Real Estate Talks Green in New York

A green building summit I went to held by Bisnow here in New York pointed up how much the concept has picked up momentum in the business world and how the vocabulary of business and green in building and real estate is evolving as a necessary tool for serving clients and both residential and commercial tenants. Green building and zero carbon footprint buildings are being put together with value creation, not the till-recent common focus on higher costs. It made me think what’s changed – the economics? Business thinking? Sexier marketing? Not everything, plainly, because there’s still a backlash coming as litigation about ratings and quality outcomes create more risk than most observers realize.

The hardware. Building green from the bottom up was definitely seen as the sexiest part of the industry. In lifecycle cost analysis, smarter investments on green design and management elements also imply bottom-line impact on energy, water and waste costs.  Aiming for energy savings may always seem most obvious, but it can be a surprisingly long process for tenants once the low-hanging fruit is plucked.

The software. Most services firms highlighted the business and analysis tools they’ve customized to their clients’ needs from the most basic modifications all the way to obtaining LEED or Energy Star to help clients assess the gap in their readiness for LEED.  Energy Star has definitely penetrated in ways that LEED has yet to.

The human side. All the speakers mentioned how much the field needs new consultants to spread the message and communicate with suppliers, tenants, occupants and managers about green building.  Getting people to change habits for instance or participate in basic initiatives like recycling requires soft skills. It’s important to initiate a sense of responsibility, create sustainability champs, reach out to the tenant base, make use of new and social media, do tenant surveys, and develop tools and sample strategies for tenants.

The commentary on skills and talent caught my attention – that companies in  real estate and construction found new grads and younger recruits actively looking for sustainability in firms. So attracting the right talent is an issue with some companies using “green champions” initiatives as incentives to interested staff.

The law. Regulation and economic incentives were central to the business model. The panelists noted the varied effects of the failure to pass a climate bill. Some were pleased that unreasonably ambitious targets would have driven a backlash, whereas now businesses that sense more coming down the pike were more motivated to act independently. The difference between more stringent local and state laws means that meaningful progress can be made without the federal government. That said, it was noted that the IRS standards and tax deduction potential was underappreciated and misunderstood.

The money. Again, incentives can make all the difference as a cushion despite the economics.  Still, many companies aren’t investing in sustainability projects based on strict financial numbers. Some are thinking about goodwill toward the corporate image and public relations or willing to experiment as with solar panels on a 10-year lease with a 15-year payback.  Energy efficiency is harder to finance because it’s harder and isn’t as sexy as green building.  Another complicating factor: the payback period on a retrofit depends on the region. If energy is cheap, the return/payback economics can change dramatically.

A different spin – how to monetize green building. Some ideas put forward included employee productivity, cogeneration, energy information sharing, and demand side management, carbon trading, third party ratings and certifications, including new ISO standards.

The risks. Some saw green building as almost equivalent to risk management, the thought being that without sustainability, you need a risk management strategy to address exposure to energy prices, asset obsolescence and lack of tenant interest.  Utilities, for a change, have become a major part of risk management, depending again on markets, region, climate and regulatory environment.

All or nothing? Is green building one package or not?  Can energy efficiency be separated out of sustainability? Can water and resource preservation stand alone? Finally, a panelist noted that water will be a major issue in emerging markets. Plus, being able to show a comprehensive strategy was a distinguishing point. Companies with a limited strategy wouldn’t have much to show.

The numbers. Good implementation is the bottom line. No, it’s the baseline that’s important – setting objectives and defining year-one accomplishments. Huge investments aren’t necessary, and any project can start with zero cost and low cost modifications. Non-profits for green jobs are helping the bottom line since lack of well-trained staff is a major issue.

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