Green Logic | Commercial Real Estate Finance

As in the rest of life, there are very few black-and-white issues when it comes to investing in and developing commercial real estate. Efforts to promote green energy and sustainability are a perfect example. While most of us have seen An Inconvenient Truth, or pictures of melting ice caps, or at least noticed that last winter was awfully warm, the desire to develop or redevelop properties in a way that is environmentally responsible must be weighed against the desire not to go bankrupt.

In this week?s fascinating Executive Interview, Iron Stone?s Jason Friedland?discussed some of the material choices he has faced while redeveloping major properties:

We pursue redevelopment strategies that make financial sense, so our model of adaptive reuse is inherently ?green.?? For example? we used soy-based insulation instead of traditional materials because it was faster to apply and effectively provided an unbroken blanket of insulation.? While the material was more costly per square foot, the labor savings gained from faster application of the soy product made more financial sense.

While a more environmentally friendly alternative material like this?may be more expensive, it may also provide advantages like long-term energy savings (better insulation = lower heating/cooling costs) or, in Mr. Friedland?s example, lower labor costs for installation.

Which is part of the appeal of the USGBC?s LEED certification program. While LEED-certified properties certainly receive a great deal of prestige, and may attract environmentally conscious tenants, their chief advantage (aside from eco-friendliness) is economic: lowered heating, cooling, water, and other costs ?may lead to increased operating income over time.

But alas, this isn?t always the case. If small carbon footprints and sustainable practices were connected to a company?s revenue, our ozone layer would be just fine and Al Gore would be championing some other cause.

Look at Solyndra, the bankrupt solar panel manufacturer that?s become a convenient talking-point for critics (cough-FoxNews-cough!) of Obama?s energy policy. Earlier this year, Jones Lang LaSalle (NYSE: JLL) attempted to lease the firm?s 412,000-SF headquarters, seeking large data or manufacturing tenants in need of a clean, high-tech facility. Now, the huge California facility is headed for auction (though technology firm?Seagate?has committed to the property if a higher bid isn?t made).

The Fremont, California-based Solyndra was once praised for its highly unique product, but when silicone prices dropped, the company was unable to compete with cheaper alternatives. But keep in mind, Solyndra?s failure doesn?t signify the failure of green energy, but just one company within that sector. Their client base?building owners and operators seeking a solar alternative?didn?t vanish, but just found cheaper solar panels elsewhere.

So I guess the point is this: the green energy movement has evolved and expanded to the point that developers and operators have a variety of options. While the environmental benefit may be assured, financial benefits will only come about through careful deliberation and long-term strategy.

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Source: http://llenrock.com/blog/green-logic/

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