February 01, 2007

By Staff
Appeared in Northeast Real Estate Business

Sustainability has become a major business driver for premier developers specializing in Class A office space and mixed-use properties. Far more than a marketing gimmick, it allows developers to differentiate themselves from their competitors. Indeed, forward-thinking owners are looking at sustainable design and high-performance building technology as a way of attracting informed tenants who understand the economic benefits of green design.

Consider the following statistical trends:

Clearly sustainability is more than a passing fad. It is a construction trend that is here to stay.

Why Green Design Is Better And Cheaper

Currently, people who are buying or leasing buildings are increasingly aware of the quality of the building’s systems. They are looking at numbers, the value the systems will bring, the end capacities and the long-term operating and maintenance costs. Green design addresses all of those concerns.

Consider the following:

Moreover, the recent rise in energy prices has leveled the playing field between hard and soft construction costs when it comes to calculating the economic benefits of sustainable design. Installing high performance systems will most likely require a higher up-front investment. Over the long-term, however, lower operating costs may well offset such increased start-up costs.

Given this new longer-term perspective, developers have found the need to restructure their leases in order to demonstrate the increased tangible value realized after what may be higher move-in costs for sustainable properties. Selecting the right metrics and cost parameters is key to successfully communicating that message to clients and achieving financial success in this portion of a real estate portfolio.

As green building practices are becoming more mainstream, perspective tenants are also becoming more aware of the positive effect sustainable design alternatives have on indoor air environmental quality and the benefits they bring in terms of increased human comfort and productivity. To quantify what could otherwise be considered intangible benefits, it helps to apply the $2/20/200 rule. Per this rule, on average, the energy costs for a building will run at $2 to $4 per square foot. If you annualize the cost of construction over 25 years, this equals about $20 per square foot in rent for said time period. By contrast, operating a facility in terms of salary costs will add up to $200 per square foot. In other words, anything that helps increase productivity in the building has a 100 times reward compared to what tenants will be able to save through energy efficient building systems.

Knowing that their employees are going to spend 40 percent of their lives sitting in the office space they are about to lease, educated prospects will favor the space that offers green features — provided the rent is relatively similar. There’s no question about it, green has become the new standard for many prospective tenants. As employers come to recognize that the work environment greatly affects productivity, they are demanding such amenities as improved indoor air quality, greater exposure to daylight and outdoor views and individual temperature controls. These building elements can only be achieved through high-performance engineering features such as daylight harvesting and dual-path HVAC systems. The result is a building that offers more value to a potential buyer or lessor.

And if all those reasons aren’t reason enough — consider this: By end of 2007, the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) and the U.S. Green Building Council (USGBC) are expected to finish drafting ASHRAE Standard 189p, which will encompass many of the basic sustainable tenants of LEED®, the U.S. Green Building Council’s Leadership in Energy and Environmental Design program. Standard 189p will eventually be adopted by building code authorities; thus, making basic environmental building and design practices mandatory. This will extend the already successful adoption of ASHRAE’s Standard 90.1, which currently forms the basis for all U.S. State energy codes.

The Truth About LEED®

In the public mind, LEED has become synonymous with sustainability and sustainability has become synonymous with LEED. And, the statistics are backing it up:

Unfortunately, this equation can place undue emphasis on a process that generates quantitative information while short-changing the integrated design approach that is fundamental to successful sustainable design. From the onset, the goal of LEED was to foster an integrated design process that made use of modeling tools that would allow all participants in the design process to make the right decisions as a team.

By focusing on how many LEED points a particular project can garner, this holistic approach has oftentimes been reduced to a mere checklist that architects, project engineers and designers feel compelled to apply to specific aspects of the project. More often than not, the result of such isolated activity is a considerable over-run in project costs, and subsequently the decision by the owner or developer to put the brakes on LEED certification altogether. This has created the impression in the market, that green design is, by default, more expensive than traditional design.

However, as a recent study by the U.S. General Services Administration (GSA) has shown, quite the opposite is the case. The 2005 GSA LEED Cost Study found that its mandate for all newly developed properties to achieve a minimum LEED Certified rating had reduced overall project costs by 0.4 percent. Realizing these cost savings, however, required coming at the project with an integrated design approach, i.e., an approach that put architects, engineers, consultants and building owners to work on the building as a team from day one. Sticking add-ons onto the building as an afterthought, in the attempt to collect more LEED points, on the other hand, inevitably raised construction costs.

I would like to encourage developers and building owners to approach green construction from such an integrative design perspective. It is their only opportunity to respond to increased client demand for sustainability of their built environments and be cost neutral — or even reduce construction costs.

David P. Callan, P.E., CEM, LEED AP,  is the director of sustainable design and high-performance building technology for Syska Hennessy Group, of New York, New York.