March 14, 2008

Understanding Energy Efficient and Green Buildings

Gorgeous, Well-Located Brown Buildings May Soon No Longer Qualify as Class A Buildings

An office building developer recently wrote to me about how important it is that all new buildings be designed to be green.

"If someone does not understand what LEED Platinum is, it is akin to 1990 when someone said they were getting a “cell” phone, or 5 or 6 years ago when someone mentioned “hybrid” car.

"Those that know what “LEED” is tend to be more aware of what is happening in the world of buildings. I would venture to say that 100% of licensed Architects, 98% of commercial office building construction companies, and 70-80% of commercial real estate brokers are very familiar with LEED. You are correct here because I would also estimate that only 10-20% of Bankers are even slightly informed.

"I was in San Francisco a couple of weeks ago for the Green Building Finance Forum and one of the tide changing consensus items was that in one or two years at the most, an office building will not qualify as “Class A” by the leasing industry unless it is LEED certified, regardless of how well it is located, how new it is, or how nice it is.

"There are “green” buildings and there are “brown” buildings. Any building that is in the planning stages or under construction that is not LEED certified is already obsolete. Brown buildings will be the new “office ghettos”. Kinda like the poor guy selling motorhomes or Chevy Suburbans when gas is $5 per gallon and rising. LEED certified buildings are taking the market share like the Toyota Prius did to the Hummer.

He went on talk about the energy efficiency of his own new building:

Independence Station beat the strict Oregon Energy Code by an astounding 74% and our energy cost budget is 92% less that in a comparable brown building. What do you think that does to the NOI and the value from the cap rate?

"What on earth does LEED mean anyway?" I asked.

LEED stands for Leadership in Environmental and Energy Design. It basically is a point based, voluntary building code (about to become law in San Francisco) and is administered by the US Green Building Council (see www.usgbc.org). It is kinda like the Energy Star program is for appliances.

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