Green Building Law Blog : Green Building Lawyer & Attorney : Shari Shapiro: Obermayer Rebmann Maxwell & Hippel Law Firm : Environmental, LEED

CB Richard Ellis, the worldwide behemoth of real estate services, issued a report which addresses "the economics of sustainable buildings." Their conclusion? Basic level of certification adds between 2-3% to the cost, higher levels of accredidation add 5-7% of construction costs.  This is fairly in line with other cost estimates which have been issued.  However, there were some other interesting conclusions from the report:

• Although developers will reap some rewards in terms of higher rents and enjoy higher rates of rental growth,the rates of rent additionality is about the same as the excess development costs (2-6%), so the additional rental value is essentially a wash.
• Improvements in energy savings can be between 10-50%, a major number. 
• Residential customers will pay some premium for green, but not necessarily the actual cost of the green improvements
• Extra value will need to accrue from the investment markets for the lower risks and higher valuations of green buildings.

How should this study effect decisions making at the policy and business level?

• The potential market benefits from greening buildings have not solidified--this means that incentives can still be powerful tools to motivate green projects.  The incentive may be the tipping point.
• Energy savings, and measurement of the realization of energy savings, is an important factor in "pencilling out" green improvements.  From a policy perspective, this puts even more value on reporting and disclosure of building performance measures.
• Policy measures need to be different for commercial and residential sectors to motivate green.  There may need to be different levels of incentives applied to motivate different segments.

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Many months ago I wrote about the need for a floating gas tax to stabilize fuel prices, allow predictability and incentivize eco-friendly developments.  Now Ford chairman Bill Ford agrees.

Earth2tech reported:

“If prices are gyrating wildly,” he said, it becomes extremely difficult to know whether the company is planning the right vehicle or technology (if you’re operating under the assumption that automakers should supply what the market demands, and that there’s a lot less demand for fuel-sippers when gas is cheap). Ford noted that in the EU, diesel fuel “became an easy decision” for drivers after the government decided to make it much cheaper than gasoline.
 

When major environmental regulations were passed in the early 1970s, there was a lot of hand-wringing over how it was going to destroy the economy.  Now, with cap-and-trade, similar arguments are being made. Senator James Inhofe said yesterday, about EPA's declaration of greenhouse gases as harmful to human health:

This move by EPA will unleash a torrent of regulations that will destroy jobs, harm consumers, and extend the agency’s reach into every corner of American life.

But it turns out, in capitalism, the rules of the game don't matter, as long as they are predictable. So Obama should implement cap-and-trade, and those companies that can adapt and thrive in the new regulatory environment will survive.  And those that cannot, will not, but others will take their place.  I predict that with the attitude expressed by Bill Ford, Ford will survive...and the others should not.  

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Redgreenandblue.org had an article here that "BP has dumped its plans to build out wind farms and other renewable projects in Britain for projects in the United States" because of the tax incentives for renewables in the United States and Barack Obama's promise to spend $150 billion over 10 years to kick start a renewable energy revolution.

In other words, because of green laws and incentives, the United States is competitive for renewable energy on the world market. What does that mean? More clean energy here, and more green jobs.

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Daily Green had a nice post on how to save $4000 annually and go green available here

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Interesting post on Consumers Buying Into Sustainability
on Bulider Online. Builder Online reports that "energy efficiency" garnered an 88 percent favorability rating among consumers. This reflects, I believe, a growing opportunity for green buildings to command higher rents and be more robust in a declining real estate market.

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Ok, so there is sometimes a great divide in law between the corporate folks (in my office they live on the 20th floor and I see them sometimes rushing around to the printer, whatever that is) and the lit/reg folks that I pal around with. But I do know enough about corporate law to know that a big McKinsey study on how climate change mitigation measures will effect corporate valuations going forward matters. So here is the link to the study--http://www.mckinseyquarterly.com/Corporate_Finance/Valuation/How_climate_change_could_affect_corporate_valuations_2223_abstract

In short, failing to mitigate climate change will decrease corporate valuation and shareholder value. Which could have serious risk implications for the managers and directors in charge of those organizations. Which is another type of potential green legal risk.

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It looks like Europe, long the leader in climate change regulation may be getting cold feet on adopting the regulations because ofits financial impact, the Wall Street Journal reports here--http://blogs.wsj.com/environmentalcapital/2008/10/13/changed-climate-meltdown-has-europe-backpedaling-on-climate-caps/.

This is very bad news--and as shortsighted as can be. All estimates of the cost of climate change indicate that we will be getting a bargain by addressing the issues now and not waiting until catastropic effects--Tufts estimated in 2006 that the cost of climate change in the US alone would be as great as US$74 trillion. ase.tufts.edu/gdae/Pubs/rp/Climate-CostsofInaction.pdf

I hope that US regulators in the next administration will be less short sighted, but I fear not.

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Interesting article this morning on green as a haven in times of financial crisis, and an analysis of the green investment market over at Resnet. http://www.natresnet.org/resblog/post.asp?iPostID=7053

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Today I had the privilege of having lunch with Frank Baldassarre (President/CEO) and Bill DeFalco (EVP Chief Lending Officer), two of the founders of Philly's own sustainable financial institution, E3 bank. http://www.e3bank.com/

Bill and Frank were nice enough to tell me all about the E3 project so that I could share it with the readers of Green Building Law. And a very exciting project it is--Bill and Frank and the members of the E3 team are establishing a financial institution which not only invests in sustainable projects, but is itself a "triple bottom line" entity. E3, by the way, stands for "Building Sustainable Enterprise, Protecting the Environment, and Investing in Social Equity".

Frank has been in banking--traditional banking--for 27 years, and until two years ago, he had never heard of LEED. Once he was exposed to the green building world, though, it was like "having his eyes opened." he wondered why more people weren't building green and getting involved. "The lack of financial resources and instruments was a big reason people weren't doing it. We are setting out to change that."

Frank sees the opportunity for financial institutions to be a catalyst for change. "I see E3 not only as a resource, but as a facilitator of change on a large scale. Financial institutions have the ability to make change on a large scale. It will be hard to undo the damage to the environment without getting a lot of people involved."

E3 will offer financial products for sustainable projects, like energy efficient constuction and renovation. The instruments will be designed to "continually encourage people to take the next step in sustainability." For example, by providing discounted loan rates for projects which pursue higher sustainable goals, like LEED Platinum ratings, and using carbon offsets as loan collateral. In addition, E3 will provide value added services to their clients, like expertise in leveraging E3 funds with private and public financing sources.

E3 will also offer a deep green savings account where the money invested will go towards the greenest projects. According to Frank, "When you deposit your dollar, it will match your values."

Bill also mentioned the possibility of providing energy audit services to identify the best use of E3 funds.

Bill and Frank are veterans of the banking industry, but they have a lot of green experience behind the E3 project. Sandy Wiggins, the immediate past chair of the USGBC, is the Chairman of the Board of Directors of E3, and Jim Lutz, Senior Vice President of Development for Liberty Property Trust, David Berry, Co-founder of the Sustainable Water Resources Roundtable, Jackie O'Neil, winner of a 2007 Philadelphia Sustainability Award, Joyce M. Ferris, Founder and Managing Partner of Blue Hill Partners LLC, Judy Wicks, Owner and Founder of Philadelphia's 25-year-old White Dog Cafe, and Gavin Kerr, an experienced health care veteran are all board members.

Throughout lunch, Bill and Frank expressed their optimism for how E3 can change the financial industry and the world by aligning it to the triple bottom line. Frank noted that the single bottom line had not been working well lately for the financial industry, giving the example of the sub-prime lending debacle. If the financial instutitions had taken into consideration the social equity of what they were doing, perhaps it would not have happened.

As Frank says, "The more you learn, the more responsible you become for your actions."

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Cherokee Investments, which is "a private equity firm specializing in brownfield cleanup and sustainable redevelopment", released a report on its sustainable projects yesterday, available at http://www.cherokeefund.com/ (article at http://www.marketwatch.com/news/story/cherokee-report-highlights-its-investments/story.aspx?guid=%7BD55BC51C-630D-4C15-B3AC-A01C7D4D53A9%7D&dist=hppr).

Although the report does not provide hard numbers on their projects, it does highlight some of the community benefits of their projects--like transit oriented development and provide a succinct set of ideas for pursuing sustainability through real estate development.

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Two articles this morning brought to mind the the classic urban theory that the density of urban environments creates cross-pollination and agglomeration benefits. GreenBuildingsNYC had an article about four closely located green businesses in New York City's Lower East Side http://www.greenbuildingsnyc.com/2008/03/05/the-lower-east-side-nyc%e2%80%99s-emerging-green-retail-district/ and another about a proposed green industrial park http://www.greenbuildingsnyc.com/2008/02/29/new-york%e2%80%99s-first-green-industrial-park-breaks-ground-on-long-island/ .

Essentially, the argument goes like this--cities are places where people are densely packed together. As a result of the clustering of people and businesses, innovation increases and there is a benefit in human capital externalities (ie more businesses, more jobs, more money, etc.). If it all seems a bit esoteric, think about fashion. You can get a lot more ideas about what to wear to work on the subway in New York City than alone in your car on a suburban commute.

The same concept should work with green businesses and green building--the more of these entities grow up in a small geographic region, the better they will be able to feed off one another and innovate. This is a good argument for local government incentives to stimulate green building and businesses. One green building is good, but a cluster of greeen buildings with workers in green businesses will foster more carpools, more sharing of ideas, more emulation--in short more innovation which will lead to the afforementioned human capital externalities. With the growing concerns over a faltering economy, fostering dense clusters of green innovation is one way to combat the tide.

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Good article in the Boston Herald--http://www.bostonherald.com/entertainment/lifestyle/view.bg?articleid=1069349

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My Sunday perusal of the New York Times uncovered a very nice piece on the unintended consequences of legislation brought to you by the same guys who wrote Freakonomics, available here http://www.nytimes.com/2008/01/20/magazine/20wwln-freak-t.html?_r=1&ref=magazine&oref=slogin. The gist of their argument is that beneficial legislation often as the unintended consequence of deterring the very action the legislation was designed to provide--like the Americans with Disabilities Act reducing employers hiring of disabled workers.

The EPA and the Energy Information Administration (EIA) published analyses of Senators Arlen Specter (R-PA) and Jeff Bingaman's (D-NM) proposed "Low Carbon Economy Act of 2007″ (S. 1766), and declared that the impact on economic growth and prices would be "modest." Full articles available at Sustainablog, here http://sustainablog.org/2008/01/21/analyses-finds-law-would-cut-carbon-with-modest-impact-on-economy/.

What the bill and the analysis by the EPA and EIA fail to take into consideration is that the reliance of the Low Carbon Economy Act on carbon recapture and nuclear power has the potential to cause vast unintended consequences for the environment and for the economy. For example, a nuclear plant meltdown would have untold environmental cost and economic cost. Carbon capture technology can extend the use of coal fired power plants and the development of new coal fired power plants when such plants might otherwise be replaced with more sustainable forms of energy.

Similarly, green building legislation which is hastily drafted and passed has had embarrassing and counterproductive results. For example, the Las Vegas green building tax cut that threatened such a strong impact on state tax revenue that it had to be hastily rescinded. http://greenlaw.blogspot.com/2007/07/what-happens-in-las-vegas.html

For legislation to be successful in promoting positive environmental change, legislators need to look beyond the obvious and consider the unintended consequences of their actions. One way of doing so is to correctly articulate the desired outcome, and to ensure that the legislation works to promote that goal.

For example, the stated goal of the Low Carbon Economy Act is to "To reduce greenhouse gas emissions from the production and use of energy, and for other purposes." Is this really an accurate assessment of the purpose of the legislation? The purpose was more likely to preserve the environment for future generations by reducing greenhouse gas emissions. Using nuclear energy and coal will reduce greenhouse gas emissions, but it will not necessarily preserve the environment for future generations by doing so. Therefore, the first step to strong beneficial legislation which avoids unintended consequences is to articulate a valid purpose and confirm that the mechanics of the legislation works to positively promote the end goal.

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Individual green buildings are important, but the long term goal should be to develop sustainable communities. A new report by the Price of Wales' foundation demonstrates the economic and social value of walkable, mixed use and mixed income communities. The report is available here http://www.princes-foundation.org/index.php?id=8.

Among the most interesting analyses is a comparison among new urbanist communities in different supply and demand markets. The report concludes that the new urbanist model "appears to provide the greatest value enhancement where development is taking place in a moderate demand market." However, it records a 30% premium for the new urbanist community in a high supply market, which may be an even more important conclusion.

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Today Wells Fargo Bank announced that "it has surpassed the $1 billion mark in loans for Leadership in Energy and Environmental Design-certified buildings. " according to the Milwaukee Business Journal. See full article here http://milwaukee.bizjournals.com/milwaukee/othercities/eastbay/stories/2007/07/16/daily47.html?b=1184558400^1494032

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Building Green had an interesting post today about Green Financing organizations. http://www.buildinggreentv.com/blog-location/workshop-home/945

In addition to financing, of course, insurance is another key component in effective green building. Fireman's Fund has a product called Green Gard. http://www.firemansfund.com/servlet/dcms?c=business&rkey=437 In addition to providing insurance specifically for green buildings, it allows insureds to rebuild green in the event of a loss.

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Another good article on the financial benefits of green building. http://www.theglobeandmail.com/servlet/story/LAC.20070717.PRPROPERTY19/TPStory/Business

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Today's topic is money. One of my collegues recently told me that until developers see profit in building green, they will not be interested. It appears that day has come, and that REITs and developers are beginning to respond.

The New York Observer published an article on June 26, 2007 about the new Bank of America tower in New York City, which is striving for LEED Platinum. The interesting thing about the article is the dramatic premium developer Douglas Durst is getting for his office space. The Observer article states "Asking rents for each [remaining] floor will start at $185 per square foot annually, a source said, which are among the highest asking rents in any American office building ever. Average asking rent in Class A office space in midtown is $70 per square foot, according to the brokerage Cushman & Wakefield." The possibility of getting a 38% premium will certainly attract the attention of developers considering embarking on new projects.

A study made available today entitled "Responsible Property Investing: A Survey of American Executives" (available at http://www.uli.org/AM/Template.cfm?Section=Research&CONTENTFILEID=27159&TEMPLATE=/CM/ContentDisplay.cfm) explores the interest of REITs, developers, pension plans and other institutional investors in socially responsible property investing.

The study revealed that about 57% of survey respondents were implementing management strategies around conservation (promoting energy conservation, water conservation or recycling in your assets), and 36% were investing in Green Buildings. The sample size was small, only 189 respondents, but it reflects a growing interest among real estate investors in sustainable development.

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