Green Building in a Troubled Economy?

The current financial crisis has arrived in full force and is making its presence felt. One of the sectors that have been hit the hardest by these economic woes is the commercial real estate sector. In times like these, people will rarely deviate from the norm, but sometimes, deviation is exactly what is needed. This article will evaluate the continuing health and viability of the green building movement against the backdrop of the financial crisis.

Many businesses are recognizing green building as a unique opportunity to thrive during economic hard times. In a recent article, National Real Estate Investor Online spoke with Al Skodowski and Rick Walker of the Transwestern Commercial Real Estate Company about how green building will be impacted by a down economy. The general sentiment expressed by Skodowski and Walker is clear: Not only is a down economy not likely to hurt green buildings, but chances are that it will actually help the growth of the movement. Their reasoning? In this time of economic uncertainty, the increased efficiencies and lower operating costs yielded by green buildings help to save money in the long run as well as provide a product capable of attracting and retaining tenants.

USGBC had a candid dialogue with Randy Gaines, Vice President of Engineering for Host Hotels and Resorts, and a Q&A session with Jessica Halvorsen and Lisa Shpritz, from Bank of America’s Corporate Workplace department, who direct Bank of America’s real estate sustainability efforts.

USGBC spoke with Mr. Gaines in an effort to gauge how the organizations that have shown a commitment to sustainability in the hospitality sector are responding to the financial downturn. When asked about whether or not the current economic climate was affecting Host’s commitment to sustainability generally and LEED specifically, Gaines said, “Host still sees value in LEED and is sticking to their commitment to having hotels pursue LEED-EB (LEED for Existing Buildings) certification. We are not backing out of those plans in response to the economic situation. We are still committed to the goal of being a greener company and still committed to green as part of our social responsibility.” Gaines further went on to discuss how Host Hotels has been able to capture a significant ROI through certain green initiatives, something that is of great benefit to the company during financially constricting times. Specifically, Gaines gave an example of how the rising cost of water and sewer treatment in Atlanta pushed them to replace 3.5-gallon toilets with 1.28-gallon toilets, a move that produced a two-year ROI.

The volatility of energy prices is another factor that has pushed Host to maintain its sustainability efforts, prompting Gaines to say, “Tight budgets have encouraged Host to pursue energy savings more aggressively: In today’s environment, Host is going to do a lot more retro-commissioning and we are going to keep fine-tuning our buildings. That’s straight shareholder value – they need every penny we can get out of these hotels. We want to do more retro-commissioning, and focus on operational efficiencies. We need to squeeze more efficiency out of those buildings.”

While generally positive, Gaines was also realistic about green initiatives and how Host decides which ones to pursue. “We are cutting back on some green initiatives. We are doing the ones that are cost-neutral but have to evaluate the ones that have a cost premium associated with them.” That evaluation consists of what kind of ROI they will be able to capture from any given initiative. While not elaborating on which initiatives might get left by the wayside, Gaines did point out that Host is taking a hard look at things like the cost of recycling carpet and vinyl.

Corporate Real Estate’s take on sustainability in these uncertain times

When asked how the current economic climate is affecting Bank of America’s green building initiatives, Lisa Shpritz had this to say: “Our commitment to LEED and sustainability remains strong. All of our commitments have been made with an eye to financial stability, so a lot of what we’ve done has been integrated into business as usual.” Both Shpritz and Halvorsen mentioned how the USGBC’s volume certification pilot process has come along at just the right time and that it “makes a lot of economic sense.” Along the same lines, when asked if Bank of America still sees value in LEED, Halvorsen replied: “Green building and sustainability make sense for Bank of America’s business. LEED contributes to the health of the overall community. If our communities and customers aren’t doing well then we aren’t going to be able to do well either.”

Has Bank of America changed the way it operates its building portfolio, and what, if any, low- or no-cost strategies have been implemented? Shpritz said, “For example, in our portfolio, we have continued to implement green cleaning, since it is a cost-neutral initiative. In this economic climate, the focus on LEED for Existing Buildings is that much more important. We have found that LEED-EB is a useful tool for improving the environmental performance of our existing portfolio. When looking at low- and no-cost pursuits, collaboration with vendors is essential. It’s vital to engage in dialogue with vendors and suppliers when trying to manage costs while integrating sustainability.”

Bank of America is following a common theme among corporations actively pursuing sustainable building initiatives. The more efficiently a building is run, the higher a return on investment one is likely to capture while lowering the environmental impact. According to Shpritz, green design and construction continue to serve as vital components of the company’s environmental commitment: “Our standard new construction prototype for banking centers has been pre-certified. Bank of America Tower at One Bryant Park in New York will be fully complete in 2009, and we’re pursuing LEED Core and Shell at the Platinum level. We have also recently received Platinum certification of a banking center in Southern California.”

So far, the sentiment seems to be consistent: Going green in this economic climate creates money-saving (and moneymaking) opportunities – and not the other way around – and is something that will be revisited in further editions of the Commercial Markets Update Newsletter.