Sustainable buildings result in lower operating costs, not to mention long-term savings as the cost of energy continues to rise. Many real estate scions are building green—think of the Durst Organization’s Bank of America Tower in New York City and One World Trade Center, which is being co-developed by Durst and the Port Authority of New York and New Jersey—as well as retrofitting green—most famously, Malkin Properties’ newly refurbished Empire State Building.
So it isn’t surprising that some investors and real estate firms are starting to focus on amassing green portfolios. But when will sustainability become as standard a criterion as location and quality in U.S. investors’ acquisitions? According to many within the industry, thanks to a growing awareness of green as well as several benchmarking programs, that day is almost here.
Many public pension funds and some private pension funds are interested in being environmentally responsible, says Real Capital Analytics Managing Director Dan Fasulo. But “the only real green buildings are brand new buildings built to the U.S. Green Buildings Council’s (USGBC) Leadership in Energy and Environmental Design (LEED) standards. While these buildings are becoming more common, especially in the major markets, it’s still very uncommon for them to be up for sale.”
On a green mission
One investor that’s got a green investment thesis is 5 Stone Green Capital LLC, an organization founded in 2010 in New York City by Doug Lawrence and Lewis Jones, both former JP Morgan managing directors with 34 years of experience between them. The firm is on a mission not only to amass a green multifamily portfolio but to have a positive social impact.
“We have a very simple demographic model,” says Lawrence. “If there are going to be 9 billion people on the planet in 2050, you’ve got to feed them, house them, find them work and they’re going to need more energy.”
5 Stone targets investors who have an interest in green projects and products, including large and small companies, endowments and foundations. “We’ve identified broadly what we call ‘impact investors’—it’s a whole category that we want to tap into,” says Jones.
The firm’s mission is to provide a “triple bottom line” to its investors, says Lawrence. “Our investment thesis provides immediate value creation—by our energy efficiency, sustainable design, lower consumption levels of energy and use of technology, we reduce operating expenses and capital expenditures.”
Bring on the benchmarks
Early on in the USGBC’s LEED rating program, launched in 1998, “investors were seeking so-called green funds,” says Gary Holtzer, global sustainability officer with global real estate firm Hines, “Now it is generally accepted that development will be green and that the best-in-class managers will pursue a sustainable course. The good news is that sustainability is increasingly becoming a baseline, and those that do not pursue this path will suffer a ‘brown discount.’”
Europe’s Global Real Estate Sustainability Benchmark (GRESB) rating system is also pushing investors toward green buildings. The system is used by investors to determine the sustainability of properties they are acquiring. An external group rates the funds for potential investors.
“At the bottom level, you’re being required to demonstrate your energy efficiency in the marketplace and at the top level funds are being evaluated based on a number of characteristics, so building users are seeing the push toward sustainability from both sides,” Pogue says. “Do users care about this? More and more we’re seeing this is true.”
At press time, yet another benchmark, the FTSE NAREIT USGBC Green Real Estate Index, was about to be launched. The product of collaboration between the economic indexing firm FTSE Group, NAREIT and the USGBC, the indices, which so far include 78 publicly traded REITs, will provide investors with a credible set of criteria for identifying an environmentally responsible property using constantly updated data that goes back to 2008. The methodology utilizes both LEED and Energy Star designations. All information is validated by a third party.
Many green drivers
The shift toward sustainability began in earnest with the Government Services Administration (GSA) requiring LEED Silver certification for all new construction federal lease properties of more than 10,000 sq. ft. In 2011, the GSA upped its requirements by requiring projects funded prior to 2010 to be LEED Gold certified. With a portfolio of over 361 million sq. ft. of space in 9,600 federally owned and leased facilities, according to the GSA Web site, the GSA has significantly influenced the trend toward LEED.
“The GSA was an important early adopter because, with very long-term occupants toward perpetuity, this was a pretty big demonstration of what LEED can do,” says David Lynn, executive vice president and chief investment strategist with Cole Real Estate Investments. “But I don’t think the demonstration factor is so important anymore. I think everyone has got religion at this point. People thought it wouldn’t catch on in triple net lease buildings, but it’s even catching on there, too. Major investors see LEED as the future going forward.”
Today the drive toward green investment is being driven largely by multinational corporations, says Dan Probst, Jones Lang LaSalle’s chairman of energy and sustainability services and a founding member of its global environmental sustainability board. He says JLL’s large corporate clients—such as Bank of America, Proctor & Gamble, HSBC and Yahoo—“are very progressive on the environmental front; they’ve had strong focus for a long time on improving the buildings that they own and in which they house their employees.”
(Excerpt of article by Susan Piperato of NuWire Investor . NOT AFFILIATED WITH LAMBOO)
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Bamboo as a resource is unmatched in its potential as a environmentally friendly structurally stable renewable building material. Bamboo produces 30% more oxygen and sequesters 35% more carbon than a like sized timber forest area. With a growth rate of 6-8 years to maturity (compared to timber 25-50) and root structure that eliminates the need for replanting bamboo can be produced on a large scale with much more ease than timber forests cutting costs and limiting energy consumption. Learn more about the amazing attributes of bamboo here.
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