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Many real estate related associations also are focusing their efforts on green building. The Green Building Initiative, for example, is a nonprofit organization that comprises leaders from the building industry. It focuses on accelerating the adoption of building practices that result in energy-efficient, healthier and environmentally sustainable buildings, according to its Web site, thegbi.org.
In addition to seeing operational-cost savings, developers are discovering that going green can be a strong marketing tool. It helps them stand out from their competitors.
So builders of new commercial buildings are increasingly incorporating energy-saving technology into their buildings or pursuing certification for energy-efficient design. Two popular certification programs are offered through the U.S. Green Building Council (USGBC) and the U.S. Environmental Protection Agency (EPA).
The USGBC oversees the Leadership in Energy and Environmental Design (LEED) certification. It is a national rating system that awards credits to builders for green-building criteria in five categories -- site development, water savings, energy, materials and resources, and indoor environmental quality. Certified, silver, gold and platinum certifications are awarded based on total credits. There are LEED projects in 50 U.S. states and in more than 40 countries, and almost 3.2 billion square feet of commercial building space are involved with LEED, according to USGBC.
Through ENERGY STAR, the EPA rates commercial buildings for energy efficiency. The program primarily focuses on the promotion of energy-efficient products and power-management systems in electronic items and appliances. Standby energy use, in which systems switch to a low-power state after a period of inactivity, is an ENERGY STAR favorite.
Green certification in commercial buildings is still deemed newsworthy for many developers. In some areas, it is nearly standard. For example, a majority of high-rise developments under construction in Manhattan carry some sort of green certification.
The cost of including efficient design and technology into a project can be negligible for builders -- about 2 percent on average -- and the benefits typically last throughout the life of a building. They range from lower energy-consumption levels to higher tenant appeal.
Just as automakers are seeing better sales of vehicles that consume less gasoline, so are building-owners seeing more tenant interest in green structures. By offering lower energy costs, property-owners can attract more potential tenants while retaining current ones. In some cases, lower operating costs even translate into lower rents.
Appraisals on energy-efficient buildings also can be higher than on standard buildings. Appraisers are seeing the value of energy-efficient structures. And green-building certifications such as LEED and ENERGY STAR can specifically quantify those benefits.
Further, lenders may view builders that incorporate energy-efficient design into their projects as more business-savvy. These projects could be deemed a better risk and more worthy of funding than those with less-efficient products. In addition, as environmental stewardship becomes an even-greater priority in our society, lenders are seeing increased value in having solid green-building projects in their investment portfolios.
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With the new emphasis on green building, the commercial real estate industry could be experiencing a sea change. By being on top of building trends in energy efficiency, you will be ready for it.
Richard H. Zahm is a founder and principal of Second Angel Bancorp. He leads the firm's investor relations as a manager of Second Angel Commercial Mortgage Fund I LLC, a real estate focused hedge fund. A California attorney, he earned degrees at Colorado College, Stanford Law School and the Graduate School of Business at the University of Cape Town in South Africa. He holds a California real estate broker's license.
Reach him at (916) 863-7300.
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