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Toward Greening of Office Development A
Sustainable Approach James R. DeLisle May 4,
2007
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Presentation Overview

• Green Movement
• Background
• LEEDs
• Overview
• Current Market Penetration
• Research Design
• Respondent Groups
• Factors and Trade-offs
• Issues Surrounding Green
• Myths
• Barriers
• Risks
• Opportunities
• Research Questions
• Key Questions to Discuss
• Conclusion

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Green What it is Whats Driving It?

• Background
• Historical
• Cyclical phenomenon tied to energy costs
• Lessons Learned
• Recent
• Global Warming Catalyst tied to environment
• Social Responsibility
• Concepts
• Carbon Footprints
• How Heavy we Tread
• Cradle to Grave
• Manufacturing to Recycling
• Triple Bottom Line
• People, Planet, Profit

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Green Wheres it Going?

• Structural Change vs. Temporary
• Major Interest Groups/Catalysts
• USGBC
• Mayors 2030 Challenge
• CSR Corporate Social Responsibility
• SRI Socially Responsible Investing
• RPI Responsible Property Investing
• Green Finance Consortium
• Property Insurance

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Types of Commercial LEED Programs

• LEED CI Commercial Interiors
• For high-performance green interiors (healthy,
  productive places to work, are less costly to
  operate and maintain, and reduce environmental
  footprint)
• For tenants and designers, who do not control
  whole building operations
• LEED CS Core Shell
• Covers base building elements (structure,
  envelope and building-level systems)
• Recognizes division between landlord and tenant 
• LEED EB Existing Buildings
• Performance-based benchmark for building owners
  and operators to measure operations, improvements
  and maintenance
• Seeks operational efficiency while minimizing
  environmental impacts
• LEED NC New Construction
• New Construction and Major Renovation Green
  Rating System
• Designed to guide and distinguish
  high-performance commercial and institutional
  projects, with a focus on office buildings

Geddes, EDA W NV
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Market Share by Type by LEED Rating
Number by Type and Rating
Modal Mix by Type
Type Mix by Rating
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LEED New Construction

• Exceptional Performance in Achieved LEED-NC
  Credit
• Innovation in other Green Building Categories

• Innovation in Design 5
• Sustainable Sites 14
• Materials Resources 13
• Energy Atmosphere 17
• Water efficiency 5
• Indoor Envir. Quality 15

• Reuse existing building/sites
• Protect natural and agricultural area
• Reduce need for automobile use
• Protect and/or restore natural sites
• Develop only appropriate sites

• Use materials with less environmental impact
• Reduce manage waste
• Reduce amount of materials needed

• Establish energy efficiency and system
  performance
• Optimize energy efficiency
• Encourage renewables and alternative energy
  sources
• Support ozone protection protocols

• Reduce quantity of water needed for building
• Reduce municipal water supply and treatment burden

• Establish good air quality
• Eliminate, reduce and manage the resources of
  indoor air pollution
• Ensure thermal comfort and systems
  controllability
• Provide for occupant connection to the outdoor
  environment

Geddes, EDA W NV
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LEED Members Growth Diffusion of Innovation
Corporate Social Responsibility
Global Warming
Rising Energy Costs
Profit/Return Rising Requirements
Degree of Green
Growth
Maturity
Innovation
Decline
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LEED Market Penetration
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LEED Certified Russell Family Foundation
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LEED Platinum New Construction Example
Total Number 35
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LEED Silver Existing Building
Raised Points To 76
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Green in US by Category by Ownership Type
LEED Share Rating by Type
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Distribution of LEED Certification by Level
LEED Share Rating by Type
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Geographic Dispersion by Type of Green Activity
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Green Building and Project Finance
TRCm
Wcc
GIr
NIr
/ NIR
Land
Hard Soft Costs
TRCm
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Corporate Real Estate Value Creation
Maximize
Optimize
Enhancing
RE Costs
Enduring
Situational
Minimize
Tactical
Strategic
Perspective
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Corporate Business Model
Gross Revenues
Costs of Goods
Business Activity
Labor
Profit
Profit
Real Estate Costs
Time
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Survey Overview Respondents Familiarity

• All Respondents

Overall Familiarity with Green
NAIOP Investment Mgr Profile
21.6
Years in Industry Years in Green
2.2
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Statements Surrounding Green
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Awareness and Acceptance of Green
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Green Building Practices
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Green Factor Statistical Analysis Model

• Objective
• Collapse multiple dimensions into significant
  factors
• Apply statistical technique to identify principal
  components
• Factors
• Concept Buy-in
• Receptiveness to Environmental/Green goals
  objectives
• Beliefs in benefits, needs and social
  responsibility
• Market Buy-in
• Opinions about markets acceptance
• Focus on other participants
• Economic Inertia
• Lack of market justification
• Need for incentives or regulations to stimulate
  action

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Green Issues A Scorecard
Optimist
Skeptic
Concept Buy-in
High
On the Money
Cynics
Market Buy-in
Who Cares?
Advocate
Low
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Market and Green Acceptance Contractors vs. All
Market buy-in vs. Pro-green
Market vs. Economics
Cynics
On the Money
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Biggest Barriers to Green

• NAIOP Office Developers
• Costs, costs
• Paperwork, timing
• Front end cost back end return
• Rising costs, cost recovery
• Knowledge
• Info
• Companies ignorant
• Will tenants pay for it?
• Lot of hype..
• Proving economic benefit

• Efficacy and Cost-effectiveness
• The party paying not one benefiting
• Building payback is short-term
• Office space is a commodity product
• Hold periods too short to justify
• Knowledge
• Too many unknowns
• Lack of long term benchmarking
• Lack of demand by clients/tenants
• Lack of research public education
• Commitment
• Retrofitting existing isnt justified
• Tenants don't know or care
• When tenants decide, developers will follow
• Education
• Requires new methods/education
• Educating the public on the pros and cons
• Cost/benefit analysis

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Greatest Opportunities

• Education
• Consistent, fact based, education
• Education of managers investors
• Identifying "low hanging fruit"
• Regional Advantage
• Regional opportunity to be pioneers
• New offices, condos and hotels will be green
• Competitive Advantage
• First mover advantage
• Better work environment productivity
• Marketing as customers demand green
• Spatial Impacts
• Improved performance and operations
• More comfortable building operation
• Environmental Benefits
• Sustainability ecology effects
• Reduce resources energy savings
• Carbon reduction, waste reduction

• NAIOP Office Developers
• Image
• Self-sustaining, renewable energy
• Good PR
• Marketing, Market Advantage
• Attract government leases
• Cost savings
• Overcoming challenges
• Doing the right thing
• Environment
• Reduce carbon

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Myths Surrounding Green Buildings

• NAIOP Office Developers
• You have to be LEED certified
• Save the environment
• Benefits not outweigh costs
• That it costs a lot more
• Cost of LEEDS too high
• Only add 1-2 costs
• Cost premiums insurmountable
• Too expensive for ROI
• Companies not willing to pay more rent
• Tenants will pay for it

• Challenges
• They are too Green and complicated
• That office environment will be better
• That we're not already building green
• Over hyping benefits and performance
• Cost Perceptions
• Too expensive and has no ROI
• Initial costs not recaptured in long term
• Costs too high to warrant
• Can be cheaper most are cost effective
• Performance Expectations
• Green automatically reduce expenses
• It costs less to build and maintain
• More green, more operating problems
• Demand
• That tenants are banging down doors
• That public will embrace it pay

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Research Questions

• Performance
• How measure benefits?
• Do studies show operational savings?
• Factual data on effects, net costs
• What added costs, new and existing
• Lessons Learned
• What mistakes have you seen
• Keep open mind and not one answer for all
• How change traditional way of doing things?
• Education
• Who teaches skills, materials and techniques?
• Beyond materials energy, what works?
• Does green give competitive advantage?
• Approaches
• Beyond LEEDS RPI energy star?
• How create more incentives?

• NAIOP Office Developer
• What is real benefit?
• How much does it really cost?
• Operating saving vs. Cost
• Thorough cost/benefit
• How be cost competitive?
• How improve social benefits?
• How many companies leasing?
• How to mitigate energy?
• Do they work over time?
• Do certain climates have different needs?

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Biggest Risks

• Complexity
• Too complicated, too fast
• Continuing to ignore existing buildings
• Efficacy
• Projected savings not recaptured
• Higher costs more to maintain in long run
• Tenants or users don't like the product
• Too much hype, too fast bogus case studies
• Uncertainty
• Not knowing what the economic effect is
• Unproven technologies that dont work
• Unexpected side effects, such as air quality
• Market Acceptance
• Not Getting public buy-in/losing support
• Developers spend tenants dont respond
• Not getting developers on-board
• Interventions Institutionalized
• Being forced with unintended consequences
• Movement entrenched in building codes

• NAIOP Office Developer
• Too much, too soon
• Lack of guidance
• Failure of untried products
• Lack of market respect
• Forced interventions that dont work
• Discussion out of hand
• Too much, too soon
• New technology
• Just a fad
• Push out timelines
• Legal enforcement before knowledge

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Key Questions to Panel

• NAIOP Office Developers
• What are real costs?
• Are costs coming down?
• How capture if selling?
• How quantify value?
• Argue both sides
• Overview with examples
• Which tenants seeking?
• Cost/benefit acceptance?

• Costs
• What cost to build convert existing?
• Is green cheaper to operate or faster to build?
• How to tap ongoing operating costs?
• Performance
• What ROI on categories of "green?
• What monetary benefit for existing owners?
• How the economics work?
• Approaches
• What systems work best and where?
• How rework leases to put in incentive?
• Ability to transition existing stock?
• Post studies of savings tenant satisfaction?
• Knowledge
• Do we know long term effects from all angles?
• Real time case studies of mistakes?
• Empirical support documenting a return?
• Demand for green and impact on productivity?

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Summary

• Nature of Movement
• Structural shift, with cyclical risks
• Issues
• Myths
• Risks
• Barriers
• Opportunities
• Challenge
• How get engaged in pro-active sense?
• How interject market-based sustainability?