The Urban Land Institute's Developing Green conference took place last week in Beverly Hills. And while I'm happy to report that the mood didn't approach down and out, green real estate folks are certainly down to Earth as of May 2009.
This is the year in which LEED is being overshadowed by Energy Star. Fighting climate change is well and good, but energy savings -- which exert a downward pressure on operating costs -- are what developers are banking on in 2009. And while there's a dearth of new capital and precious few new projects pending, property owners are eyeing energy efficient retrofits to make their portfolios competitive with the most recent round of new LEED product.
Richard Gollis, co-founder and principal of The Concord Group, reported on Concord's new survey of real estate decision-makers. The consensus is that short-term cost savings, generated by faster local permitting and least-cost operations, are giving sustainability its sizzle these days. At the moment, owners are just trying to hold their own, waiting for economy to pick up and the capital markets to unfreeze. At the same time, real estate owners are bullish on green for the long term and are expecting green buildings to deliver premium sales prices over time.
Jones Lang LaSalle's Dan Probst also focused on near-term cost cutting, noting that owners' 2009 focus is on expense reductions and remaining competitive. How do green practices fit in? The emphasis is falling on certification under LEED Existing Buildings- Operations and Maintenance (LEED-EBOM) and ensuring that operating costs are cut to the bone by undertaking energy efficiency initiatives, including lighting retrofits and performance contracting with energy services companies (ESCOs).
The same theme was underscored by Bob Ratliffe of Kennedy Associates, the advisory firm that serves as the real estate manager for the Multi-Employer Property Trust commingled fund. (Disclosure: I worked for the MEPT fund prior to Ratliffe's tenure.) Ratliffe's investors are looking for fuel and water savings in 2009. As for Energy Star, "It has traction," Ratliffe says.
Jim Boyle, CEO of the Sustainability Roundtable, agrees. Boyle's members, drawn from a broad roster of organizations, are "focused on cost savings and best management practices" in operating their real estate portfolios.
Hot topics from Developing Green are also steeped in pragmatism. Technology advances for building efficiency, including Web-based applications, are on Ratliffe's radar. Metrics are becoming increasingly important in tracking carbon emissions reductions. Wells Fargo's James Finlay is watching closely for the risks and benefits of distributed generation (the production of renewable energy at the building level). On the upside, distributed generation will likely generate property revenues through the sales of renewable energy credits, but could also create risks to value, including difficulties with system design, operation and maintenance.
Last, but not least, get your paperwork in order to participate in the green and energy efficient real estate programs associated with the federal stimulus, Steve Churchwell of DLA Piper, Mike Hodgson of ConSol and I urge, apropos our green stimulus panel. (More on that subject in forthcoming posts.)
All told, cautious talk for cautious times. Of course, that may be all to the good. There's strength in fundamentals.
Leanne Tobias is founder and principal of Malachite LLC, an advisory firm that specializes in the development, leasing, management, financing and certification of sustainable or green real estate on a global basis. Comment online, or write to Leanne about your green real estate thoughts and experiences at greenstimulus@malachitellc.com. She'll share the best of reader feedback in future posts.
Beverly Hills images CC licensed by Flickr jenschapter3.