Following the construction industry and related legal topics in the United States.

Thursday, March 15, 2007

Right Now is Your Tomorrow

I recently attended ACI's Conference on Developing and Investing in Green Buildings in New York City. The program addressed green building incentives, valuation of green buildings, LEED, and contracting for LEED. I came away with a couple of impressions.

First, green building is here. At least eighteen states and the District of Columbia now have some form of green building requirement for public buildings, as do some progressive cities. Some states (ex: MD, NY, OR) and cities (ex: Arlington, VA) also provide incentives for private development. These incentives include fast track permitting, density bonuses, and tax deductions/credits. We are also seeing a number of private companies build green in jurisdictions that without green requirements or incentives (ex: Bank of America in Charlotte).

Second, there is a premium to building green, but you should see long term savings. Developers at the conference are seeing a 2-7% increase ($3 to $5 per sq. ft.) in building costs, but that is tempered by yearly cost savings of roughly $1 per sq. ft., and projections of a 10 fold cost savings over the life cycle of the building due to reduced maintenance and operating costs (ex: roughly a 36% decrease in energy consumption). One developer also noted that choosing not to build green may result in a building that is obsolete (and thus demands lower rents) when green becomes the standard.

Third, anecdotal evidence suggests that, short term, developers in our footprint are not seeing a return through increased rents. Although a green building is a good marketing tool, there is not yet enough evidence to convince tenants that they will see a reduction in operating expenses or an increase in productivity. However, one developer that attended said it hoped to see a rent premium as leases come up for renewal because tenants will have experienced costs savings by that time.

Finally, developers should pay special attention to contract provisions when building green. LEED objectives and goals should be clearly expressed in the contract, responsibility for goals and objectives should be assigned to the proper parties, and consequences for failure to meet the objectives and goals should be expressed (including the possibly of penalties). Parties should also keep in mind that LEED certification comes after final completion of the project, after a contractor has typically been paid in full.


Blogger Gail said...

Much of the information on line supports the concepts promoting green building practice, however it seems that those involved in making these decision both in the private and public sector remain skeptical. Not many sources indicate exactly what the arguments against green building practices are; what do you think are the major arguments against?

10:17 AM  
Blogger Chris Iavarone said...

Gail, that is a great question. In considering my response to your comment, I decided it was worthy of its own blog entry. Please see my response here.

10:16 AM  

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