The Green Infrastructure Summit was held at The Sustainability Institute at Molloy College in Farmingdale and was sponsored by The Sustainability Institute, Vision Long Island and Good Harvest Financial Group. Bob Coughlan principal of TRITEC Real Estate Group was asked to share his thoughts on green building, sustainable development and the role they play for him as a financier, developer, builder, and manager of real estate on Long Island.

The following is an except of his remarks:

Obviously there are many perspectives to take when taking about Green Building or Sustainable development. There are social, environmental and financial ramifications when dealing with this issue.

• Attract tenants to our buildings and increase our absorption rate and rental rates
• How do we keep our existing tenants happy so that they renew their leases
• How we can reduce our operating expenses

We try to weigh these benefits against the expense of adding features or improving the efficiency of the property.
Right now, as an industry, we are in the early stages of adopting sustainable development and the greening of our buildings.
Sustainable development has only really entered the main stream of our industry 3 or 4 years ago … and is now somewhat on the backburner because of the financial crisis. Since projects often take several years to come on line, and another few years of monitoring in order to determine how effective our investments are, we really don’t have a lot of compelling historical data to base our decisions on.

Sustainable development is not going away. At some level most of us want to be more environmentally responsible. However, I believe there will be an evolution through price discovery and not a revolution either voluntarily or through municipal mandates. What I mean by that is that, through trial and error and the ability to monitor the results over a period of a few years, we will learn what is most beneficial to society and the environment and what the cost benefit equation is.

Until we have empirical evidence, particularly in a strained economy, that there is a positive economic benefit, we aren’t going to get developers and property owners to invest in Sustainable development.

I have read a number of studies and attended a number of  conferences about Sustainable development, unfortunately, I have found a most of them to be somewhat misleading, often comparing older non-green buildings to newer green buildings and claiming that the green buildings lease up faster and have higher rents.
At this point in the evolution, I believe that we need to have more specific historical data to show a landlord how he is going to either increase his revenue or decrease his expenses. One way to get more revenue is to convince a tenant to pay more in rent because they will receive a future benefit through reduced operating expenses or increased productivity through either design, improved ventilation, energy efficient systems or better lighting. To date we haven’t been able to concretely demonstrate that in our portfolio and consequently we haven’t been able to get even a 1% increase in rent, never mind the 5% to 10% projected in some studies I’ve read.
I believe it is coming but it isn’t here yet.

I worked up a few case studies on a few of the properties that we are developing and what some of the cost ramifications are:
1) First I’ll compare two buildings; one is a conventional steel and masonry 40,000 sf multi-tenant office building. We completed the shell mid last year. The other is a 48,000 sf multi-tenant building under construction that we are shooting for a Silver LEED certification.
The conventional building cost $150 psf for the shell. The Silver LEED building will cost $180 psf. A 20% premium to go to Silver.
2) The second example is a 48,000 sf high end single user office building we are that we are just about ready to start construction on and we are shooting for a Platinum designation. I asked our Pre-Construction Group to give me the percentage increase to go from conventional construction to each phase in LEED. For Certified it would be 1.27% (really just the cost of added LEED consultants and a LEED accredited professional.
For Silver it is 6.34%, For Gold 15.9% and For Platinum 55.3% (which includes a geothermal system and glass in the roof).
Clearly a landlord wouldn’t be able to afford Gold or Platinum in this case.
3) The third example is 102 Motor Parkway. A 204,000 sf class A office building we completed last year for which we are going through the process of getting an Energy Star rating and where we are using Green products to clean the building.
Here we invested $1.5m above conventional construction in an advanced HVAC system, additional insulation in the roof and basement and improved insulation on our glazing (windows). We received a $300,000 rebate from LIPA and expect another $100,000 as we move tenants into the building. It is my understanding that this will be the highest rebate LIPA has given out.
So our net investment is $1.1m and we expect a savings of approximately $30k per month in our utility bills. This gives us about a 33% return on our investment. That is something I think everyone can understand. Despite that, we don’t believe anyone will pay us more rent, especially in this market, until we can actually prove the savings         >>>>      After all is said and done, My conclusion to date is that

• Sustainable development is here to stay.

• That we are in the early stages of Sustainable development becoming mainstream.
• That when the economy stabilizes it will become a front burner issue.
• That we need a few more years of trial and error and monitoring to uncover the cost benefit equation that works
• We should wait until we have more conclusive evidence before we mandate that anyone has to do anything to their property that has a cost implication – especially in this economy
• Once we are ready to have municipalities mandate a more comprehensive approach to Sustainable development we should use the carrot to cajole compliance instead of a stick, meaning we should provide a benefit to the property owner for voluntarily complying, Otherwise, the properties that are mandated to increase their cost basis without a corresponding benefit will be at a competitive disadvantage.
• Municipalities could offer
• Expedited approvals
• Increased density allowance
• Tax abatements and
• Low cost financing