From Manhattan's stunning Hearst Building to the energy saving Tower Building in suburban Washington, D.C., so-called green building have become de rigueur for trend-surfing tenants and the developers who cater to them.

And, across the U.S., the number of certified green buildings built each year has mushroomed, thanks to rising energy prices and a shrinking premium for green building materials and construction techniques.

But for most commercial developers, green has been an afterthought or a costly option. By 2005, 623 projects in the United States were certified under the U.S. Green Building Council's Leadership in Energy & Environmental Design (LEED) program. Only 5% of new commercial buildings built this year are expected to be LEED certified.

In a 2005 survey of construction and real estate industry executives by Turner Construction Co., 68% said they avoided green construction because of concerns about cost. They also said lack of awareness and sketchy information on the financial benefits held them back.

But green building is getting an extra push from state and local governments that could vastly accelerate the movement, making energy-efficient and environmentally friendly building techniques all but mandatory.

Ten cities have adopted codes based on LEED requirements and dozens more have created their own green standards. Five states have green-building legislation, and 20 municipalities have ordinances that force developers to build more energy-efficient, environmentally friendly projects. Another 17 cities have resolutions related to green building, while 14 more have executive orders.

In June, during the U.S. Conference of Mayors annual gathering, the non-profit organization identified buildings as the largest consumer of fossil fuel in the nation. According to the group, whose more than 300 members represent cities with at least 30,000 residents, between 40% and 60% of greenhouse gas emissions in the U.S. are created from operating buildings.

By pushing to make all new buildings carbon neutral — meaning they would not use fossil fuel — the mayors see an opportunity to reduce energy costs and improve the environment. Nearly 300 mayors have signed on to the 2030 Initiative, which commits their cities to reduce greenhouse gas emissions by 7% from 1990 levels over the next two and a half decades.

“The initiative is about doing the right thing for the planet, because if we don't, we're going to lose it,” says Albuquerque Mayor Martin Chavez, a trustee for the U.S. Conference of Mayors, who is currently working on a green ordinance for both public and private development in his city. “This is one of those unique instances when doing the right thing also makes financial sense.”

Experts point to a recent study by Lawrence Berkeley National Laboratory that found the financial benefits of green design — in energy costs and employee and resident productivity gains — are between $50 and $70 per sq. ft. over the life of a building (roughly 50 years), more than 10 times the additional cost associated with building green.

Demanding participation

To encourage green development, cities are offering financial incentives ranging from tax credits and rebates to perks like expedited permitting and density bonuses (see sidebar p. 31). But while developers certainly like carrots such as tax abatements, they bridle at the sticks of municipal mandates.

In Washington, D.C., for instance, developers are steamed about a proposed Green Building Act that would require any new construction or renovation involving 20,000 sq. ft. or more to meet green-building energy-efficiency standards.

“Bill 16-515 reaches well beyond the practice of other green jurisdictions by establishing a green-building compliance officer for pre-permitting plan reviews and on-site inspections, with threats of stop-work orders and certificates of occupancy denials,” developer Robert Braunohler told members of the District's Committee on Consumer and Regulatory Affairs during a hearing earlier this year. Braunohler is regional vice president of Louis Dreyfus Property Group and spoke on behalf of the District of Columbia Building Industry Association.

“The city needs to be very careful because a green-building ordinance could curtail development,” warns Jeff Blum, a principal of Level 2 Development, a Washington D.C.-based condo developer.

“It's an ongoing debate on whether or not people should be incentivized, or if the process should be legislated,” says Marnie Abramson, a principal with the Tower Cos. in Rockville, Md. The firm got its start in green construction with 1909 K Street, a Class-A Washington office building that it finished in 1997. “We favor incentives because they offer developers the opportunity to make the right choice — they are like a scholarship to learn a new way of building,” says Abramson.

The Tower Cos. has become something of a regional expert in green buildings, completing in 1999 the 285,000 sq. ft. LEED-certified Tower Building. Moreover, the firm has two more green office projects under way, one in the District and the other in Montgomery County, Md., which is also looking at green-building mandates.

While the Green Building Act is stalled before the D.C. Council, the District is, in effect, mandating green building through its formal planning and zoning process. All commercial projects must negotiate a so-called public benefits package, and more often than not green building is part of that package, according to Blum.

For example, to get the go-ahead for View 14, an $80 million, mixed-use complex at the corner of 14th and U Streets in D.C.'s Columbia Heights neighborhood, Blum agreed to a public benefits package that includes a green roof and a system that recycles air conditioning condensation.

Across the Potomac River, in Arlington County, Va., every project that is larger than four stories must go through a public review process, which also includes negotiating for a public benefits package. Projects that incorporate enough environmental goodies to earn 25 LEED credits (for 26 credits, a project rates full LEED certification) are quickly approved, says Joan Kelsh, an environmental planner with the county.

“It's not technically a requirement,” Kelsh says, pointing out that Virginia law prevents counties from mandating green buildings. But, she acknowledges that developers who don't incorporate the green-building approach aren't likely to win zoning approval.

In fact, every commercial project that has been approved in Arlington County since 2003 has had at least 25 LEED credits. The county now has 20 projects under development and another 20 have been approved — all of which will boast green-building elements, she says.

Ground up green

Some new communities, like Coconut Creek, Fla. and Battery Park in Manhattan, have adopted LEED standards. Those rules require energy and water efficiency, among other things, as part of a basic building code.

Coconut Creek, a Fort Lauderdale suburb, passed its green-building ordinance in 2004 as it laid plans for a 500-acre downtown district. “We wanted to make sure that our downtown was designed and developed in a way that made a positive impact on the region rather than a negative impact,” says Sheila Rose, director of development services for the City of Coconut Creek.

The decision was a tough one for city leaders, who were concerned that the ordinance would scare off developers. “We had some serious discussions about it because we recognize that green design requires a higher level of quality and may cost a bit more,” Rose says.

Since the city ordinance passed two years ago, a $185-million mixed-use project by Philadelphia-based Brown Hill Development has been approved and two additional projects are in the planning stages. “We've not had anyone say that they don't want to do any projects here because of the green ordinance,” Rose points out.

Battery Park is a step ahead of Coconut Creek. The massive residential and office development, which sits between the World Trade Center site and the Hudson River, has become a showcase for ground-up green construction and will eventually boast 4.5 million sq. ft. of sustainable projects.

“We decided that we wanted to do green development and if a developer can't do it or won't do it, then they just won't participate in Battery Park City,” says James Gill, chairman of Hugh L. Carey Battery Park City Authority. As a quasi-public corporation ruled by a small board, the authority had little trouble implementing sweeping green-building mandates, he notes.

Green building rewards

While governments cajole with incentives and prod with mandates, green building continues to generate its own momentum. Most significantly, the shrinking cost differential between green and conventional building materials is attracting more developers.

When the Solaire — noted as the first green building in Battery Park — went up in 2003, it cost about 16% more than traditional apartment buildings, Gill recalls. “One day soon we'll be able to say that the cost of one of these buildings is in line with the cost of conventional buildings.”

Then there is the plus side of the ledger — the economic benefits of owning a green project. “Most people get into green building because they see a real value proposition,” says Nicholas Eisenberger, managing principal of GreenOrder, a New York-based environmental consulting firm that helped 7 World Trade Center achieve LEED Gold. “Green building boosts asset value, improves net operating income and improves tenant experience and quality of life,” he says.

According to Greg Kats, managing principal of Capital E, a Washington, D.C.-based green energy consulting firm, green buildings can boost employee productivity by approximately 15% by curbing the use of materials associated with so-called sick building syndrome — ailments that cost businesses $100 billion annually in sick pay, the Environmental Protection Agency estimates.

“It is fiscally irresponsible to design unhealthy, inefficient buildings,” says Kats. “The risks of not doing a green building outweigh the cost of doing one.”

Gerding/Edlen Development Co. LLC, for example, expects to save 20% to 30% annually on energy costs for the Brewery Blocks, a 1.7 million sq. ft. retail and office project in Portland, Ore. By using green windows, lighting, insulation and solar power for the project, the Portland, Ore.-based firm projects that the extra expense will be offset by the savings in energy after three years, says managing principal Mark Edlen.

“Our competitors used to make jokes about our green initiatives,” Edlen says. “I don't think they're laughing anymore.”

Jennifer Popovec is a Fort Worth-based writer.

Incentives assuage investor fears over green premiums

Historically, many developers and investors have shied away from sustainable construction because of the cost premium to build green. Today, however, there are a number of incentives that help to take the sting out of green development.

Incentives can range from tax credits, grants and rebates offered by state and local governments to green-building discounts on insurance and materials. Or, they can take the form of non-monetary perks such as expedited permitting, approvals and density bonuses, special zoning permits that allow developers to build larger projects.

Incentives play an important role in enticing both reluctant and forward-thinking developers to build green, contends Jeffrey Abramson, a partner with The Tower Cos., a Rockville, Md.-based firm that focuses primarily on green office and apartment projects. “They are probably the most effective way to motivate developers to do the right thing,” says Abramson.

The Tower Cos. received roughly $2 million from Maryland's Green Building Tax Credit Program for 2000 Tower Oaks Boulevard, a nine-floor, 198,000 sq. ft. office building in Rockville. The building is expected to achieve Leadership in Energy and Environmental Design (LEED) Gold certification, the second-highest level offered by the U.S. Green Building Council.

“These programs help owners justify using newer, energy-efficient or environmentally sustainable technologies that are potentially cost prohibitive,” says Patrick LaCorte, a principal at DMR Architects, a Hasbrouck Heights, N.J.-based design firm.

DMR Architects, for example, worked with the New Jersey Greenhomes Program, a statewide initiative managed by the New Jersey Department of Community Affairs that provides grants for affordable housing projects to offset the costs of sustainable upgrades. The program subsidizes the costs of sustainable upgrades for up to $7,500 per unit.

Similarly, New York-based Becker + Becker Associates received tax credits totaling $4 million from the New York State Energy Research and Development Authority for its newest rental project, the 500-unit Octagon on Roosevelt Island. The tax credit paid for the $4 million investment the firm made in energy-conserving technology.

The project boasts insulated windows and 250 solar panels, the largest number of solar panels on any building in Manhattan. “We felt that we received greater support because of Octagon's green building features,” says Bruce Becker, president of Becker + Becker.

Now that the firm has the apartment project under its belt, it hopes to get involved in the redevelopment of Governor's Island, a 140-acre island in the middle of New York Harbor. The city has already stated that it will give preference to project proposals that follow LEED standards.

Fireman's Fund Insurance also gives preference to green buildings by offering a special insurance endorsement for buildings that achieve LEED status. With these new endorsements, owners can lower the cost of their insurance premium by roughly 5%, says Steve Bushnell, product director of commercial insurance at Fireman's Fund.

Fireman's Fund is betting on the fact that green buildings perform better, and thus prevent losses related to electrical fires and plumbing problems. The company worked with the U.S. Green Building Council to determine the likelihood of a green building suffering a loss.

Bushnell explains, “We think green buildings are a lower risk because they go through such an extensive review process.”
— Jennifer Popovec