Jerry Yudelson On Green Building

A Green Port in a Perfect Storm
By: Jerry Yudelson, PE, LEED AP - Wednesday, August 29, 2007
Source: Yudelson Associates, Inc.

The current meltdown in the housing market, with new starts down more than 20 percent in 2007 compared with 2006, cries out for a creative solution. In the single-family home market, we're seeing more builders than ever before offering green homes, certified against some standard (local or national), in an attempt to lure skeptical buyers without just discounting the price of their inventory or new homes.

The Wall Street Journal (August 25, 2007) details the emerging meltdown in the condominium market nationwide, also the result of easy credit. New condo units completed in 2006 grew by 30 percent vs. 2005, and bank lending for condo projects is expected to grow 50 percent in 2007 vs. 2006. More and more, buyers are walking away from signed sales contracts and forfeiting their deposits on condos.

Green building certifications offer one hope for condo developers, and I'm beginning to get calls from condo developers in major markets wanting to LEED-certify new projects. With fewer than 50 high-rise units (both apartments and condos) LEED-certified nationally, this market is still in the nascent stage.

However, there are plenty of good examples to learn from; in New York City, Portland (Oregon) and now Los Angeles, successful green condo and apartment developments can show the way for other cities. Recently a mixed-use five block office, condo and apartment development in Portland, all LEED-certified buildings, sold for more than three times the developers' initial cost, in less than five years.

Green investment funds abound; public pension funds, major lenders and other debt and equity investors are all looking for green real estate investments. Energy-efficient improvements, upgrades and renewable energy systems all contribute to increasing a building's Net Operating Income (NOI), the primary measure of valuation for commercial buildings (provided they are fully occupied, of course), and valuations are based on a multiple of NOI.

What interests me is how one might take an existing condo building or apartment/condo conversion project and make it a LEED-certified project, thereby getting a market edge among buyers concerned about energy costs, indoor air quality and healthy finishes. The LEED standard offers developers a recognized brand, as does the ENERGY STAR brand for residential uses.

Think about a project still in design: it is relatively easy to make a high-rise condo into an energy-efficient, LEED Silver or Gold-certified building, with a cost increment of about 1 to 2 percent. Given the history of LEED high-rise residences leasing up or selling more quickly, the developer could recoup this extra cost with reduced interest charges on construction loans and with reduced marketing costs. With significant tax credits for solar energy systems, a developer can also add a highly visible green element and offer tax benefits as part of the sale.

For an existing apartment or condo building undergoing renovations, the LEED for Commercial Interiors standard offers a clear pathway to greening a project where the building envelope and HVAC systems are not replaced. Replacing interior furnishings, using low-VOC paints, adhesives and carpets; replacing toilets and fixtures with low-water-using elements; replacing lighting with CFLs and LEDs; and many similar measures are economical choices for a LEED-CI project.

Instead of a bank, lender or investor bailout, developers of homes and condos should consider greening their projects, to take them from the red into the black.

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