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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   March 2010


Changes to the green-building-rating program likely affect developer clients

Property-developers have grappled with how to approach sustainability ever since the U.S. Green Building Council (USGBC) launched its Leadership in Energy and Environmental Design (LEED) green-building-rating system in 1993. Regardless of how developers have handled certification, the number of state, federal and municipal agencies that require it is increasing.

Private-interest groups and professional associations also are influencing changes to local and national building codes. The Obama administration also has placed a green economy high on its agenda.

Commercial mortgage brokers with land-developer clients must understand how recent changes to the LEED program and to building industries can affect their and their clients' businesses. Now more than ever, developers must deal with sustainability. If it is not with a voluntary program like the USGBC's LEED-rating system, it likely will be through stricter enforcement of building codes or other government mandates.

Recent changes to the system can affect developers' decisions on whether to pursue a LEED rating -- and potentially how lenders view development projects. Here's how.

Changing standards

The USGBC altered its organization and the LEED program significantly in recent years. In 2008, the organization established the Green Building Certification Institute (GBCI) to administer the LEED-certification process, as well as its professional-credentialing program. Then in 2009, the USGBC released the latest version of the LEED-rating system, known as version 3.

This latest update upgraded and standardized existing LEED-rating systems and established a consistent, 100-point base system for all rating tools. It also enhanced its online document-management system. Finally, the council selected and announced new partners that will perform certification reviews, all of which follow an International Organization for Standardization process.

The most significant change affecting developers who want to certify their projects with the USGBC is the establishment of minimum program requirements (MPRs), however. These are a written set of criteria and rules that building-owners must accept, employ and follow if they wish to gain and maintain project certification.

The MPRs set forth certain agreements between the building-owner and the GBCI. One agreement requires a building-owner to provide data on the facility's actual energy and water use in a five-year period. Building-owners have three options for compliance:

  1. They can record the energy- and water-use data and submit the information to the GBCI. 
  2. They can grant the GBCI access to their building-management systems and allow it to mine the applicable data.
  3. They can allow their local utility providers to give the information to the GBCI directly.

Another new agreement is a provision that the building-owner retains the building's energy- and water-use data for 20 years. The GBCI must be able to review this data at any time during this period. Also, if building ownership changes during the prescribed time, the building-owner must include this obligation into the terms of the sales contract, transferring the responsibility to the building's new owner.

Further complicating a developer's decision to pursue certification is the GBCI's ability to decertify a building if the owner or the delivery team fail to abide by the MPRs' terms.

Pros and cons

LEED certification often is used as a marketing tool for a project's development, and how it is leveraged can make the difference in whether these changes are perceived as negative or positive.

On the negative side, property-owners may want a long-term commitment of providing data to a third party. A developer interested in short-term property-ownership also may see the MPRs as too restrictive to the project's financing.

Mortgage brokers who intend to help clients use incentives tied to LEED certification as a part of a project's financing may now have to contend with the possibility of losing the certification. This could be a stumbling block in assembling the deal, particularly if the lender seeks some guarantee of all other financing components.

On a positive note, measuring and recording a building's actual energy and water use can be a tremendous benefit. Following the guidelines of the LEED credit for measurement and verification of a building's energy-consuming systems allows for a record the building's performance over time. If an owner sells the property, the future owner will know exactly how the building performed in the past. A developer may see the requirement to keep performance data as a check and balance for the property's designers and constructor.

Having a mechanism in place to measure energy use also allows a lender to verify that the equipment and systems are working properly over time, which provides some surety to the investment.

Mortgage brokers working to assemble financing may recognize a higher level of commitment from the developer based on the obligation to stay with the building and the certification program. If the team is committed to providing a building that performs to a certain level of efficiency, the lender can verify that it received what was originally promised.

•  •  •

The choice to certify a project using the USGBC's rating system is voluntary in most locations. The heightened importance of a green economy, green jobs and energy-efficiency in the U.S. has triggered a chain of events that may impact the development industry more than any other, however.

Regardless of whether a developer chooses to seek a third-party certification, building-code changes will affect development in many ways. These changes could further complicate the permitting process, add cost to the construction and slow the delivery of a project.


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