Where the buck stops

Today, developers have the sagacity to eschew spending for green design and features unless they can predict return on investment (ROI), a measurement that has become easier to gauge with the latest technologies and availability of data on recent projects.


Simply put, green value is beginning to trump green hype, says sustainability consultant and certified green building professional Jim Simcoe, who made some predictions about the green building arena at the end of 2010.

For instance, a study commissioned by the State of California that evaluated 33 LEEDcertified buildings, found that higher initial costs of certification were offset by as much as a factor of 0.10, thanks to green design.

But some developers are beginning to reason that if it is the green design itself that generates the savings in operating costs and lower utility bills, it doesn’t make sense to buy costly certifications when the money can be allocated directly towards the actual value-creating, energy-saving assets.

The real estate law firm of Allen Matkins has surveyed green design and construction professionals for five years. During this period, Allen Matkins observed overwhelming support for green construction, but also observed a downward trend in support for obtaining LEED certification.

“We surveyed around 1,000 green building professionals from across the country and each year a super-majority indicated it is worth the time and effort to build green, while at the same time we observed a 15 percent slip in expending the time and effort to obtain LEED certification,” said Bryan Jackson, a partner with Allen Matkins and adjunct professor teaching Green Building and Sustainable Construction for USC’s Master of Real Estate Development (MRED) program.

Specifically, in 2010, 92.7 percent of green building professionals surveyed said they believed it was worth the time and effort to build green, slightly down from 96.8 percent in 2007. But the number of professionals who believe it is worth the time and effort to obtain official LEED certification dropped 15.3 percent from 77.4 percent in 2007 to 62.1 percent last year.

Despite waning confidence in the value of LEED certifications, another 2010 study has led researchers to predict the number of green-certified buildings will grow by 900 percent over the next ten years worldwide, although 80 percent of the projects will come from the commercial sector, not the residential.

The obvious reason for the expected growth in certifications is that more buildings will be built as economies recover. But another is that sustainability, once considered by developers as opportunistic, is becoming an obligation.

“Developers are getting squeezed by two distinct groups–the city, federal and state legislators–who are enacting green building codes for new and existing buildings, and the renters and condo buyers, who are becoming more green-educated and demanding more energy-saving features,” said Simcoe.

More cities are enacting green building mandates and their approaches differ widely. Some use the stick, others the carrot, and some both, to ensure that developers meet environmental standards. An example of the stick method is cities requiring green certification for building permits and CFOs, while an example of the carrot would be priority permitting, density bonuses and/or tax credits. Some lenders provide financial incentives to developers, who include energy- saving features in their projects.

In January, California initiated the first state-wide green building standards code, CALGreen (AB-32), which requires every new commercial building and certain types of multifamily buildings constructed in the state to reduce water consumption by 20 percent, divert 50 percent of construction waste from landfills and install low pollutant- emitting materials. In anticipation of and response to AB-32, a number of California cities are initiating their own enhanced measures to reduce greenhouse gas emissions.

Under AB-32, once a project passes state building inspection, property owners have the ability to label their asset as CALGreencompliant without using additional costly third-party certification programs. But CALGreen does not affect the majority of luxury apartment developers, because podium- style and Texas-wrap high-density developments fall outside of the jurisdiction of AB-32.

Tarnishing the gold standard
For years, LEED certification has been considered the gold standard of green ratings worldwide, especially in commercial circles, for new construction and, more recently, retrofits, the latter of which is extremely cost-prohibitive for multifamily.

But Jackson points out that other green building certification programs have emerged to fill gaps not effectively addressed by LEED; for example the Green Point Rated program from Build It Green is designed specifically for residential projects and is being used actively by multifamily housing developers.

Simcoe predicts that Energy Star, the rating and labeling program initiated by the DOE and the EPA to identify and promote the use of energy-efficient products and services, will overtake LEED in green building certification circles this year.

“LEED has always been the 800-pound gorilla in the green building certification market. But the actual value to the end-user of a LEED-certified building is beginning to wane. LEED costs more, takes longer and is more paperwork intensive than Energy Star. LEED is a clunky old PC running Windows 3.1. Energy Star is an iPad,” he said.

The commission and documentation fees for LEED certification alone represent around 10 to 15 percent of an entire project’s design cost.

“LEED is a very costly and inefficient program as it relates to apartment developers. It made its name based on commercial buildings– office and retail–and didn’t hit multifamily until the early 2000s. And, although the cost for LEED consultants has gone down, because they have been doing it for a while in multifamily, there still are a lot of LEED administration costs that aren’t even applicable to the building itself,” said Village Green Vice President of Development Shaun Zimney.

Village Green, as its name implies, is dedicated to sustainable development. The company set a precedent in the Midwest in 2004 by converting an existing medical and dental arts building into the first LEED-certified multifamily development in the region to apply for and attain LEED certification– the 24-story MDA City Apartments in Chicago, Ill.

Today, the company is building the 175-unit Mill District City Apartments in Minneapolis, to NAHB Green standards.

“The NAHB’s Green Building standard is an apartment developer’s friend. The process and procedure is more streamlined. It, too, was originally designed for singlefamily, like LEED, but the NAHB has done a good job of modifying the standard to be able to accommodate multifamily in a much more timely and less costly manner. You can spend $80,000 to over $100,000 just on the LEED documentation alone. And, before NAHB, there wasn’t a residential-based program that wasn’t catered toward singlefamily and low rise. Once you get into fourstory, you can’t even do an Energy Star building. So NAHB saw something was lacking and filled the gap,” said Zimney.

He said another advantage of NAHB Green is that the program uses verifiers who come onsite and verify during construction, creating a much more streamlined process.

The Bozzuto Group chose to build 121 townhomes in Baltimore, Md., called Towson Green, to NAHB Green’s Silver standard. Tom Baum, president of Bozzuto Homes, the Bozzuto Group’s for-sale division, agreed with Zimney that the process was less cumbersome and costly than LEED.

“This is our first NAHB-certified community and we are anxious to see how buyers perceive it. We have been an Energy Star builder for at least ten years, if not longer, so green building is in our DNA, and my expectation is we would likely want to repeat NAHB certification at our new communities,” said Baum.

Meanwhile, the Bozzuto Group went the extra mile to attain LEED certification from the U.S. Green Building Council for two residential developments. The company’s 375-unit Riverwalk at Millenium in suburban Philadelphia received LEED certification, and The Fitzgerald, a mixed-use community in the Baltimore-Mount Vernon district, which includes 275 apartments, 24,000 sq. ft. of street-level retail and a 1,245-space public parking garage, met LEED Silver standards. Both properties were developed, built and are managed, owned and operated by the Bozzuto Group and its subsidiaries and are the first and largest LEED-certified properties to be built in their respective regions.

The Fitzgerald, the largest such residential community in the Baltimore area, is home to the city’s first public electric-vehicle charging station and boasts a number of environmentally conscious design features, construction tactics, water efficiency technologies and air-quality practices.

Originally built as a brownfield redevelopment project, Riverwalk at Millenium experienced significant fire damage in the fall of 2008 that resulted in the need to rebuild half the development from the ground up. The community is the first LEED-certified apartment project in Conshoshocken.

BRE Properties LEEDs the way
Whether first out of the ground in a development cycle, at the forefront of technological innovations like revenue management, or first to sub-meter units and bill each resident for their individual utility consumption, apartment REITs are the trendsetters in the multifamily space.

And most have established internal sustainability guidelines and are beginning to deliver their first LEED certified apartments. But, for the most part, the apartment REITs came late to the green-certification party. Last year, AvalonBay delivered its first LEED-certified property, the 204-unit Avalon Queen Anne in Seattle, and also met the city’s Green Factor landscape requirement.

BRE Properties, the 40-year-old REIT that owns and manages 21,538 units from San Diego to Seattle, began focusing on green building seven years ago, before lenders warmed to the idea that spending for energy efficient systems and construction could pay off in lower operating costs and utility bills.

With five completed LEED-certified communities–Park Viridian and 5600 Wilshire in Los Angeles; Taylor28 and Belcarra in Seattle and Villa Granada in Santa Clara–under its belt and another just breaking ground, BRE plans to attain some level of LEED certification on all future new construction. “We have been using LEED for quite sometime through a number of iterations because it is nationally recognized,” said Michelle Schutt, BRE manager of energy and sustainability.

LEED is the only internationally recognized green building certification system that provides third-party verification that a building was designed and built using strategies aimed at improving environmental performance across a number of metrics.

Schutt noted, however, that BRE’s green strategy is more than just checking LEED compliance boxes. “It started as a marketing strategy for us and as such it is great. But it goes beyond that. We have built green into our system and we get better at it with each building,” she said.

“We look at our buildings holistically and make sure they are performing properly. A good example would be our latest project, Villa Granada in Santa Clara, where we have a subterranean parking garage that requires 24-hour lighting. We went through and installed motion sensors so that the garage is dimly lit until the system senses an occupant and then it brightens up. We still have that 24/7 light, but it saves a bit of energy until someone is there to appreciate it,” said Schutt.

She believes LEED certification is a benchmark residents understand. “They don’t necessarily understand we have an efficient boiler or motion sensors in the garage or timers on pool pumps, but LEED has a good footprint, so they understand we have gone above and beyond on sustainability. I don’t think it’s at the point where they will pay more for a LEED unit, but it is a factor in their decision making and getting them to walk through the door,” she said.

The future is green
According to Simcoe, costly green certifications are more about marketing or creating a brand than anything else. He thinks the real value of certifying a property as green is that the developer can become eligible to receive grant and funding opportunities. Sometimes a high LEED rating is essential for those who depend on green tax credits and green marketing to meet their bottom line, usually in the affordable housing arena.

Whether certified or not, it is clear that green apartments are no longer a trend. “As the popularity of green building grows, so will demand for green materials, prompting manufacturers to increase output, driving down prices of materials, making it cheaper than ever before to build environmentally sustainable housing,” said Jackson.