Developing for Green: Investing in Better Buildings for the Future

Fast forward to the year 2030. Now picture yourself owning a property within a building in downtown New York City. It is a beautiful mixed-use building with an A-list restaurant on the main floor, office space above and stylish luxury apartments. When you bought this property back in 2008, it was considered a trophy, but not anymore.

Now you’re in the crosshairs of New York City’s environmental agencies, because your building is neither energy-efficient nor environmentally friendly. In fact it’s exactly the opposite, it has high quality finishes that were imported from Italy, materials that are high in ‘off gases‘, incandescent light bulbs throughout the entire building, an energy wasting HVAC system, poor air quality because of the outdated ventilation system and underrated insulation. What’s more, your building doesn’t even have solar power or any other proactive carbon offsetting systems. What are you going to do with this dinosaur on your hands?

Green property is the way to go

The writing is on the wall. If you don’t begin with a sustainable approach when buying or selling any property today, be it residential, retail, industrial or commercial, you will be potentially facing costly liabilities in the future. This tune rings the same for real estate investors - one must buy smart to sell at a profit.

Because of rising energy costs, buildings are becoming increasingly expensive to operate. With this in mind, developers, owners, investors & property managers stand to benefit from the slightly higher initial investment to go green, because future costs will be limited and tenants will be happier to know they can depend on a fixed operating cost. Not only will your tenants or future owners be pleased but your pocketbook should swell a little fatter as well, thanks to a sound investment. We’ve all heard it before; developing for green makes sense socially and environmentally, but what few people realize is that it does make sense financially and economically too!

In spite of that, there seems to be a disconnect between perception and reality. Respondents to a 1,400 person global survey had many misconceptions about building green. They estimated the additional cost of building green at 17% above conventional construction. This is more than triple the true cost difference of about 5%. At the same time, survey respondents put greenhouse gas emissions by buildings at 19% of the world total, while the actual number is a stunning 40%.

Sustainable buildings of the future - a very sound investment today

The fact is, sustainable materials are becoming practical materials. Most of these materials, such as solar panels & LED or Fluorescent lighting make more sense because they increase the value of the property and reduce carbon footprint at the same time. For an investor, buying green is the smart approach to planning for the future. Green property is valuable and its value will only increase over time. With the current market as it sits you can buy low and sell for much higher with a green property than without. Not to mention the property will likely sell faster because green is still a small niche market rapidly increasing in demand. Developing with a green conscience provides long-lasting buildings, as well as clean and safe environments for those who choose to work, live or shop around them.

Although the average cost of building green is 5% higher than conventional construction, it is arguable that the sustainable building will be worth at least 5% more today than its conventional neighbor, and appreciate at a faster rate too. Not only does developing a green-smart building offer better value, green is quickly becoming a very strong selling point that offers a tremendous opportunity to differentiate the finished product to consumers when it is brought to market. After all, it is possible to dramatically decrease energy demands while delivering world-class design and discerning consumers will realize that non-green homes are heading toward obsolescence faster than the floppy disk. If they don’t go green now, they are destined for an upgrade later.

Keep in mind that large cities will continue to put increasing pressure on developers and owners to develop green buildings. ‘Local Law 86 of 2005‘ already requires most New York City construction and renovation projects to meet certain standards for green building. Projects that cost over $2,000,000 must achieve a LEED Silver or higher rating and projects of higher value are subject to even more stringent regulations. Both consumers and investors will be increasingly concerned about the possibility of their real estate investment growing in obsolescence instead of value, as time goes by.

Have you got the foresight to be among the green property pioneers?

About 20% of architects, engineers, and developers have been involved in building green projects, compared with only 9% of owners and tenants. Developing green is growing faster than any other real property trend. The financial markets are taking notice, including investment banks, hedge funds and mutual funds. Fannie Mae and Freddie Mac even have programs that allow people to qualify for a conforming loan to purchase a more expensive personal residence if it meets their standard energy efficiency tests.

Also, investment banks and entrepreneurs are gearing up for the ‘Carbon Credits’ market, which has already reached $40 billion worldwide. Put simply, individuals, companies, & countries could offset their C02 emissions by purchasing ‘credits’ from others that are releasing less green house gasses than regulated maximums. This is an additional potential revenue stream from the property you buy and something to keep an eye out for in 2008.

The bottom line is developing green property really does make economic sense; even more so when you consider the political and social impacts of not being environmentally responsible.

• Urban sprawl
• Loss of unique plant & animal communities
• Increased pollution of water & air
• Material waste
• Increased consumption of diminishing energy resources.
• Economic dependence on foreign energy sources

Start looking at real property with an environmentalist eye and you will be ahead of 80% of all the other developers, architects and builders out there and 91% ahead of the other owners all because you have the foresight to develop & build green now, not to mention the intelligence to pull it off with style!

Watch out for more on Carbon Credits, continued next week.

Further reading:

NYC.gov is the entry portal to the New York City government’s various websites. These include the Dept of Buildings and various green initiatives. It is a great resource for finding out about anything related to building in NYC and a good potential resource for you moving forward. From NYC.gov:Green Building Initiative

Sustainability Laws and Building Regulations

City Hall press releases on green development you may find useful:

Efficiency and supply initiatives push back need for additional electricity resources to 2012

PlaNYC initiative will plant one million trees in the next decade