When Internet firm EarthLink needed to house 400 employees in Pasadena, Calif., the Atlanta-based company didn't set out to make local history. But that's what happened after EarthLink renovated half of a leased 110,000 sq. ft., two-story building. In doing so, EarthLink became the city's first LEED-Certified Gold building in the commercial interiors category.
Upon completion of the $4.4 million project last September, EarthLink met the new energy-efficiency standards of California law and city regulations, says Hank Smith, director of design and construction for EarthLink. “The end result is you've reduced the carbon footprint because you've reduced the energy consumption,” Smith says.
While the push to upgrade a property's environmental status traditionally has come from the owner, increasingly it is tenants who apply pressure. Many corporate tenants have hired consultants to navigate legislation or the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) rules.
A joint survey conducted in 2007 by Atlanta-based CoreNet Global and real estate services firm Jones Lang LaSalle showed that 79% of respondents viewed sustainability as important, and 77% were willing to pay a premium for green.
Many multinational firms consider greenhouse gas reduction part of their mission, says Mark Bennett, an attorney with Miller Canfield in Detroit. “Fortune or Global 500 tenants are now requiring their office space to be LEED-certified or green, and LEED is really becoming the brand,” he says. “Tenants are starting to band together, and some of the bigger tenants are forming trade groups and coalitions.”
But what tenants or developers don't know about going green could cost them a bundle. In Washington, D.C., a developer could break the law by failing to meet standards for some renovated city buildings. Boston, Atlanta and Seattle, among others, require LEED standards in certain cases. Atlanta requires city buildings larger than 5,000 sq. ft. or costing more than $2 million to be LEED-Silver.
“In the next few years going green will be baked into the building code” in many cities, Bennett says.
Buildings account for 40% of U.S. carbon dioxide emissions, so improved standards could substantially reduce the emissions, says Jason Hartke, public policy director for the Green Building Council.
LEED-certified projects now number more than 1,300, with another 9,500 in the pipeline as registered projects. On average, a LEED-certified building saves 36% in energy use, says Hartke.
Some building owners consider green initiatives too costly, but they may have no choice in the future, as more cities and states regulate carbon emissions. “There's a lot of pressure on the Securities and Exchange Commission right now for the SEC to start to require companies to disclose the impact of potential carbon regulation on profits,” says Bennett.
Some federal proposals would cap emissions at specific levels, and companies could trade carbon credits to offset any excess. “It appears increasingly likely that in 2009 Congress will enact a climate-change law that includes cap and trade,” says Michael Gerrard, head of Arnold & Porter's environmental practice in New York.
In some cases the cost of modifying buildings to save energy can be offset by tax credits and higher property valuations. But many companies and even real estate attorneys are poorly informed about such savings, says J. Cullen Howe, an attorney with Arnold & Porter.
Going green isn't easy, but it can lower energy costs and improve a workplace.
“I didn't expect the building to be as successful as it was,” in attaining LEED-Gold status in Pasadena, admits EarthLink's Smith. “We exceeded our own initial expectations.”
LEED ratings by the numbers
Construction space in the LEED system: 3 billion sq. ft.
Number of LEED-certified projects: More than 1,300; 9,500 in the pipeline
Certification levels: Certified, Silver, Gold and Platinum
Average fee for LEED project certification: $2,000
Source: U.S. Green Building Council