COVER STORY, JANUARY 2009

SUSTAINABLE SECTORS
Eco-friendly options for tenants and property owners can be found across all sectors.
Jaime Lackey

In commercial real estate, “green” means more than LEED certification (although that is changing, too). New trends include carbon offsets that fund multifamily development and leasing industrial rooftops for solar energy production.

Offsetting Multifamily

Silver Gardens in downtown Albuquerque

In the multifamily sector, carbon offsets are making an appearance. In downtown Albuquerque, New Mexico, the Supportive Housing Coalition of New Mexico Inc. and Romero Rose LLC are developing an affordable apartment complex funded in part by a Green Communities Offset grant. The first phase of the Silver Gardens development will have 66 units and will incorporate green design and green construction measures that will result in a 20 percent reduction in energy use as well as a reduction in carbon dioxide emissions.

According to Homer Robinson, project manager with Romero Rose, the project will feature sunshades on the south- and west-facing apartments, reducing the heat impact and therefore reducing the amount of electricity utilized in these apartments. The project will use blown-in cellulose insulation instead of fiberglass, which better insulates the building and reduces energy consumption. Two 2,500-gallon underground water storage tanks will store rainwater for use on the landscaping. Pre-fabricated panelized wood framing reduces the amount of wood utilized and wasted on the project. The wood will also be Forest Stewardship Certified (FSC). All paints, carpets, tiles and hard-surface flooring will have recycled content and will be low-VOC. This has the double benefit of utilizing recycling materials as well as improving the indoor air quality for the residents.

According to Dana Bourland, senior director of Enterprise’s Green Communities, Silver Gardens received a $50,000 Green Communities Grant for planning and construction costs related to integrating green methods and materials into the development. The newly formed Enterprise Green Communities Offset Fund™ is also purchasing a total of $6,600 in carbon offsets for 330 tons of carbon dioxide that will not be released into the environment due to the green design and construction of Silver Gardens.

The Green Communities Offset Fund raises and pools contributions from organizations, individuals, institutions and events to purchase Green Communities Credits™, which are verified carbon emissions reductions from green affordable housing developments participating in the Green Communities initiative.

All contributions to the fund go to community-based groups for activities that reduce energy use and global warming pollution in homes for low-income residents and result in verified carbon emissions reductions. All fund proceeds support activities that directly reduce carbon emissions below the level that otherwise would be achievable. Contributors to the fund receive credit for verified emissions reductions that can offset their own carbon-generating activities and may take a tax deduction for their contribution.

As Bourland says, “The Green Communities Offset Fund offers a unique opportunity to cut carbon emissions and help low-income families experience the benefits of greener homes — lower energy bills, a healthier living environment and better performing properties — right here in our communities in the U.S. We anticipate that the Offset Fund will demonstrate that green buildings can and must be part of the solution to climate change.”

Green Office Leases

In the commercial sector, green leasing is a growing trend, driven by several factors. Climate change discussion is becoming more mainstream, so more building owners and tenants are becoming aware of the environmental costs associated with inefficient use of energy and water. Many companies publish corporate social responsibility reports, and green leases are a way to demonstrate — and control indicators of — environmental responsibility.

According to Aleka Skouras Eisentraut, an attorney in the real estate and green business practice groups at Oakland, California-based Wendel, Rosen, Black & Dean LLP, “Green leases can also result in reduced operating costs, reduced vacancy rates and increased building value.”

Buildings are a major source of greenhouse gas emissions. Even in California — where Title 24 has helped to establish guidelines for energy efficiency — buildings are responsible for approximately 25 percent of greenhouse gas emissions, Eisentraut says. Nationwide, the number climbs to approximately 40 percent. There is a significant opportunity to improve the environment by improving commercial building operations — and green leases are a tool for improving building performance.

According to Eisentraut, a green lease is similar to a regular lease document, but it also addresses the sustainability goals of the landlord and the tenant, and it creates a partnership for attaining, and allocating the costs of, those goals.

“Each green lease will vary, depending on the characteristics of the building, the proposed use of the premises and the sustainability goals of the parties,” Eisentraut says. “For example, if a building is seeking LEED certification, many additional provisions will be required in order to track the LEED certification credits, especially in the area of LEED-EBOM. However, most green leasing will require careful scrutiny of the rent structure and allocation of operating expenses. A green lease will also cover tenant improvements/build out, energy and water use, and other operations and maintenance issues.”

Effective September 1, 2008, the U.S. Green Building Council introduced LEED for Existing Building Operations and Maintenance (EBOM). (It is the new version of LEED for Existing Buildings.) Under LEED-EBOM, certification is renewed every 5 years. This focus on operations and maintenance, as well as the re-certification requirement, will be a major driver of green leases. “The landlord of a LEED-certified building must be able to control how the building is operated and maintained,” Eisentraut says. “If a tenant does not attain the performance standards mandated by the U.S. Green Building Council, the building may not achieve re-certification or may achieve a lower level of certification.”

Green leases can address everything from retrofitting a building with solar panels to using environmentally friendly cleaners and CFL bulbs to recycling construction waste and locally sourcing building and interior materials. While energy is currently the biggest focus of green leasing, these leases may also address issues such as water conservation, indoor air quality and transportation, especially when LEED certification is involved.

Many green leases mandate annual inspections and operations audits to ensure that tenants are in compliance. According to Eisentraut, landlords want the right to protect themselves and tenants want notification if they are not in compliance. No one wants to discover a problem during the LEED re-certification process.

Another concern of green leasing in general is how to overcome what is known as the “split incentive.” In most standard leases, neither the landlord nor the tenant has any incentive to make energy efficiency a priority, Eisentraut says. Landlords have no incentive to make capital improvements, such as installing solar panels. Similarly, tenants who pay a pro-rata share of utilities have no incentive to improve energy efficiency. They may use far fewer resources than neighboring tenants but still pay for utilities based on their pro-rata square footage of the total building use.

In California, Eisentaut says, AB 1103 is also a big boost for green leasing. Starting this month, she explains, utilities will be required to track energy consumption in commercial buildings. This information, with the owner’s consent, will be uploaded to the U.S. EPA’s Energy Star database. In January 2010, property owners will be required to disclose this information to lenders, lessees and potential purchasers of the building.

“The availability of this operating expense information statewide may cause less efficient properties to reduce their base rents in order to compete with more efficient properties,” she notes. “As a result, many property managers have registered their properties for LEED certification.”

Solar Industrial Success

ProLogis Corp. to complete a 2.44-megawatt solar installation on 320,000 square feet of existing roof space at ProLogis’ Kaiser Distribution Park in Fontana, California.

Industrial properties may be the key to the successful growth of solar energy projects. For example, in Southern California, power company Southern California Edison recently teamed with BJG | Architecture + Engineering and ProLogis Corp. to complete a 2.44-megawatt solar installation on 320,000 square feet of existing roof space at ProLogis’ Kaiser Distribution Park in Fontana, California. The energy generated by the Kaiser 7 Solar Project flows into the local electrical grid and has the potential to generate enough electricity to power 1,426 households each year.

“[ProLogis is] committed to being the sustainability leader in real estate,” says Drew Torbin, the company’s manager of sustainability. “This type of deal contributes to our renewable energy goals, and it is important to do the right thing when it comes to the environment. Also, by leasing roof space, we are able to create additional value from existing assets, which isn’t a bad thing in today’s economic climate.” As the construction manager, ProLogis also receives a management fee, contributing an additional financial incentive.

In 2006, ProLogis set a goal to implement enough renewable energy systems to obtain a combined generation capacity of more than 25 million kilowatt hours (kWh) per year by 2010. Currently, ProLogis has a total of approximately 6.1 megawatts of photovoltaic projects completed or under development worldwide.

Torbin notes, “ProLogis is the world’s largest owner of distribution facilities, and by de facto, the largest owner of rooftop space in the world. The company has more than 500 million square feet of roof space worldwide or the equivalent of about 10,000 football fields. ProLogis’ growing sustainability program helped the company to realize the impact it could have by utilizing its roofs for photovoltaic installations.”

According to Cliff Johnson, team leader and vice president of BJG | Architecture + Engineering, “The [Kaiser project] wasn’t originally designed to support the new load from the 2.4-megawatt photovoltaic solar panels, so there were some tricky structural issues that needed to be approved by the building department, and BJG was hired to help ProLogis overcome this challenge.” Johnson believes developers will begin designing their buildings with sufficient strength to support potential solar panel loads.

He adds, “BJG sees a lot of potential in this program, as there exists a great deal of industrial roof space that could be used for this purpose.”

Solar energy is also becoming a big focus for economic development in Oregon. The state’s Department of Energy offers the tax credits to companies that invest in energy conservation, recycling, renewable energy resources and less-polluting transportation fuels. Since June 2007, six solar energy companies have chosen to build manufacturing facilities in the state, thanks in part to the Business Energy Tax Credit as well as the availability of skilled workers and low business costs.

SANYO North America began construction on its $80 million, 130,000-square-foot silicon ingot manufacturing facility in October. The facility is located in Salem Renewable Energy and Technology Park, an 80-acre parcel developed by the city of Salem specifically for renewable energy and other technology companies.

Germany-based SolarWorld opened its Hillsboro, Oregon, facility in October 2008. Santa Clara, California-based Solaicx is building a facility in Portland. Peak Sun broke ground on its Millersburg, Oregon, plant in February 2008. SpectraWatt Inc., a solar energy company funded by Intel’s investment arm, Intel Capital, will build a facility in the Hillsboro area. XsunX plans to build its first manufacturing plant in Wood Village, which is just east of Portland.

This year, Oregon’s solar industry will begin producing more solar cells than any other state in the nation.

LEED for Retail

As for the retail sector, the U.S. Green Building Council (USGBC) is adapting its LEED guidelines for retail spaces. Following a pilot program focused on understanding the unique challenges of the retail market sector, the market launch for the LEED for Retail program is slated for first quarter 2009.

The LEED for Retail program is creating a rating system for new construction, such as a stand-alone restaurant or a big-box store that is built from the ground up, and for commercial interiors, which includes tenants in a larger center or existing building. (Shopping centers are certified under the existing core and shell guidelines.)

According to Justin Doak, LEED retail sector manager with the USGBC, customizing the LEED guidelines for retailers — from supermarkets to coffee shops and from big box stores to small boutiques — will result in guidelines that are easier to follow and more projects that are eco-friendly and LEED-certified.

The pilot program, which began in 2006, included 80 retailers building 41 new construction and 54 commercial interiors projects. “The pilot projects provided real-world examples and feedback which have shaped the rating system into what it is today,” says Nick Shaffer, USGBC retail sector coordinator.

Pilot program participants — representatives from big box retailers, smaller retailers, restaurants and development companies — developed their projects from a draft of the modified rating system and provided feedback to the USGBC regarding what works and what does not work. Doak and Shaffer took comments from the project teams to the USGBC’s technical advisory group, which decided whether to revise the draft after determining that the changes uphold the USGBC’s high standards and the changes are fair to other retailers and to other market sectors.

The LEED for Retail guidelines differ from the standard LEED guidelines, which were developed for commercial office buildings, by taking into account the different needs of retailers. For example, when evaluating water efficiency, supermarkets can omit from calculation water needed to meet health code or to make food for human consumption. “These are not opportunities to save water,” says Doak. “We don’t want to compromise the quality of service or product.”

However, there are ways for supermarkets to conserve water. A supermarket that achieved LEED Silver certification after participating in the pilot program installed low-flow plumbing fixtures in its restrooms, showers and break room, thus conserving 34,000 gallons of water annually. This is a 21 percent savings over standard fixtures, says Valerie Walsh, LEED consultant and principal of LEED Management Services LLC.

Energy is also a major focus of the LEED for Retail program. Walsh, who oversaw the project build out for the supermarket, notes that the store uses a glycol refrigeration loop that reduces amount of refrigerant (a greenhouse gas) needed for food cases by 76 percent. A highly reflective roof material reduces summer air conditioning requirements. In all, the store has reduced its energy needs by 25 percent compared to a conventional supermarket, eliminating the production of 623,000 pounds of carbon dioxide. (In addition to the reduced environmental impact, the store sees annual energy savings of $45,000 at current energy rates.)

For the first time, the USGBC is also developing guidelines for commercial kitchens. In addition to feedback from pilot project teams, the guidelines take into account information provided by organizations like Energy Star; the Food Service Technology Center; and the American Society of Heating, Refrigerating and Air-Conditioning Engineers. “The benefit of these guidelines is that we are pulling information that is [currently] fragmented into one document,” Doak says.

With retail-specific rules, expect to see many LEED-certified retail spaces in the near future.

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