening an existing investment portfolio affect a publicly-traded REIT’s stock price?

It will be interesting to see how that develops.

Photo credit: 350 Cermak - Digital Realty Trust

The Lender Case for Going Green

I had a good time this afternoon with the USGBC Chapter BayLUG (Bay Area LEED User Group), along with Chris Bartle of Green Key Real Estate. I gave a banker’s perspective on green commercial real estate and Chris shared his expertise on the situation for green residential. My synopsis on financing green commercial real estate:

• Many real estate deals are sidelined now due to current capital market conditions

• The positive business case for going green is being heard by financial institutions. I receive a strong, constant flow of positive anecdotal evidence that green buildings deliver superior economic performance.

• Financing green buildings is hampered by poor integration of the players.

• While an investment in a green building creates much additional value overall, there is an uneven allocation of that economic upside among the different players — lenders are not seeing a tangible (read: cash) value-add for financing green, and so have been sluggish to establish green lending programs.

• More organizational and industry paradigm shifts are on the way as green buildings emerge as a preferred investment asset for institutional real estate.

How to move forward? As they say in Cameroon,

The questioner never loses the way…

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