Realizing the "green" in green building requires new approaches to managing design and construction risks.

If you develop, own, or invest in real estate, thinking green -- as in environmentally conscious -- is no longer optional. A combination of factors favoring green construction is likely to render conventional buildings noncompetitive in the near future.

Green building certification in the United States is dominated by the U.S. Green Building Council (USGBC) and its Leadership in Energy and Environmental Design (LEED) rating systems.

As of the fall of 2009, the USGBC reported a pipeline of more than 25,000 projects registered for LEED certification and over 3,300 projects already certified.

This article will briefly describe the LEED system and some of the reasons for its dramatic growth. It will then offer several practical suggestions that, if considered as part of a comprehensive risk management strategy tailored to the goals, needs and circumstances of each particular project, should increase the likelihood of achieving LEED certification on time and within budget.

The LEED Rating System

Under LEED , a building is awarded points based upon its design and construction with regard to five environmental categories: sustainable sites, water efficiency, energy and atmosphere, materials and resources, and indoor environmental quality. Each of these categories includes prerequisites and credits with points assigned to the credits. A sixth category, innovation in design process, awards points for exceptional performance or novel approaches.

Different scoring systems apply to different types of projects. Since introducing LEED for New Construction and Major Renovations (LEED-NC) in March, 2000, USGBC has expanded its rating systems portfolio to include Core & Shell, Commercial Interiors, Schools, Retail, Healthcare, and Neighborhood Development, as well as one devoted to Existing Buildings: Operations & Maintenance.

After construction is completed, the USGBC determines whether and at what level to certify a project based upon information collected by the project's architects, engineers and contractors. Increased green performance -- the greater the number of points earned -- results in a higher rating. Under the 2009 version of LEED-NC, projects may be certified as LEED Certified for earning 40 to 49 points, Silver for earning 50 to 59 points, Gold for earning 60 to 79 points and Platinum for earning 80 or more points.

The Rise in Green Development

The upsurge in green building has been fueled by a combination of forces.

The federal government and jurisdictions across the country are increasingly mandating that public and private building stock meet green standards, especially LEED. The General Services Administration already requires all newly owned construction, major renovations and build-to-suit leasing to achieve a LEED-Silver rating or higher.

State and local governments have followed suit. As of this month, the USGBC reported that LEED initiatives have been enacted in 138 cities, 36 counties, 28 towns, 34 state governments, and 17 public school jurisdictions.

The private demand for green buildings has accelerated as well because saving energy and lowering greenhouse gas emissions have become civic virtues. Employees and customers increasingly expect their employers, landlords, retailers and hotels to share their sustainability values.

Developers and investors are being pulled into green building, too, by tax, permitting and density incentives and especially by the mounting evidence that green buildings will outperform conventional buildings even assuming that the first costs of a green building exceed those incurred in conventional construction. This so-called green premium is becoming less a foregone conclusion, however, as the green learning curve levels out, more builders and suppliers compete for green work and the continued improvement in sustainable materials.

The growth rates seen the past few years are likely to diminish given the continuing credit crisis. However, even a modest continuation of these trends indicates, as one study concluded, that green building is "fundamentally altering real estate market dynamics" such that "the risks of not moving quickly enough almost certainly will outweigh the risks of moving too quickly." (See "The Greening of U.S. Investment Real Estate -- Market Fundamentals, Prospects and Opportunities" prepared by Andrew J. Nelson, RREEF Research, No. 57, November, 2007.)

Addressing Design and Construction Risks

The rewards that green buildings, and the green ratings that come with them, will not be realized unless all the parties involved in a green project appreciate and manage its unique issues. Failing to achieve the required, desired or promised green rating is a very real risk. Parties attempting to secure LEED certification face a relatively new process that lacks sufficient transparency for project teams to predict if, when or which certification will be obtained. Compounding the risk, stakeholders with credible experience in green building projects remain in short supply. On top of these factors, USGBC faces a large backlog of projects which will only grow as more jurisdiction adopt LEED as their standard and more projects seek certification.

It is unrealistic to expect an A/E or contractor to "guarantee" that a particular LEED rating will be obtained. This is especially true for design professionals whose liability policies exclude coverage of warrantees. Therefore, strategies -- like those set forth below -- should be implemented to enhance the likelihood that a completed green building will meet its owner's needs and will secure the expected LEED rating on time and within budget; and, if not, that reasonable remedies will be available.

1. Have A Clear Understanding of Your Particular Green Objectives and the Options for Meeting Them Under LEED

Green building can mean many things: using sustainable building materials, increasing energy efficiency, improving indoor air quality, or lessening one's carbon footprint.  The reasons for developing or acquiring green assets are likewise varied: complying with applicable law, securing a tax or regulatory incentive, marketing to customers or employees, enhancing an asset's value by reducing its operating costs, minimizing a property's carbon footprint, reducing the demand on non-renewable resources, or any combination of the above. It is essential for those pursuing LEED certification to understand their particular green motivations and expectations preferably from a project's inception.

Images CC licensed by Flickr users Desmond Kavanagh, boliston and Rusty Darbonne.