Risk Management

Green Buildings: A Slow, Steady Blip

Issues linked to environmentally-friendly real estate may not be top agenda items for CFOs — yet. But it will be hard to ignore the rumblings for l...
Marie LeoneSeptember 4, 2008

The greening of commercial real estate is no longer an arcane issue. Witness the practical evidence: Green building construction is predicted to increase to $60 billion by 2010, at which time 10 percent of new commercial construction is expected to be green, according to the McGraw-Hill Construction group. In August, the non-profit U.S. Green Building Council announced that there are currently more than 13,700 building in the United States that are registered to obtain green certification. Further, earlier this year, the Building Owners and Managers Association International published a handbook to help its members decipher, among other things, the complex language of so-called green leases.

To be sure, moving into a green building is more desirable today than it was 24 months ago, says Marisa Manley, president of Commercial Tenant Real Estate Representation, a New York City-based broker that advises corporate tenants. And even though Manley says that leasing, buying and building green buildings is not yet on the CFO’s radar screen, it is gaining steam.

Nevertheless, growth in this area may be slowed by a mundane matter. Green buildings mean different things to different people. At one end of the spectrum are the large, environmentally friendly single-tenant towers that companies like The New York Times, Conde Nast, and the Bank of America built over the past few years. Those building were conceived to feature the latest technologies and architecture.

At the other end of the spectrum are tenants looking to lease “green” space for a variety of reasons. Some feel it helps the company earn a reputation as caring about the environment – which in turn helps to recruit and retain employees and portrays a positive corporate image. Others feel strongly about reducing costs over the long term — as is the case with energy efficient lighting. Some are looking at workers’ health issues and community concerns.

For example, the building could set up convenient paper and plastic recycling to contribute to a community tax break; or it could make sure that the carpeting, paint and furniture that comes with the building does not give off gasses that are harmful to workers. In other cases, the heating, ventilation and air conditioning system may have green components to assure that extra fresh air is pumped in to and out of the offices on a regular basis. The extra price paid for green initiatives, depending on which ones are chosen, range from “negligible to up to 20 percent” of build-out costs, says Manley.

Still, while expenses such as electricity costs are certainly a negotiable point, green initiatives remains an esoteric field, says Marshall Cohen, a partner in the real estate law firm Cohen & Perfetto, who points out that landlords have been known to use electricity clauses to generate profit. “When I see a complicated [electricity pricing] formula in a contract, I have experts in the energy management field review the lease. The cost information should be clear,” asserts Cohen.

In any case, “landlords use ‘green’ in the market as a sales tool,” especially in cities that are trying to raise or maintain their environmentally-friendly profile such as Seattle, New York and Boston. But if finance chiefs are ready to take the green plunge by moving into an environmentally friendly building, then they will want detailed specifications to make sure the building is “green in a meaningful way — and hopefully reduces operating costs” says Manley, “so they are not just paying for someone else’s public relations.”

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