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November 14, 2008

LEED 2009

USGBC closed the final commenting period for LEED 2009 today. It is widely expected that the new standard will go into force at the beginning of the year. Based on past comment periods, presentations by USGBC and talks with people familiar with the changes, this is what we can expect in January:

  • A 100-point system that focuses on a life-cycle assessment and that gives the highest-priority goals the most points. In other words, certification strategies that used to count on making up for an inefficient energy system with points from bike racks and shower rooms will no longer work.
  • An increased emphasis on regional credits, with at least a handful available as bonus points. Expect greater input from local USGBC chapters who would know, to give a simplistic example, that efficient water usage is more important in the West than it is in the Northeast.
  • A faster certification process. USGBC is moving administration of this to the Green Building Certification Institute. It has also tapped 10 testing laboratories that will certify projects through the Institute. They are ABS Quality Evaluations, BSI Management Systems America, Bureau Veritas North America, DNV Certification, Intertek, KEMA-Registered Quality, Lloyd’s Register Quality Assurance, NSF-International Strategic Registrations, SRI Quality System Registrar, Underwriters Laboratories-DQS.
  • A system that will upgrade on a regular basis.

Green ROI? Two Views

For James Finlay, vice president and commercial appraisal manager at Wells Fargo, the case for green building ROI is a no brainer.

Even taking into account lifecycle costs that are atypical to non-green buildings – solar panels for instance – over a period of years there will likely be a higher income stream from a green building because of the reduced operating costs, he says. He would know; since May 2007 Wells Fargo doubled its financial loan commitments for LEED buildings from $1 billion to $2 billion; increased the number of LEED buildings it has financed by 125%; expanded operations into 19 states; and increased the type of LEED buildings financed to include a cold storage facility, data center and community center.

As Finlay sees it the decision to retrofit or buy green focuses on four very basis components.

Income. The jury is still out whether green buildings command higher rents, he says, although there is plenty of anecdotal evidence to suggest they do. “Still, that is tough to quantify.”

Expenses. Here there is plenty of research and it has been proven these buildings are less expensive to operate, he says.

Vacancies. In high performance buildings the lease-up term to get a building stabilized is always shorter. Also, again while it hasn't been quantifiably proven “there is a perception that tenants in LEED-certified buildings are more stable.”

Risk. With reduced energy use building owners and tenants have less exposure to energy costs, which results in, yes, a higher operating income.

The markets’ turmoil of the last few months solidifies his opinion, he says. “What are the two themes we just can’t escape from in this economy? Transparency and the long-term view. As more people appreciate these characteristics green building will only benefit.”

Finlay is not the only one embracing these concepts; there is wide-scale acceptance in the building community that ROI for green construction is just as much an intuitive business case as it is a numbers exercise.

For this group the findings of a new survey by CoreNet Global and JLL are bound to disappoint – or at least redouble industry education on the subject. According to the newly-released survey, corporate real estate executives are less likely to pay a premium for green office space than they were a year ago -- even though more of them see energy and sustainability as a business priority.

Specifically, 42% of executives said they would be willing to pay a premium of 1% to 5% to lease green space, and 53% said they would pay a premium to retrofit property they own to gain sustainability benefits. In the last survey in 2007, 77% said they were willing to pay some level of premium for green space.

Digging into the numbers it is clear, though, that environmental issues are important to a majority of the 400 executives surveyed: 69% said sustainability is a critical business issue for their real estate departments. In 2007, that number was 47%. Furthermore, 40% this year rated energy and sustainability as a "major factor" in their companies' location decisions, with an additional 36% calling it a "tie-breaker" between locations that are otherwise competitive.

One possible reason for the discrepancy? Corporate real estate directors that may not view the premium associated with green as the most-cost effective way of delivering strategic value to the organization. Surveys were conducted in
September and October 2008. Copies of the report are available at http://www.corenetglobal.com or by emailing craig.bloomfield@am.jll.com


The World Bank Group has leased the entire 227,000 SF available at 1225 Connecticut Ave. – a building owned by Brookfield Properties. The World Bank will begin its ten-year occupancy term in late winter/early spring of 2010. Redeveloped for some $32 million over the past few years, the building is expected to achieve Gold LEED certification. Zeke Dodson, Brian Daly and Laurie McMahon of Cassidy and Pinkard represented the World Bank Group.


1000 Connecticut Ave., a 12-story, 383,392 SF trophy office building under development by a venture led by Edward Kaplan, Albert Small, and Steven and Michael Gewirz that is going for Gold LEED certification just landed $194 million in construction financing. A consortium of five banks led by Chevy Chase is providing the funds. Philip Mudd, Christian Miles and Jon Goldstein of Cassidy & Pinkard Colliers arranged the financing. Arent Fox is occupying 225,000 SF.

Green Calendar

Build Boston (www.buildboston.com). Nov. 18-20



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