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M AY 2008
Key Trends in Green
Development and Investment
E XECUTIVE S UMMARY
Purpose
The purpose of this paper is to focus attention on important trends that are occurring and will
continue to influence:
The points highlighted in this paper are culled from presentations and discussions with
industry leaders in real estate, finance, architecture and construction, at the 2008 Urban Land
Institute (ULI) conference on sustainability.
“Green” topics are currently a focus of almost every industry and the media. At the same time,
it is hoped that the trends presented in this paper will provide a unique perspective of further
value, development and investment in sustainable and green projects, over the next 10 to 20
years.
Trends
In addition to the impact of the goals and standards set by LEED (Leadership in Energy and
Environmental Design), Energy Star and other forms of eco-efficiency on the real estate
industry, there seems to be four important trends that are driving broader approaches to
developing and investing in sustainable real estate projects, as depicted in the following
diagram.
Growing
Going
Market
Beyond
Demand
LEED
•The Current Frontier & Value •Health & Productivity
•"Zero" CO2 Emissions •Energy Costs &
•Systemic Thinking Uncertainty
•Market Opportunities •Functional
Obsolescence
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Key Trends in Green
Development and Investment
Building green or energy efficient buildings does not seem to completely address the critical
impact of ever-increasing commuter distances between home and work, and growing numbers
of passenger vehicles. This impact is captured by a metric called Vehicle Miles Traveled (VMT),
which has been identified as one of the key contributors of carbon emissions, as depicted in the
box below.
The following chart illustrates the projected increase of VMT in the U.S. (see black
line), with the observation that that though CO2 levels in 2030 are projected to be
lower than today (see top red line), increasing VMT may still cause emissions to
be significantly higher than identified target CO2 levels (see bottom red line).
160
140
Vehicle Miles Traveled
120 20 30 New 45 mpg
Fuel Greenhouse Gas: -15%
100
19 90 CO2 Level
80
Target CO2 Level
40
2005 2010 2015 2020 2025 2030
Source: Growing Cooler: The Evidence on Urban Development & Climate Change, E. Reid
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Key Trends in Green
Development and Investment
By contrast, developing and investing in denser urban areas with increased transportation
options (i.e. “Where we choose to develop …”) would afford significantly less driving; encourage
more efficient uses of public transportation between home, work and play; and greatly
reduce VMT and CO2 emissions.
To this effect, public entities, private developers, A/E firms, contractors and investors are likely
to find meaningful and profitable opportunities in projects that comprise some, or all, of the
following components:
Leading participants at the ULI conference spoke emphatically about several important project
/ organizational dynamics that have driven success and value in their sustainable projects:
• Leadership to push limits - and create more effective and cost efficient solutions.
This could be the developer, architect, consultant, contractor or key investment
partner.
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Key Trends in Green
Development and Investment
Durst’s Comments
− “In 1995, we knew that we wanted to do green, but didn’t know how or what”.
− “As a result, we utilized off-sites meetings to bring all team members together, to
think through green”.
− “Initially, the tenants of 4 Times Square didn’t understand. Today, One Bryant Place
is LEED Platinum, and there is high tenant demand … (as) green buildings begin to
distinguish themselves”.
− “The process is to work collaboratively, not confrontational. No blame pointers”.
− “To a tenant, operating costs of a building are 4%, but the cost (i.e. salaries and
benefits) of the workers occupying a building are 80%. Therefore, the payback on
cost of improving work efficiency is great”.
As the cost of building green becomes less of a concern, the value of building green is
becoming more apparent as indicated by the following points:
• Nearly all Class A office buildings built today in the U.S. are LEED-certified,
otherwise a building risks becoming functionally obsolete over time.
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Key Trends in Green
Development and Investment
• As energy prices continue to rise, energy efficient green buildings will have
increased tenant demand, and it will be a market differentiator in down markets.
Source: http://www.costar.com/partners/uli.pdf
• Whether LEED is becoming a market standard, and eventually might become a part of
the building code, and
• How developers and investors can move beyond LEED standards, to achieve higher
efficiencies (i.e. cost savings) and further untapped market value.
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Key Trends in Green
Development and Investment
The following three items highlight opportunities for developers, investors and A/E/C firms to
drive value through attaining higher standards of energy efficiencies and lower CO2 emissions
beyond those established by LEED and Energy Star:
1) Generate “near-zero” levels of CO2 emissions – to not only comply with accepted
sustainable building practices, but go beyond compliance: 1) to achieve lower operating
costs through higher efficiencies, and 2) to appeal to growing market demand for
increasingly innovative and green spaces.
2) Think systemically – about an integrated strategy for all building systems, i.e. building
envelope, MEP systems, use of natural site resources, natural & artificial lighting,
interior finishes, construction methods, materials sourcing, etc., in addition to projects’
integration with broader communities and global markets.
3) Mitigate effects of uncertain energy prices - to maintain and increase property value,
and to be ahead of quickly evolving trends in sustainable development and investment.
PURPOSE /
INTEGRATED PASSION
STRATEGY Values-Driven
Management
BEYOND Enhanced
Means: Be a
COMPLIANCE Market Value Successful
LEED Means: Company
Certification Contribute to Ends:
COMPLIANCE Better World Contribute to
Energy
Regulatory Efficiencies Ends: Be a Better World
Enforcement Successful
Threat of Company
PRE- Functional
COMPLIANCE Obsolescence
These five stages chart the focus on sustainability that companies can incorporate
into their organization, as they seek to bridge the gap from Compliance to increased
value-based visions of Integrated Strategy and Purpose/Passion.
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Key Trends in Green
Development and Investment
A F INAL N OTE
A telling perspective of our ability, as members of the broad real estate community to impact
how the built and corporate environments will change by the middle of this century, is
conveyed in the following statement from the Co-Directors of Princeton University’s Carbon
Mitigation Initiative. It opens a realm of opportunities for us to uncover value in the way we
will choose to build over the next 50 years.
“The task of holding global emissions constant would be out of reach, were it
not for the fact that all the driving and flying in 2056 will be in vehicles not yet
designed, most of the buildings that will be around then are not yet built, the
locations of many of the communities that will contain these buildings and
determine their inhabitants’ commuting patterns have not yet been chosen, and
utility owners are only now beginning to plan for the power plants that will be
needed to light up those communities.
Today’s notoriously inefficient energy system can be replaced if the world gives
unprecedented attention to energy efficiency. Dramatic changes are plausible
over the next 50 years because so much of the energy canvas is still blank”.
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