by Avery Yale Kamila
Savvy developers have discovered a new way to build value in their
residential properties.
What’s an apartment owner to do in today’s tough rental market,
hurt by overbuilding and low mortgage rates? The answer--make your property stand
out from the crowd. This is just what Jeffrey Abramson has done. But he’s not
your average developer. He’s at the leading edge of a change in the high-stakes
world of commercial real estate.
What’s his secret? Building smarter and greener. Abramson is a trendsetter,
but he’s not alone. The environmental design philosophy he’s embraced is gaining
acceptance in architect’s studios and at construction sites.
Apartment developers, like all commercial real estate builders, want a return
on their investment. With a new crop of earth-loving apartments on the market,
it’s a sure sign green building is not just a feel-good measure, but financially
viable as well. It also signals the trend’s move from the early adopters--college
campuses, nonprofit organizations, government agencies--to the mainstream.
Selling healthy living
"You have to ask, what distinguishes your building," says Abramson, a partner in the
family-owned Tower Companies, which added a green apartment complex to its portfolio
this July. The complex, Blair Towns located in Silver Spring, Maryland, offers
typical upscale amenities, such as a pool, on-site fitness center, nine-foot ceilings,
and security alarms. But Blair Towns’ tenants also get the luxury of improved indoor
air quality, energy-efficient appliances, and eco-friendly construction materials.
Promotional literature encourages potential renters to "experience building harmony."
Blair Towns isn’t the only rental property being differentiating by a
health-conscious claim. "Environmentally engineered for advanced living," is the
slogan of the high-profile Solaire--located only two blocks from the World Trade
Center site in Battery Park.
"Residents who come to the Solaire know they’re getting a unique building with a
better lifestyle," says George Aridas, senior vice president at Albanese Organization,
Inc., the Solaire’s developer. According to Aridas, the Solaire commands rents almost
five percent higher than comparable nearby apartments with similar views of the
Hudson River. He attributes this difference to the building’s promise of cleaner
living.
The marketing materials for CambridgePark Place in Cambridge, Massachusetts tout
the building’s environmentally-superior, high-end features. These include: "abundant
natural light" and "building materials selected for their health qualities." Gwendolen
Noyes, a partner in Oak Tree Development and one of the owners, conducted an informal
survey of potential renters and found people are willing to pay more for such features.
However, she says no green premium has been added and tenants are paying market rents.
"I’d love for someone to do a rigorous analysis" of the market demand for these features,
she says.
Taking the long view on cost
Landlords have other options besides jacking up the rent when it comes to recouping
the added costs of building green. One of the nation’s older environmentally-superior
apartment communities was built in Austin, Texas in 1997. The project was a
collaboration of Gables Residential, the state of Texas, and the city of Austin.
Renee Clark, property manager for Gables Central Park, says the complex’s green
features--such as increased insulation, double-paned windows, and high-efficiency
heating and cooling systems--cost more up front, but provide "a huge savings for us
and the residents."
The idea of looking at costs over the lifetime of a building, as opposed to just
the costs of construction, is at the heart of green development. Energy-efficient
building can bring big cost savings in the form of reduced utility bills. This is
particularly attractive to developers who will own the project after it’s complete.
Charles Segerman, the director of green development for the Tower Companies, says
"the thought process needs to change. Green building does increase first costs, but
your operating cost is less." He says the Tower Companies sees paybacks on their green
buildings within three to seven years.
Not all green features add cost. For example, by designing a more efficient
building envelope, architects can specify smaller heating, cooling, and mechanical
systems, says Rich Dooley, an environmental analyst at the National Association of
Home Builders Research Center. And smaller systems are a surefire way to downsize a
building’s budget.
"Green measures don’t have to be more expensive if you plan ahead," says Robin
Raida, project manager for Colorado Court, a 44-unit affordable housing complex in
Santa Monica, California. The building is energy-independent and opened in the
spring of 2002. "Our energy consultant estimated the life-cycle costs for all of
our green measures. Everything will be paid back over the lifetime of the building,
with the possible exception of the photovoltaics."
Going green added $554,515 to the initial cost of construction at Colorado Court.
This price tag includes a gas-fired cogeneration system, which provides electricity,
hot water, and space heating, and 197 solar panels. The energy consultant, Helios
International, Inc., estimates the co-generation system will pay for itself in
10 years. The building’s efficiency measures alone are expected to save the owners
$10,000 a year and pay for themselves in five.
One roadblock to cost recovery for Colorado Court is the issue of net metering.
Net metering allows a utility customer to both buy power from the grid and sell power
back to the grid--at the same price. Colorado Court has the capacity to generate more
energy than the complex needs. The original intent was to sell this surplus electricity
to the local power company--a concept you’d think would be attractive in a
power-strapped state like California.
However, the California Energy Commission takes a different view. It has only
approved net metering for electricity generated from solar panels. Other sources of
decentralized power, such as Colorado Court’s co-generation system, do not qualify.
Nowhere are cost issues more important than during a developer’s pitch to the bank.
Without a loan, there’s no deal. The Albanese Organization went through two financing
cycles with the Solaire. Their experience is more proof green building is coming of age.
"In 2000, when we were first getting financing," says Aridas, "there was some
reluctance on the part of banks." He says they did secure loans, but the green
features made it a tough sell. Fast forward to May 2002. "When we sought refinancing,
there was a greater understanding of green. Banks were no longer looking at it as a risk.
Instead it was looked at as an investment."
"The bottom line is even if you’ve got the greenest building this side of Nirvana,"
he says, "and you can’t cover debt service, than you’re not going to get financing. We
believe we can recapture our investment because the market will pay more in rent."
Insurance companies--who know a thing or two about building hazards due to asbestos
litigation and mold claims--often end up with the permanent loans for commercial property.
Abramson, at the Tower Companies, says insurers find green buildings "more relaxing because
they have a reduced risk."
Location, location, location
On top of EnergyStar appliances, low-emission paints, and fluorescent lighting, green
apartments provide another desirable amenity: location. High-density, urban
neighborhoods are both a selling point and a way to reduce environmental impacts by
conserving land and reducing commuting.
Lee Duncan moved into Blair Towns when it opened this summer. She says, "everything
you need is within the block. It’s really convenient to be so close to restaurants,
grocery shops, and the dry cleaners." Michelle Kobelan, a resident at Gables Central
Park, echoes this idea when she says, "I really like the location and the neighborhood.
I don’t do a whole lot of driving."
CambridgePark Place puts its location at the heart of its promotional campaign by
billing itself as "well-connected." Residents Marketa and Mike Valterova agree. Marketa
Valterova says, "I like the location very much. We have access to the bike paths, and
we’re near the Bread & Circus, a Staples, a movie theater, and a CVS." The Valterovas
don’t own a car and instead rely on their bicycles, the commuter train, and ZipCar rentals.
ZipCar, and its competitor FlexCar, operate membership-based car rentals in major cities across the U.S.
CambridgePark Place offers on-site ZipCar rentals and Blair Towns offers on-site
FlexCar rentals. Both companies rent hybrid vehicles.
Dooley, at the National Association of Home Builders Research Center, says
discussions about green building and smart growth are beginning to merge. "Green
building is not just the structure itself," he says. "It is also land development."
Colorado Court is designed to retain 95 percent of the site’s rainwater by reducing
impervious surfaces and employing an underground rainwater storage tank. A similar
system, which lets collected water seep into the ground, is also in use at CambridgePark
Place.
In addition, the CambridgePark Place site was transformed from a one-story building
surrounded by a paved parking lot to a multi-story apartment complex with two acres of
landscaping and porous ground cover. At Gables Central Park, a waterway in the adjacent
park filters stormwater runoff from the property. The Solaire offers an organic,
rooftop garden watered by collected rain.
On the horizon
Taking water conservation to another level, the Solaire also operates a black water
system. All the water used in the building is captured and put through a five-stage
filtration process before being recycled for use in the toilets and the cooling tower.
"New York City water is cheap," says Aridas. "So this will never have a payback."
Instead the feature was included as a way to further reduce the building’s impact on
the local ecosystem.
The Blair Towns also pushed the envelope by taking a bioregional approach to
purchasing. According to Abramson, 70 percent of the project’s construction
materials were manufactured within a 500 mile radius of the site. "As a builder,
I have an opportunity to become a catalyst for change to help protect our environment,"
Abramson says. "This decision also helps create a stronger local economy."
According to Dooley, the pace of residential green construction has accelerated.
He reports that between 1990 and 2001, 18,887 homes were built in accordance with local
green building guidelines. In 2002, a record 13,224 green homes were built.
"We’re finding many mainstream builders throughout the country are incorporating
green features into their homes," says Dooley. These builders aren’t seeking
certification or adhering to all green building guidelines, rather they’re picking
and choosing certain features with particular market appeal or cost savings--such as
energy efficient appliances and improved indoor air quality measures.
The National Association of Home Builders, with 211,000 members, adopted a green
building policy at its spring 2003 board meeting. Dooley reports that the organization
is advocating for green building at a national level and working to educate its members.
All this interest translates into a business boom for the U.S. Green Building Council.
Membership has surged from 300 three years ago to 3,500 today. According to spokesperson
Taryn Holowka, five percent of new buildings currently under construction have her
organization’s LEED certification. The Green Building Council anticipates that seven
percent of next year’s construction will be LEED certified.
"Developers need to ask, what’s the quality of my building at the end of the day?"
says the Albanese Organization’s Aridas. "A greener building will be a better building
and a better investment."
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