Green Blueprint

By Amanda Marsh

Last December, 195 nations signed the United Nation’s historic climate change agreement in Paris and created a framework to keep the planet’s temperature rise below 2 degrees Celsius. Sustainability is a significant movement in commercial real estate, so Commercial Property Executive invited six respected leaders to assess the industry’s progress, share best practices and discuss their companies’ strategies.

What are your top sustainability priorities for the next several years?

HELEN GURFEL, ULI Greenprint Center for Building Performance: One new initiative is a tenant energy reduction program to engage real estate owners, tenants, and service providers to implement energy efficiency measures and ultimately drive tenant demand for high-performance spaces.

NICK STOLATIS, TIAA-CREF Global Real Estate: The integration of our new acquisitions into our proprietary Global Real Estate Sustainability Initiative, which we implemented internally in 2007 to define the environmental and responsible investment practices that we demand of ourselves and our investment partners. I’m also excited about our new Property Energy Target program, which identifies capital and operational improvements for each individual property and quantifies benefits to be achieved.

WILL TEICHMAN, Kimco Realty Corp.: Last year, we launched our LED retrofit program, and 100 properties underwent a retrofit. This year, we will take on another 60 to 70 projects, and our plan within five years is to complete all Tier 1 shopping centers in our portfolio. And irrigation is viewed by many municipalities as a non-essential use for water. Since Kimco desires to have attractive properties—and landscaping contributes to this brand appearance—we are looking for different ways to be creative and save water.

GARY HOLTZER, Hines: We have been extensively studying the needs of future generations of tenants and other stakeholders.

BILLY GRAYSON, Liberty Property Trust: Among other initiatives, Liberty will be focused on energy efficiency. Some of the newly affordable next-gen technology includes on-site solar, fuel cells and energy storage and electric vehicle chargers. And there’s still enough low-hanging fruit where owners can just focus on facilities management strategies to squeeze out another 10 percent in energy efficiency and 20 percent in water efficiency without new whiz-bang technology.

CPE: What’s the next big thing in sustainable practices?

GURFEL: There are several initiatives pushing for zero-carbon buildings. And as building technologies become more advanced and have more robust connectivity, they will further increase building efficiency and reduce the resources required.

STOLATIS: Even more emphasis on recycling measures, including composting of organic waste. Energy Star’s new waste tracking module, along with its energy and water benchmarking tools, will be immensely helpful in encouraging more buildings to implement these best practices.

TEICHMAN: The effort among landlords to work closely with tenants around sustainable practices. Some progress has been made, but landlords and tenants are still largely working in isolation.

How about the overall occupant experience?

DAVID POGUE, CBRE Group Inc.: We’re working to understand, measure and make occupant experience a key part of our practice. CBRE’s own Workplace360 program is an example of the next generation of spaces. Tenants are becoming more concerned about their space and how they can more efficiently use it.

GRAYSON: The most expensive factor is employees. If we can figure out how to make them 1 percent more productive, it would make a bigger impact on a company’s bottom line than reducing energy or water use.

POGUE: Energy costs account for only $3 per square foot while human capital costs $300 per square foot or more. If we can demonstrate that being in a sustainable building better improves the performance of a workforce, it could have a dramatic impact on the economics of your tenants. In turn, tenants will seek this kind of building.

GRAYSON: Liberty is focusing on indoor air quality, less-toxic materials, more daylighting, and better ventilation. We’re also exploring the WELL Building Standard to make our buildings healthier.

What’s the greatest sustainability-related challenge the industry will face?

HOLTZER: Making the sustainability discussion truly global. The Paris summits made great progress, but more work still needs to be accomplished.

GURFEL: The proliferation of reporting standards. The industry must make a concerted effort to work together to create metrics and standards that can be utilized consistently across platforms and reporting schemes.

STOLATIS: Any mandatory [benchmarking and disclosure] regulations will create stress even for those buildings whose owners and managers are supportive of the objectives, if the building is not designed to accommodate the physical demands being placed on them.

TEICHMAN: The way the landlord-tenant collaboration challenge will play out. It’s not as big an issue within office buildings, where building infrastructure, metering and prevailing lease norms can work in favor of collaboration. Multi-tenant net-lease buildings, such as industrial facilities or retail shopping centers, are on the opposite end.

GRAYSON: The split incentive, especially in industrial. The tenant gets the benefit of an energy retrofit, but the landlord has to take the cost.

GURFEL: Also making the case for capital investment in technologies that provide strong financial and environmental returns. Much of the benefits of the technologies are still considered anecdotal.

GRAYSON: Continuing to have rebate and incentive programs are also still important to help upgrades pencil out. Lower energy costs have made investments more difficult.

POGUE: We also need to demonstrate that a sustainable building also has more value. That, overall, has been difficult to prove since the market is not in equilibrium and most buildings, sustainable or not, are trading at good rates. This value piece needs to happen so that people understand the financial benefit of sustainability demonstrated over time. Part of that will be through the appraisal process.

What should the industry know about municipal energy ordinances?

GURFEL: There are currently 37 local governments that have passed municipal or state-wide energy disclosure regulations. The data is generally made public to support the market for performance improvements. We’ve seen some owners shy away from regulation and oppose legislation. We usually say, “Wouldn’t you rather have a seat at the table and guide how the ordinance is defined?”

TEICHMAN: Although some of the regulations were imperfect at first, there have been a number of corrections and improvements that have made it easier for landlords and tenants to comply.

STOLATIS: Benchmarking is such a basic tool for any building, I can’t imagine why anyone would object. The disclosure aspect could create potential marketing headaches for a building, but I suspect that’s a desired impact a community would hope drives efforts to improve results.

TEICHMAN: Kimco feels that energy disclosure and transparency will likely work in our favor, as it reveals to the market which owners have invested in sustainability.

GRAYSON: But it shouldn’t be up to businesses to disclose their energy usage, especially when they sometimes can’t access [the information] because tenants pay the bills directly. It would be easier if it were the responsibility of the utility company.

GURFEL: More cities will pass these benchmarking ordinances, with each city having a slightly different approach to the requirements. Creating a strategy to manage compliance across the markets that are impacted is essential.

HOLTZER: Several questions come to mind. Does the municipality have the resources to effectively deal with the enormous amount of data it receives? How does the municipality verify its accuracy? How can we be careful to not to over-simplify the data in an industry that is not simple? And lastly, how does this data collection bring about meaningful, lasting, positive change?

POGUE: Possibly even more important are the regulations at the building-code level. [Many] municipalities have adopted parts of LEED and other green building practices. If you’re going to build new buildings or undertake significant tenant improvements, there are higher standards.

To what extent do customers expect to have certification tickets punched? Is the value changing?

HOLTZER: For many tenants and investors, certifications are a price of entry into the quality real estate arena.

STOLATIS: Some view certification as an end result. The reality should be that one is actually achieving the improvements in building design and operations, and that the certification is simply the external validation.

GRAYSON: Liberty Property Trust has been committed to Energy Star for a decade, and every new property is built to LEED standards. We’re at a point where both LEED and Energy Star is expected for a building, even in Class-B properties in many markets. We’re even building industrial to LEED, though only one in 10 tenants ask.

STOLATIS: The value of any specific certification is up to each building to determine based on its market situation and circumstances.

POGUE: We’re gathering data for our third Green Building Adoption Index, which tracks the certification trend in the top 30 U.S. cities. From a near-zero start in 2005 to 2014, 13 percent of all buildings in those markets now have LEED certification or an Energy Star label. In the most successful markets—Minneapolis and San Francisco—70 percent of space has certification.

Are there green practices that could benefit from greater industry attention?

GURFEL: LEDs can provide significant energy and maintenance cost savings, yet their deployment is still not as broad as one would expect.

GRAYSON: The industry also doesn’t spend a lot of time on its roofs, except when they leak. So we’re going to focus on white and green roofs, as well as using them for solar power.

STOLATIS: There needs to be more effort brought to getting utilities to provide automated data downloads into benchmarking tools such as Energy Star. By reducing the incidence of data errors, there will be greater confidence in the calculations.

TEICHMAN: Cutting through the noise associated with selecting technologies and service providers. The amount of phone calls, emails and solicitations from vendors is off the charts. The majority of these inquiries are not relevant to our product type and tenant mix, which speaks to a mismatch between product vendors and prospective customers. One of the best ways to address this is through collaboration and information sharing.