Sustainability 2.0

Next challenge for NYC building owners: Going green to attract investment dollars
By Tom Acitelli | December 01, 2011 07:44PM

Now that the light bulbs have been changed and the solar power panels have been harnessed, real estate firms in New York are gearing up for Sustainability 2.0.

In fact, just about every big New York firm has some sort of sustainability department or point person: Jones Lang LaSalle, Cushman & Wakefield, CBRE Group, Vornado, Silverstein Properties, the Durst Organization, Malkin Holdings, the Related Companies and SL Green, to name just a few.

And there’s good reason for that. Gone are the days of merely hanging out a sustainability shingle that touts a building owner for being concerned about the environment.

In recent years, investors have started paying closer attention to how green an asset is before deciding whether to pump their own greenbacks into the property.

For example, two years ago, a group of Netherlands-based pension fund advisers began sending a survey to real estate firms worldwide to assess their sustainability efforts.

David Pogue, CBRE’s national director of sustainability, said the pension fund is a good example of the new awareness of “green” on the part of investors.

“The point is, this is a group of investors, and they’re beginning to use sustainability as one of the more important factors as to whether or not they’re going to invest in a particular piece of real estate or a particular company,” Pogue said.

In 2011, to lure these investors, “you have to have the data,” Pogue said.

Under a new city law with a final compliance deadline of Dec. 31, landlords must report how green their buildings are (using EPA benchmarks as a comparison).

Using this newly collected information to entice investors will be the key challenge facing the sustainability efforts of New York’s commercial real estate industry in the next two to four years, sources say.

Right now, many building owners measure their efforts through the U.S. Green Building Council’s LEED certification, through their own internal databases, or through anecdotal information.

But earlier this year, the city began to fully implement Local Law 84, which requires owners to report their water and energy consumption.

Landlords have until the end of the year to file their reports with the city’s Department of Finance. All buildings of at least 50,000 square feet are required to report to the city — the list of buildings runs 304 pages long.

Meanwhile, the Center for the Sustainable Built Environment at NYU’s Schack Institute of Real Estate is working with the city to catalog the data. Constantine Kontokosta, the center’s director, said the data — and a searchable database that could debut as soon as next year and may be publicly available — could supplant LEED as the marquee way of measuring sustainability.

“Now that we have all this data available,” he said, “investors, owners and tenants are going to be able to go in and actually look at how much energy a building is using, and compare that to similar buildings.”

The city-mandated data-gathering, sources predict, will prompt those who are not performing as well as their competitors to shrink their carbon footprint — or possibly lose investors.

But making green upgrades will not come cheaply. Even retrofits for energy reductions of as little as 10 or 15 percent can be pricey for landlords. Getting more ambitious than that often means finding financing.

The industry’s biggest building owners know that they’re on notice.

“I don’t think we’re that far off from seeing buildings that have a fairly specific scorecard for the efficiency of that building, either available to the public through a common database and/or some sort of visible scoring system that’s available on-site,” said Peter Belisle, president of energy and sustainability services at JLL.

SL Green, the city’s biggest commercial landlord, sees the new data-gathering as important but also as a part of its ongoing sustainability efforts, which were enshrined this past spring with the appointment of its first sustainability director, Jason Black.

“It’s just another level of detail that we have, so as we keep going forward with our energy efficiency measures, we can keep refining and reevaluating what our next steps should be,” Black said.

Industry analysts hope the data-gathering translates into greater confidence among investors, like those Netherlands-based pension fund advisers.

“Now that we have this information, we should start seeing a lot more money being freed up to have more kinds of traditional lending for commercial retrofits,” said Kontokosta. “I think there’s a lot of interest now in terms of getting money out into this market.

“And I think the lenders, too, are beginning to understand that if they can get money and understand the retrofit market a little bit more, get some of the risk and uncertainty out of the actual energy-saving, that will fuel a tremendous secondary-market securitization of those types of loans, which could really scale things up.”