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Key Trends in

Green Development &




M AY 2008

Jonathan B. Stern , MBA, M.Arch, LEED AP

Key Trends in Green
Development and Investment

The purpose of this paper is to focus attention on important trends that are occurring and will
continue to influence:

• Increasing real estate development and investment in green, and

• Growing market demand and value of sustainable projects.

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

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

•Where vs. What •Up‐Front 

•Long‐Term Vision Collaboration
•Urban Re‐Generation •Leadership / Support
•In‐Fill Development •Higher A/E/C 
•Innovative Financing Performance & 
Higher  Evolving  Innovation
Urban  Work 
Density Paradigm

•The Current Frontier & Value   •Health & Productivity
•"Zero" CO2 Emissions •Energy Costs & 
•Systemic Thinking Uncertainty
•Market Opportunities •Functional 

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Key Trends in Green
Development and Investment


“Where you choose to develop is more important than what you develop”.

- Peter Calthorpe, Principal, Calthorpe Associates

Keynote Speaker at 2008 ULI Conference on Sustainability

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.

Vehicle Miles Traveled (VMT)

Based on current patterns of suburban development, increased CO2 emissions from
longer commutes and more passenger vehicles, are projected to offset any positive
reductions in emissions achieved through green building initiatives, bio-fuel
efficiencies and lower fuel mileage (mpg) standards, over the next 20 to 25 years.

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).


Vehicle Miles Traveled
120 20 30 New 45 mpg
Fuel Greenhouse Gas: -15%
19 90 CO2 Level
Target CO2 Level

60 Projected CO2 Level

2005 2010 2015 2020 2025 2030

Source: Growing Cooler: The Evidence on Urban Development & Climate Change, E. Reid

As a result, efforts to construct new or to renovate existing buildings to LEED standards

(i.e. “… what we develop”) may not be sufficient to achieve broader global goals of reduced
carbon emissions, as long as those buildings or communities continue to encourage longer
commutes and increasing VMT.

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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:

• Urban re-generation, in-fill and transit-oriented development (TOD) projects,

• Brownfield and ‘gray’-field (e.g. abandoned or under-utilized commercial, outdated

urban malls, etc.) sites, and

• Atypical financing structures (e.g. tax credits, TIFs, economic development

incentives and public-private financing), including less traditional stacking of equity
and debt.


Successful development and investment in sustainable buildings, in terms of stronger assets
with longer term cash flows and increased environmental and energy efficiencies, requires
commitment on the part of firms and individuals to, not only build differently, but to think
and work differently.

Leading participants at the ULI conference spoke emphatically about several important project
/ organizational dynamics that have driven success and value in their sustainable projects:

• Upfront collaboration - from all parties (i.e. developer, architect, engineer,

contractor, product manufacturers, public entities, debt and equity investors) at the
earliest stages of a project, “to build the best building possible and to learn from
previous efforts”.

• Increased overall collaboration - generated from the need to work together to

achieve LEED or other sustainable efficiencies, encourages opportunity for the
project team to work more effectively in other areas of the project.

• Leadership to push limits - and create more effective and cost efficient solutions.
This could be the developer, architect, consultant, contractor or key investment

• Demand higher performance and innovation - from architects, engineers,

contractors, manufacturers, etc. to go beyond conventional solutions and to push for
out-of-box ideas for increased energy efficiency and human comfort.

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Key Trends in Green
Development and Investment

Douglas Durst, Co-President, The Durst Organization (New York, NY)

At the 2008 ULI sustainability conference, Douglas Durst commented about a new work
paradigm that his firm embraced to develop two of New York’s most innovative and
pioneering high-rise green office projects.

4 Times Square One Bryant Place

(The Condé Nast Building) (Bank of America Tower)
In 1995, Durst undertook In August 2008, Durst
to build a 48-story, 1.6 will open a 2.1 million
million sq. ft. office- sq. ft., 954-ft. tall
building in Midtown skyscraper that will be
Manhattan, which was Bank of America’s NY
completed in 1999 and is regional headquarters
recognized as the United and a LEED-Platinum
States’ first “green” high- certified building.
rise office building.

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”.


The construction cost to build green or LEED buildings seems to have become much less of an
issue. Several successful developers at the ULI Conference spoke about their ability to find cost
effective solutions that have minimal or no cost premium, and yet provide long-term energy
savings and other strong market benefits. In addition, data begins to point toward cost
premiums less than 7% for building LEED at the higher end of Platinum certification, and less
than a 2% premium for LEED Gold and Silver.

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

(By example, potential functional obsolescence of non-LEED building might be

comparable to the introduction of HVAC systems in the 1950’s and 60’s. At first,
tenants did not pay any rent premium for being in a building with HVAC.
However, by the 60’s, tenants would not consider a building that did not have
HVAC. At present, LEED seems to fall into a similar paradigm.)

• In LEED certified buildings: a) occupancy rates are higher, b) lease up time is

shorter, c) permitting can often be expedited and d) there are more opportunities
for receiving density bonuses.

• 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.

Market Demand / Value of LEED - CoStar Group 2008 Study

The CoStar Group, a commercial real estate research firm that tracks data for over
one million buildings in the U.S., reports that Gold and Platinum LEED-certified
buildings have energy savings approaching 50%, and that sales price per square foot
of LEED buildings is more than 50% higher than comparable non-LEED buildings.
Energy Star Buildings LEED Buildings
non‐Eng. Star Energy Star + / ‐ non‐LEED LEED + / ‐
Occupancy Rates (%)
2006 ‐ 1st Qtr. 86.9% 90.0% 3.1% 88.3% 91.1% 2.8%
2008 ‐ 1st Qtr. 87.9% 91.5% 3.6% 87.9% 92.0% 4.1%
Rental Rates ($/SF)
2006 ‐ 1st Qtr. $24.69 $26.33 $1.64 $27.03 $33.69 $6.66
2008 ‐ 1st Qtr. $28.15 $30.55 $2.40 $31.05 $42.38 $11.33
Sales Price ($/SF) ‐ based on 6% Cap Rate
2006 ‐ 1st Qtr. $219.00 $281.00 $62.00 $264.00 $402.00 $138.00
2008 ‐ 1st Qtr. $227.00 $288.00 $61.00 $267.00 $438.00 $171.00



Important to the longer term goals of building sustainability and unlocking additional value in
green development and investment, consideration is being given to:

• 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.

Growing Organization Focus on Sustainability

Bob Willard, noted author of The Sustainability Advantage, characterizes five stages
of growth that companies across all industries are taking, as they develop broader
concepts of sustainability, and its contribution to their bottom line and business
models, as illustrated in the diagram below.

STRATEGY Values-Driven
BEYOND Enhanced
Means: Be a
COMPLIANCE Market Value Successful
LEED Means: Company
Certification Contribute to Ends:
COMPLIANCE Better World Contribute to
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.

Source: Communicating the Business Case for Sustainability; Bob Willard

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Key Trends in Green
Development and Investment

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”.

- Robert Socolow and Stephen Pacala,

Co-Directors, Carbon Mitigation Initiative, Princeton University

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