Article

The Time is Now for Real Estate Companies to Go Green

April 02, 2007

"Environmental thinking is no longer the purview of isolated, far-left thought," General Electric CEO Jeffery Immelt told a crowd at The Massachusetts Institute of Technology in March. "It is now a mainstream economic discussion." Indeed, from Wall Street to Hollywood, terms such as "global warming" and "sustainability" have entered our everyday dialogue and more than ever, consumers are gravitating towards firms with green policies. At the same time, businesses are discovering that short-term investment in green technology pays off in the long run.

While much of the environmental discussion revolves around alternative energy and hybrid cars, real estate companies play a vital role. According to the United States Green Building Council (USGBC), buildings account for 65 percent of electricity consumption and 30 percent of greenhouse gas emissions, raw materials use and waste output. Needless to say, there is room for improvement. As public awareness grows, attention will focus on which real estate firms are reducing their environmental and energy footprint. This article discusses how real estate firms can begin to go green.

 

1. Avoid Environmental Liability

A U.S. Environmental Protection Agency (EPA) suit can be a public relations nightmare. Real estate companies should protect themselves against three common environmental enforcement actions. First, whenever purchasing property, firms should hire an environmental professional to conduct a Phase I Environmental Assessment consistent with 2006 standards. Saving a few thousand dollars by relying on an old and possibly inaccurate Phase I is simply not worth the financial risk. Second, developers of an acre or more must obtain a storm water permit under the Clean Water Act. The permit requires developers to prepare and implement pollution prevention plans that curtail erosion. The Illinois EPA is stepping up enforcement actions against lax developers. Third, developers should think twice about building in wetlands, another favorite government target. While wetlands mitigation projects are possible, they can be very expensive.

 

2. Green Buildings

Though green construction has traditionally driven up costs, USGBC estimates that going green increases expenses by only about two percent. Financial incentives along with energy savings more than compensates for this small increase. For instance, the federal Energy Policy Act of 2005 provides a tax deduction of up to $1.80 per square foot for new commercial buildings that reduce energy use by 50 percent using the 2001 ASHRAE standards as a baseline. Existing buildings can earn a deduction of $1.20 per square foot for upgrading lighting and HVAC systems. Lending institutions such as Bank of America have green initiatives making it easier to finance construction.

For almost a decade, the USGBC has implemented its Leadership in Energy Design Rating (LEED), which evaluates the environmental and energy qualities of real estate. Ratings range from LEED "certified," to silver, gold and platinum categories. As of late 2006, only 15 buildings earned the LEED platinum rating, one of which is the Center for Green Technology owned by the City of Chicago. The Center, located on a former dumpsite west of downtown, offers several free seminars every week addressing how to incorporate environmentally friendly, cost-saving features into residential, commercial and industrial buildings. Many cities as well as companies such as Ford, Bank of America, Sprint and Toyota incorporate LEED standards in their buildings, which include the following goals.

A. Design for Sustainability

The location, layout, and features of real estate have a significant influence on energy use. Building in urban areas near public transportation reduces energy dramatically by lowering commuting energy costs. Simple steps such as providing bicycle storage rooms and priority parking for hybrid cars and car pools also reduces greenhouse gas emissions. Planting trees in parking lots provides shade that keeps the lots cool, reduces hydrocarbon emissions from gasoline evaporation from leaky fuel tanks, and lowers asphalt maintenance costs.

B. Design for Water Efficiency

Landscape decisions have a huge impact on water use. Many sites capture rainwater for irrigation with roof systems or rain barrels. Some treat wastewater on-site for use in irrigation. For example, Toyota Motor Sales' new 40-acre campus in Torrance, California saves an estimated $12,000 annually by reducing its water usage. The complex saves 11 million gallons of potable water per year by using recycled water for cooling, landscape irrigation, and restrooms.

C. Use Recycled Building Materials

Developers should consider using building materials produced or manufactured nearby to reduce transportation requirements. Wood should come from Forest Stewardship Council-certified forests and developers should mine the market for reused materials and products. A school in Washington D.C. recently used cedar from wine barrels on the exterior and greenheart wood pilings recovered from Baltimore Harbor for flooring and outside decks. A real estate developer near Richmond, Virginia is building a hotel and retail complex using crushed concrete from an existing structure for foundation, sidewalks, and structural support. Almost 7,500 tons of aluminum, steel, iron, copper, assorted ferrous and non-ferrous metals, and electronic equipment are also being salvaged on-site.

D. Reduce Electricity/Energy Costs

Given that per capita residential energy use in the United States is more than double that of Europe, there are many opportunities to cut electricity use. Substituting compact fluorescent lamps for traditional incandescent light bulbs saves close to 75% in electricity costs. General Electric cut its own energy bills by about $70 million last year, partly by installing new lighting in more than 100 of its plants. Firms can purchase "Energy Star" certified products (a joint program of the EPA and the U.S. Department of Energy) and add insulation, reflective roof coating and green roofs to lower energy consumption. Proper fan systems drive down cooling costs substantially. Skylights and glazed windows that track outdoor brightness levels decrease energy requirements for lighting, cooling, and heating.

E. Focus on Indoor Air Quality

Studies show a direct correlation between green buildings and worker health and productivity. Paints, carpets, and adhesives with low volatile organics improve indoor air quality, as do wood and fiber products containing no added resins. Installing windows that open and other natural ventilation systems are also key in improving the indoor environment. New HVAC systems prevent intrusion of air pollutants, and companies are installing air quality and humidity monitors to insure clean and healthy air.

 

3. Become Carbon Neutral

Many companies are offsetting their own emissions of carbon and other gases widely believed to cause global warming. While real estate firms do not generate direct emissions by manufacturing building materials, they do cause indirect emissions through office electricity use and corporate travel. Several organizations publish equations in which companies can input such factors as electricity bills and car mileage to calculate their own carbon footprint. To offset these emissions, real estate companies can support projects such as wind power, solar generation and growing trees, all of which reduce carbon emissions. The Chicago Climate Exchange (CCX) allows firms to purchase "carbon financial instrument contracts" sold by manufacturing companies that have reduced their own carbon emissions. Levenfeld Pearlstein is the first Chicago-based law firm to join CCX and offset all of its indirect carbon emissions. Similarly, real estate firms joining the CCX can assure the public that they are carbon neutral and not contributing to global warming.

Conclusion

The public's growing concern for environmental issues presents a great opportunity for innovative real estate companies. Firms that follow GE's lead and make the small investment it takes to go green will reap huge benefits in the future. In this era of An Inconvenient Truth and the Toyota Prius, more consumers than ever will choose companies that provide not only a firm handshake, but also a solid environmental footprint.

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