Developers, Managers See Green Building Perks

Daily Real Estate News June 20, 2007

The real estate industry — most notably the commercial side — is slowly but surely embracing sustainable business practices and green technologies, according to an analysis of the industry by Progressive Investor, monthly newsletter that’s focused on sustainable investments.

"The benefits will make green ubiquitous over the next two years," says George Caraghiaur, vice president for energy services at Simon Property Group, owner of 300 shopping malls.
Developers are using green construction in their projects, real estate consumers and tenants are showing a preference for sustainable buildings, and it’s becoming more affordable to make earth-friendly choices, the newsletter says. What’s driving the trend? Progressive Investor identified these factors:

Energy prices are rising. Developers and building owners are feeling the crunch of high energy and water costs, which, according to the Building Owners and Managers Association (BOMA), constitute 28 percent of operating costs for downtown office properties, and 30.4 percent for suburban properties. They see the quick payback and cost savings energy efficiency and other green building upgrades offer.Construction costs are coming down. Building green no longer costs more. Turner Construction's 2005 Green Building Market Barometer shows it costs a just 0.8 percent more for basic LEED certification, easily recouped through lower operating costs.

Tenants are demanding it. Increasingly, clients and tenants show a preference for green buildings, which have been proven to increase productivity, retain employees and lower absenteeism. The combination of reduced operating costs and more satisfied occupants translates into 3.5% higher occupancy rates, 3% higher rents, and a 7.5% increase in building value, says the McGraw-Hill 2006 SmartMarket Report.

Green gets visibility. Corporations with sustainable business policies are building highly visible green headquarters including Bank of America, Toyota, Goldman Sachs, Hearst, IBM, JPMorgan Chase and Herman Miller. The Freedom Tower, which replaces the World Trade Center, will be LEED-certified.

States are requiring it. Green building is increasingly being mandated. Nine states and 40+ municipalities have passed legislation mandating LEED-certified buildings. Six percent of commercial developments are LEED-certified, and it’s projected to jump to 10 percent of the market by 2010.

REITS Fill Demand for Green Investments

Because there are more green buildings, there also are more choices for investors who want to put there money into an environmentally friendly funds. Some 41 percent of the 300 U.S. real estate investment trusts (REITs) are actively pursuing energy efficiency and green building upgrades and another 27 percent plan to do so.

For now, U.S. investors can gain exposure to the sector through the Forward Progressive Real Estate Fund (FFREX), the first SRI REIT mutual fund, and through about two dozen individual securities, including Simon Property Group (NYSE:SPG) , Weingarten Realty Investors (NYSE:WRI) , Prologis (NYSE:PLD) and SL Green Realty (NYSE:SLG) .

Outside the U.S., leaders include Investa Property Group (IPG.AX), Australia's largest owner of prime grade office space, Lend Lease (LLC.AX), Land Securities (LAND.L), British Land (BLND.L) and SEGRO (SGRO.L), in the UK.

Progressive firms are increasingly focused on urban infill buildings rather than suburban greenfields and incorporating advanced energy efficiency measures, as well as recycled building materials, gray water systems, rainwater capture and green roofs, the report says.

— REALTOR® Magazine Online