Finding the Green in Building Renovation

NYTimes
January 10, 2007

By LISA CHAMBERLAIN

It is a rare announcement for a new commercial office building these days that does not trumpet the new structure’s “green” features. In fact, nearly 5,000 buildings across the country, 90 percent of them new construction, are awaiting evaluation by the United States Green Building Council.

The council is the Washington-based nonprofit organization that, in 1998, created the notion that buildings could be certified as environmentally friendly.

The trend, however, has not caught on to the same degree in the renovation of existing buildings. But one developer based in New York is banking on the potential growth of this so-far-overlooked market.

Jonathan F. P. Rose, a third-generation developer who founded the Jonathan Rose Companies in 1989 to marry for-profit development with a socially conscious mission, began the Rose Smart Growth Investment Fund a year ago. The $100 million limited partnership is one of the few environmentally oriented investment funds — perhaps the only one — to focus exclusively on the acquisition of existing properties in locations served by mass transit. The expectation is that the fund will make environmentally conscious improvements to the properties and hold them as long-term investments.

“Over the life of a building, more energy is consumed traveling to and from a building than is used by the building itself,” Mr. Rose said. “So location in urban areas with good mass transit is critical to reducing environmental impact. And when you pick transit-based urban sites, supply is already constrained. So the strategy is to hit a sweet spot of holistic development and economic return.”

The fund’s first redevelopment project is under way in Seattle at the Joseph Vance and Sterling Buildings, two adjacent structures erected in 1929 and 1910, respectively. Situated at Third Avenue and Union Street, the office buildings were purchased for $23.5 million and are undergoing $3.5 million worth of “practical green” renovations.

By tuning up heating and cooling systems, replacing old windows and tearing out carpeting (exposing the original terrazzo floors), the buildings will be transformed from drab, inefficient office space that was about 20 percent vacant into a model of modern green redevelopment, according to Mr. Rose.

This will not only reduce operating costs over time, but also make the spaces more valuable by $4 to $6 a square foot or more (rents ranged from $16 to $20 a square foot before the renovation). In addition to enjoying cost savings from energy efficiency, tenants are increasingly willing to pay for the cachet of green design, brokers say.

As tenants move out, all 103,000 square feet will be renovated to the Green Building Council’s standards for existing buildings. The council’s Leadership in Energy and Environmental Design (LEED) standards certify a building’s energy efficiency and low-impact, nontoxic construction.

In part, the standards can be met by adding simple design features, like “light shelves.” Positioned over desks, the shelves simultaneously prevent glare on computer screens while redirecting light and heat to the interior space.

Another simple improvement, particularly in a temperate climate like Seattle’s, is to install double-hung windows that can be opened on the top and bottom.

More important is that even though the buildings are not in the heart of the retail or office districts, they are on a main bus line.

Properties owned and operated by the Rose Fund will also incorporate environmentally aware principles into tenant leases, distributing a tenant improvement manual that demonstrates the most efficient way to operate the space. “You can put in all the systems in place, but if they aren’t used properly, you don’t get the savings,” Mr. Rose said.

A second project will be undertaken in Baltimore by the Rose Smart Growth Fund in partnership with Struever Brothers, Eccles & Rouse. Green improvements will be made at that project, the Clipper Mill, an old steel mill that has been transformed into 147,000 square feet of mixed-use office, retail and residential space.

Other target markets for acquisitions include the Boston-to-Washington corridor, the Rocky Mountain region and Chicago.

But it is Seattle that exemplifies the growth potential for LEED Existing Building certification, which was begun by the Green Building Council in July 2005. Other LEED standards cover areas like operation of buildings, and construction of new buildings, commercial buildings, homes, schools and neighborhoods.

While Seattle has the most new-construction buildings in the country that are LEED-certified (23, according to the council), classifying existing buildings as green is still a new concept, according to Diane Sugimura, Seattle’s director of planning and development.

Before the Sterling and Vance renovations, the city had only one green residential redevelopment project and a single floor in a commercial building. “We’re a built-up city,” Ms. Sugimura said. “So the potential for this is enormous.”

Which raises the question, Why have existing buildings been overlooked? According to the Green Building Council, it is largely because new construction and high-tech systems have attracted all the attention, providing architects and engineers opportunities to create new technologies and even whole industries. By comparison, cleaning boilers and installing operable windows does not seem terribly exciting.

But with energy costs rising, and the possibility of awarding an existing building a LEED certification, that is starting to change.

One company that sees potential is Transwestern Commercial Services, a manager of commercial properties. Transwestern, which is based in Houston and oversees 765 properties across the country, recently began a pilot program to determine what it would cost to carry out energy-efficient strategies and lower the environmental impact in 50 of the buildings it manages.

“Institutional investors are very concerned about this,” said Mychele Lord, executive managing director of Transwestern. Once the pilot program is complete, Ms. Lord said, the company will seek to standardize energy-efficient and sustainable practices across its entire portfolio.

“From an environmental standpoint, if we really want to address climate change and water conservation, the bigger opportunity is in existing buildings,” said Doug Gatlin, director of the Green Building Council’s certification program.

“But the greater value to the commercial owners and managers is, in a few years, if you don’t have a green building, you won’t be able to charge the highest rent.”