Part 3: LEED Certification: Is it Worth It?

VERDICT:

In today’s tough marketplace, anything that helps move a property is welcome. Because we are simply looking for the ability to market a property as LEED certified--to show that the property is “green”--it would make sense that all we would really need to achieve is the minimum certified rating. Sure, those higher rankings would be great, but they also are going to cost a lot more.

Because obtaining construction debt in today's challenging capital market environment is difficult to come by except for the most compelling projects in the most compelling markets, adding unnecessary costs to a project is unrealistic at best, and taboo at worst. Furthermore, many tenants, along with the economy, are contracting in terms of space requirements, and are subsequently looking for additional ways to cut costs. These market conditions certainly do not lend themselves to increased project costs, or the increased rental figures necessary to support them.

In a supply constrained market, however, this isn't necessarily a bad thing for a green building landlord. Tenants are more likely to examine ways to cut expenses at the bottom line. They will be indifferent as to how that reduction is achieved. Often, a landlord will be able to show a prospective tenant how they can save money in the long term by going green. The challenge will be whether or not they can show an immediate return on investment given the current credit landscape.

Typical green-building tenant candidates are those with environmentally-conscious executives, well-capitalized private firms where cost-trimming is not the top priority, tenants whose public image is tantamount to their success, and companies whose business lines or functions are tied to the environment in some capacity. Furthermore, with a new administration in Washington focused on leading the charge in environmentally-friendly practices, it wouldn't surprise me to see government agencies, or government sponsored entities becoming more interested in sustainable energy work environments.

If land/buildings are obtained at a low enough cost basis, and energy saving features are chosen in the most cost judicious basis, then the lowest certification level appears to be the best bet for investors in terms of return. This, of course, is assuming your property is in a market which has demand for "green" products. Unfortunately, the capitalist society we live in is at direct odds with the economic hurdles that being more environmentally conscious entails.

Perhaps in 3-5 years when the economy is functioning more efficiently, tenants and landlords are less cost-conscious, and green design and implementation becomes more streamlined and therefore cheaper, financial demand will catch up with theoretical demand, and drive supply to a healthy equilibrium.