{"id":1004117125,"date":"2015-04-13T06:53:00","date_gmt":"2015-04-13T14:53:00","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004117125"},"modified":"2022-12-08T20:15:19","modified_gmt":"2022-12-09T04:15:19","slug":"april-issue-investment-green-values","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/april-issue-investment-green-values\/","title":{"rendered":"April Issue: Investment\u2014Green Values"},"content":{"rendered":"

By Dees Stribling, Contributing Editor\"800_17th_Washington_TIAA-CREF\"<\/a><\/em><\/p>\n

Back in the infancy of the green building movement, around 2000, commercial property investors were often skeptical of its newfangled ideas. Now that sustainable practices are the industry standard, investors embrace them enthusiastically, although at the same time, they continue to take a critical view. The gist: Not all green features are created equal.<\/p>\n

\u201cSustainability as an end in itself doesn\u2019t necessarily have intrinsic value, except to the extent that it lowers operating costs, increases occupancy or increases the rent that tenants will pay,\u201d noted Russell Ingrum, a vice chairman with CBRE Capital Markets. Metrics for reckoning the financial impact of green practices are far more sophisticated than they once were, but the task remains complex.<\/p>\n

\u201cIn our experience, there\u2019s no single path toward sustainability or one preferred green feature,\u201d explained Jennifer McConkey, operations and sustainability director at Principal Real Estate Investors. \u201cStill, the ability to perform a payback analysis on energy and water efficiency improvements, for example, makes these initiatives attractive, since the value can be calculated and verified.\u201d<\/p>\n

Commanding a Premium<\/strong>
\nHines global sustainability officer Gary Holtzer told CPE that responsible investment integrates environmental, social and governance risks with opportunities that impact long-term returns. \u201cIn the U.S., sustainability is a part of nearly every RFP, from institutional investors and also for major tenants seeking space,\u201d he noted. \u201cSustainability is increasingly synonymous with quality and Class A status. In Europe, the Royal Institution of Chartered Surveyors now specifically lists sustainability as a factor that valuers must account for in property valuations for clients.\u201d<\/p>\n

Dan Winters, senior fellow for business strategy and finance at the U.S. Green Building Council, said that \u201cinvestor demand for green buildings continues to increase with the emergence of multiple lines of evidence fueling this market segment.\u201d<\/p>\n

Last July, The Irvine Co. paid $850 million for 300 N. LaSalle, a 1.3 million-square-foot LEED Platinum trophy tower in Chicago; at the time, the price was a record for an office asset in the city. In another record-setting deal, TIAA-CREF and Norges Bank Investment Management bought 800 17th St., N.W., a 364,000-square-foot office building in Washington, D.C., for $392 million last October. The price for the LEED Platinum-certified property translated to $1,075 per square foot, believed to be the most ever for an office property in the nation\u2019s capital. Many factors influence pricing, but the premiums commanded by these properties leave little doubt that sustainability carries significant weight with investors.<\/p>\n

In fact, the Houston Business Journal recently found that LEED-certified buildings command sale prices 14.4 percent higher than the market average ($222 per square\u00a0foot compared to $194 for non-certified properties). Other 2014 research strongly suggests that LEED-certified buildings create a signaling effect that dictates the competitive\u00a0price scale for local markets.<\/p>\n

Investor confidence is proving out: The business journal further reported that LEED-certified buildings have a 29 percent higher gross rent per square foot than their non-certified counterparts ($39.16 compared to $30.31) and enjoy lower vacancy levels.<\/p>\n

And tenant satisfaction, a major factor in the renewal and expansion decisions that affect market value, appears to be linked to sustainable features. That was a central finding of a recent DTZ study. Drawing on data compiled by Kingsley Associates, DTZ evaluated 61 office buildings in Greater Washington, D.C. The researchers analyzed the links between tenant satisfaction and participation in three programs: LEED for Existing Buildings certification, the U.S. Environmental Protection Agency\u2019s ENERGY STAR initiative and the Sustainability and Energy Scorecard created by the U.S. Office of<\/p>\n

Management and Budget<\/strong>
\nENERGY STAR-certified buildings scored 30 points higher on average than non-certifiied buildings. Participation in the OMB program was a wash for tenant satisfaction, but LEED-certified buildings averaged 10 points higher than their non-certified counterparts. Moreover, properties with multiple certifications scored significantly higher than those with only one.<\/p>\n