Going green
Will ‘carbon neutral’ replace ‘location’ as real estate’s future mantra?

by Rob Walker
for Virginia Business
September 2007

The familiar real estate mantra, “location, location, location” still rules, but a new catch phrase is ringing in developers’ ears: “go green.”
In growing numbers, commercial real estate companies are pushing energy-efficient “green” projects that not long ago were viewed as the province of tree-huggers. As trends go, it’s just a ripple in Virginia now, rather than a tidal wave, say real estate executives. But there’s no question that the “green” movement is gaining momentum.

“It’s the right thing to do, and we can make money doing it,” says Craig Cope, vice president and city manager for Liberty Property Trust in Hampton Roads. Liberty was the first commercial developer in that region to build a Class A office building certified as a sustainable development. The 75,000-square-foot project opened in December 2006 in Liberty Executive Park in Chesapeake. Its environmental-friendly features include toxic-free glues, motion sensors for lights and water, and preferred parking spaces for hybrid automobiles.
The industry is embracing green development in response to a growing demand from clients and employees for such facilities. Several factors are driving demand, including a growing public awareness about rising energy costs and the effect of carbon emissions on climate change.

In fact, one of the world’s largest commercial real estate services firms made headlines last spring when it announced ambitious plans to become “carbon neutral” by 2010. Los Angeles-based CB Richard Ellis Group Inc., which manages more than 1.7 billion square feet of space, plans to work with tenants and owners to reduce emissions from buildings. (Carbon neutral means balancing the release of carbon dioxide from burning fossil fuels with renewable energy that creates the same amount of energy.)

“Our decision is driven by our desire to do the right thing but is also a direct result of a rapidly evolving marketplace,” Brett White, the company’s president and CEO, said in a statement. “A large number of clients — both property owners and occupiers — are already actively working to reduce energy costs and create greener spaces.”

While the green revolution has many converts, some real estate officers forecast a slower rollout of such buildings since upfront costs frequently dictate plans in this industry. “In the long run, the costs of producing green should come down, but that could take awhile,” notes David H. Downs, director of the Kornblau Institute at Virginia Commonwealth University, which studies the commercial and residential real estate industries.

Depending on the project, green development can raise building costs by about 2 to 10 percent, according to industry sources. For some developers, that can be a deal-breaker.

In Virginia, not all clients are sold on green. “For now, I can’t say clients ask us about a ‘green’ option very often,” says John Gentry, vice president of the office brokerage group with Grubb & Ellis/Harrison & Bates in Richmond. “It’s coming, but we’re not seeing any rush to green right now.”

So far, the numbers are relatively small. The U.S. Green Building Council (USGBC) reports that it has registered and certified 10,000 projects nationwide. About 130 are in Virginia.

The 10,500-member USGBC is a nonprofit organization that recognizes high-performance green building projects with the LEED designation. LEED (Leadership in Energy and Environmental Design) is recognized as the industry standard for green building with credits earned for satisfying criteria in six environmental areas, including sustainable sites, water efficiency and indoor environmental quality.

While the numbers aren’t overwhelming, other companies take note when major players such as CB Richard Ellis and Liberty Property get on board. “It catalyzes markets,” says Marc Heisterkamp, manager of corporate and investment real estate for the national green building council. “As they go, others will follow. We are now seeing the ripple effect.”

Others say the turn to green by major players is primarily a good business opportunity. “They are in it for the long haul. They want to be good citizens, but these guys are all about dollars and cents,” says Lynn Rogien, senior project manager at W.M. Jordan Co. The Newport News-based construction management firm and one of Virginia’s largest general contractors, is seeking a LEED certification for an addition to its Richmond offices.

Federal, state and local governments are encouraging the private sector’s interest in green with a variety of incentives such as tax benefits, fast-track approval processes and tax rebates, particularly on the residential side.
For example, starting this summer, Roanoke property owners can earn a reduction in real estate taxes with new or renovated construction that cuts energy consumption 30 percent or more.

Arlington County is offering developers density incentives for greener projects. So far, a dozen projects are taking advantage of the program, says Joan Kelsch, a county environmental planner. “We sometimes get a little pushback” from developers, she adds, “but they’re not running away. More of them are now seeing this as getting a leg up.”

In Northern Virginia, offering green, sustainable buildings is essential in landing “sophisticated,” moneyed clients such as law firms, high-tech companies and trade associations that want a location near the nation’s capital, says Oliver T. Carr III, president and CEO of Carr Properties in Washington. His firm is building speculative office projects in downtown Washington and Alexandria that will be LEED-certified.

“Yes, the industry has an obligation to move in this direction, given the energy and environmental problems buildings create,” says Carr. “Beyond that, this is where the customers are going. There’s tremendous opportunity for profitable, sustainable development.”

Going green also can also give companies a boost in recruiting. With many focused on attracting and retaining good employees, “They see the type of space they’re offering as reflecting the kind of company they are,” says J. Donald Guthrie of McKinney and Co., an architectural and engineering firm in Ashland. “People like working in green environments … this is especially appealing to younger people.”

When Union Bankshares Corp. began planning its new $12.5 million operations center at Carmel Church in Caroline County, it decided to go green, a decision President G. William Beale doesn’t regret. “We’re going to be here for a long time and the vegetated roof, the plantings, the low-volume toilets, the lighting all adds up to savings,” says Beale.

Green technology enabled Union Bankshares to shrink storm water management ponds at the site by more than two acres. “At more than $100,000 an acre for land out there, we now have something we can develop for income rather than for holding water,” says Beale.

The additional upfront construction costs will quickly be recovered with energy and water savings, he adds. For this money-savvy bank president, “It’s win, win.”