Source: CoStar.com, by Andrew C. Burr
February 07, 2007

With Major Cities Starting to Go Green, Could 2007 Be the Year When Inconvenient Becomes Opportune?

 

There is a scene about midway through Al Gore’s documentary, An Inconvenient Truth, in which Gore laments that despite the ongoing crusade to educate people about global warming, we’re still the overwhelming culprit.

"I look around and look for really meaningful signs that we’re about to really change," he says in calm contrast to the feisty, audacious lecture mode he adopts throughout most of the film. "I don’t see it right now."

What’s interesting about the scene is not so much Gore’s pondering, but rather the incongruity between his message and the frenetic backdrop against which he delivers it.

He meanders through a generic-modern airport while all around him an assortment of television monitors, elevators, escalators, retail storefronts, neon signs and product showcase displays bathed in ceaseless light operate all day, every day. The scene is bracketed by the background noise of countless people in suits and ties moving about, catching flights, standing in lines, conversing with each other and on cell phones - the very hum of commerce and ultimately, of money.

What the scene communicates - and communicates more clearly than any lecture could - is the complexity of an issue that touches very close to home in the commercial real estate industry: How does an increasing awareness of our environmental responsibility coexist with the demands of business?

Whether Gore’s musings were purposefully or incidentally placed in a business context is moot; the implications, however, are not. Had the former Vice President strolled through any number of office buildings, hotels or malls in any number of cities across the country, he would find his surroundings strikingly - and inefficiently - similar.

On a national level, a number of initiatives advanced by industry trade organizations and most notably the U.S. Green Building Council (USGBC), a coalition of leaders from different sectors of the real estate industry, have made inroads in cultivating a more environmentally aware consciousness among Commercial Real Estate's typically bottom line-focused mentality. As a result, commercial real estate owners, developers and contractors have largely escaped mainstream critique on energy inefficiencies and building practices. For now, the brunt of criticism has fallen on the petroleum, and by extension, automotive industries, where reform is starting to gather momentum and popularity, fueled by a suddenly, seemingly green-conscious public.

But for those looking, there's no shortage of inconvenient truths in commercial real estate, particularly in the areas of development and operation, where much of the industry's wastefulness is perpetrated.

The Environmental Protection Agency (EPA) says U.S. commercial buildings account for 19% of the nation's greenhouse gas emissions, a figure USGBC cites as high as 30%. According to the Durst Organization, a Manhattan owner and developer, 22% of all energy consumed in New York City is used for commercial lighting.

The U.S. Dept. of Energy spots U.S. buildings as consumers of 39% of the nation's total annual energy consumption. To compare, transportation accounts for about 27% of annual energy consumption, according to the U.S. Dept. of Transportation.

For the millions who work in commercial buildings, who use the computers, printers, faxes, copiers, telephones, duplicators, scanners and shredders, who ride the elevators and escalators, the figures shouldn't be shocking.

Neither are they a surprise to government officials, particularly those managing larges cities, where the negative effects of energy consumption have begun to manifest. A major blackout in 2003, which affected some 50 million people in the Northeastern U.S. and Eastern Canada, was blamed on overloaded power grids and a concurrent heat wave.

More relevant was a New York City brownout last summer, which lasted for a week and contributed to the deaths of about 100 people. New York City Mayor Michael Bloomberg issued a desperate call for people to conserve electricity usage, because similarly, a combination of heat and strained grids was implicated in that outage.

So far, spurred mostly by increasing energy costs and moderate government incentives, the environmental initiatives and green practices owners and developers have chosen to implement have been mostly of their own accord.

But this winter, two progressive pieces of green legislation were shuffled through the policymaking cogs of two major East Coast cities, passing into law virtually unnoticed.

Almost simultaneously, Boston and Washington, D.C. implemented new standards for environmentally sound real estate construction within city limits, with one major wrinkle: The mandates cover both public and private sector development. Somewhere, Al Gore is smiling.

A growing number of state and local governments have enacted green building standards for public projects and government buildings, including Arizona, Oregon, Nevada, Washington, and the cities of San Francisco and New York City. A handful of smaller cities, such as Pleasanton and Livermore, CA, have enacted blanket green standards that encompass public and private development.

But the legal requirements in Boston and D.C. are groundbreaking not only because of the size of the cities, but also because of the proportionally sized spotlight that may soon provide green building legislation the national stage it will need to continue building momentum.

While Washington's initiative will reportedly be phased in until the law takes full effect in 2012, the Boston provision, approved in early January by the city's Zoning Commission, is notable because it became effective immediately. Both cities will require new commercial construction of more than 50,000 square feet to meet guidelines based on USGBC's Leadership in Energy and Environmental Design (LEED) standards, although Boston's requirement extends to non-commercial development and large rehabs as well. Both cities will also require city-owned construction to adhere to a higher green standard than non city-owned construction.

The Boston zoning amendment is a culmination of more than a year's work by the city's Green Building Task Force, a group of development, construction, financing and environmental experts convened by Boston Mayor Thomas Menino in June 2003.

"We received lots of good feedback that helped shape the final zoning amendment," said John Dalzell, a senior architect at the Boston Redevelopment Authority (BRA) who acted as the agency's point man for Task Force support. "We worked with the development community and different focus groups to develop in-house procedures and map out the whole process, and faced very little in the way of opposition."

Boston has adopted a "suite of standards" made available by USGBC, including programs for new construction and commercial interiors, according to Dalzell.

Under new construction guidelines, projects are credited on a 69-point scale for green practices including storm water control, recycled materials, habitat protection or restoration, and the use of low emitting or fuel-efficient vehicles. Boston projects must achieve 26 credits.

Additionally, Boston has adapted the LEED-based system to include four city-specific requirements, which count toward the 26-credit certification, in the areas of groundwater recharging, historic preservation, modern mobility (transportation) and modern grid (energy).

"What we've done is add these credits to make sure LEED values match Boston values," said Dalzell. "The Mayor wanted this to fit the city's core agenda."

With the new standards in place, Menino and his Washington counterparts are hoping not only for a smooth transition to green compliance, but betting that green building is on the cusp of a popularity explosion similar to what's happening in the auto industry. American carmakers General Motors and Ford are losing profitability and North American market share to the likes of Honda and Toyota, which anticipated the greening trend and have successfully marketed hybrid and fuel efficient vehicles as both cool and easy on the wallet.

Boston is now charged with the delicate task of proving to tenants, beyond a reasonable doubt, that green building actually does all the pro-business things it says it does. The increase in up-front development costs, which range from less than 2% to around 10% depending on who you ask, are ultimately passed on to tenants in rate hikes. Advocates claim those costs are offset by a host of green benefits including reduced absenteeism, increased productivity and energy savings, but skeptics cite a lack of conclusive data.

"There's no question some businesses want to be in the most environmentally friendly building and they're willing to pay for it," said one local Boston developer. "But you'd be surprised how quickly some companies change their minds when the economy shifts or their business model changes. It could put some pressure on companies to move out of the city."

The developer noted that major hubs such as Boston or Washington or San Francisco -- which recently said that it too was looking into citywide green standards -- can probably sustain slightly higher rents when the economy's clicking. But as the first large city to implement blanket standards, one luxury Boston does not have is the ability to look at programs in similarly sized cities for ideas and tactics.

Despite these concerns, and despite an industry that treasures the old (see Boston's historical preservation credit) as much as it covets the new, Dalzell remains confident. "We're in the midst of a cultural change, where the practices to date have not yielded an outcome that's acceptable," he says. "We know it's going to take some work in the beginning, but we want to make sure this is going to be a successful and meaningful endeavor."


EDITOR'S NOTE:
CoStar is initiating news coverage of environmental business and economics stories, features and issues that affect commercial real estate. We will be providing news reports regularly throughout the year.