Does it Pay to Be Green?

There are more ways than one to deliver an environmentally friendly property.


By Lynn Peisner

Most developers will tell you that sustainable building is the right thing to do. Even if initial costs are higher than a project without advanced green features, the long-term energy savings should more than make up for the upfront investment.
Environmentally responsible construction practices benefit all parties. Sourcing building materials from nearby locations, using less toxic supplies and keeping as much as possible out of landfills is good for the health of the building, its future residents and even the local economy.
But does it really pay to build green? That’s more of a difficult question. It depends on how your company defines green. Whether it pays to have LEED certification is another matter entirely.
LEED, or Leadership in Energy and Environmental Design, is a rating system devised by the United States Green Building Council (USGBC). Some commercial business owners swear by what LEED can do, but others are critical that the process is costly and ultimately doesn’t result in an energy-efficient building. That’s important because, according to the EPA, buildings are responsible for 40 percent of energy consumption in the United States. Additionally, 20 percent of the nation’s greenhouse gasses come from commercial buildings.
The value of LEED isn’t always measured in reduced energy consumption. Sometimes the certification communicates positive psychological messages to prospective residents of a seniors community as well as to their adult children. It can also drive up property values.
The USGBC published a peer-reviewed study in 2015 that concluded that a LEED certification helps boost competitive prices in the real estate market. According to the study, the certification itself attracts customers who prioritize environmental causes.
The organization also asserts that 61 percent of corporate leaders believe that sustainability leads to market differentiation and improved financial performance.
Property value and science, however, might not be in complete agreement on this issue, depending on whom you ask. John Scofield is a professor of physics at Oberlin College who presented findings about the science of green building systems to the U.S. House of Representatives in 2012.
He asserted that several studies measuring LEED’s energy savings painted an inaccurate picture of how LEED led to lower energy use. He concluded that LEED certification doesn’t result in more energy savings than a building without the certification. He noted in his written testimony that building efficiency is a “stool supported by three legs: design, construction and operation.”
The “D” in LEED stands for design, thus only hitting one of those legs. The points-based certification is earned before a building is in operation. Other systems, such as the EPA’s Energy Star program, measure output once a building is up and running.
How do we measure?
According to Energy Star, its program for commercial buildings saved businesses and organizations $7.8 billion in energy costs in the United States in 2015. The organization also claims that by the end of 2016, approximately 500,000 properties — representing about 50 percent of the nation’s commercial building floor space — were using the EPA’s Energy Star Portfolio Manager tool to measure, track, assess and report on their energy and water consumption.
Scofield wrote in his testimony to the House: “It is my experience that what LEED designers deliver is what most LEED building owners want — namely, green publicity, not energy savings.”
Lakewood, Colorado-based Metro West Housing Solutions (MWHS) is a nonprofit property developer, manager and human services provider. The company is enrolled in the Energy Star Portfolio Manager program to measure electric, gas and water usage at its CityScape at Belmar property. This community is also certified LEED Platinum.
Opened in 2015, the low-income seniors housing community for persons age 62 and older has the largest onsite solar array of any residential building in Colorado. Several solar panels that transform sunlight to electrical energy make up a solar array. Currently, CityScape at Belmar’s Energy Star score is 89 (out of 100), which means it performs better than 89 percent of comparable commercial buildings. This score enables the company to evaluate its investments.
“MWHS invests in green building practices to lower operating costs for tenants and ownership,” says Ryan McCaw, sustainability and grant programs manager for MWHS. “Lower operating costs for tenants — in this case seniors often on fixed incomes — allows them to invest more of their financial resources into items like medical expenses, healthy food and transportation. This helps them age in place more effectively and enjoy a higher quality of life, as opposed to paying the utility companies more of their fixed income.”
The project was financed by low-income housing tax credits along with energy tax credits for the solar insulation. The Colorado Housing and Finance Authority determines which affordable housing developments receive tax credits, and green features are a critical criterion in that decision.
The total cost of the solar array was $419,610, or $2.62 per watt, before the 30 percent federal solar incentive that reduced the first cost to $293,727. Xcel Energy offers renewable energy credits (RECs), which essentially work as a rebate. The REC for this project is 6 cents per kWh for the first 20 years of the system’s operation, and then the RECs expire.
During the system’s first two years (approximately for the calendar years 2016 and 2017) the system produced roughly 97 percent of what was projected, saving approximately $9,500 on the building’s annual electric bill and generating an annual average of $13,849 in REC payments.
“Even though the system hasn’t produced at 100 percent of what was predicted, it is still expected to pay for itself within 11 years,” says McCaw. “Presuming electric costs continue to increase slightly over time, and accounting for the system producing slightly less each year as the panels lose efficiency, I still think the system will save at least $11,000 per year in electric costs when the RECs expire in 2036.”
McCaw estimates that the panels’ production ability will diminish by 0.5 percent per year.
Sustainability is subjective
Constructing sustainable buildings doesn’t always have to be associated with added fees and bureaucracy.
Waltham, Massachusetts-based Benchmark Senior Living is the developer, owner and operator of two LEED-certified properties.
Bedford Falls in Bedford, New Hampshire, which opened in October 2012 with 84 independent living apartments, 60 assisted living units and 24 memory care units, is certified LEED Platinum. Benchmark Senior Living at Split Rock in Shelton, Connecticut, which opened in May 2014 with 91 independent living units, 71 assisted living and 20 memory care units, is certified LEED Silver.
The company is proceeding conservatively with its LEED program.
“Because we’re a data-driven organization, Benchmark is taking the time to evaluate the investment in LEED certification for our two developments,” says Ken Littlefield, Benchmark’s vice president of construction.
“We will utilize that data to make choices regarding LEED certification going forward on a case-by-case basis. Meanwhile, as we design new communities, most of the requirements are ‘baked in’ whether or not LEED certification might be the end game.”
Many developers concur with Littlefield. In California, for example, the standard building codes are essentially the same as LEED requirements.
“It’s virtually no cost whatsoever to do LEED Silver because of all the other restrictions that have been imposed during the construction phase as well as the build-out phase by many jurisdictions,” says Michael Bohn, senior principal of Long Beach, California-based architecture firm Studio One Eleven.
“To get that LEED title is really easy. So the decision for the developer is not if it’s a green building, but rather, do we want to get it certified? If it’s not certified, but is still equivalent, that’s still a good way to sell it to seniors,” explains Bohn.
“I would say two-thirds of developers don’t go for certification because that’s where you need to pay for the costs of a third-party review to confirm that you really are officially LEED-certified. The majority of developers go all the way. They just don’t go the last step to get the plaque for the wall.”
The cost of getting a building LEED-certified varies based on the rating system and overall size. According to Sara Hickman, sustainability director at Studio One Eleven and Retail Design Collaborative, certification fees range anywhere from three to six cents per square foot.
On the plus side, California Green Building Standards Code (CalGreen), contain such stringent requirements that there is no increased cost in construction for going LEED.
“The question is, is there an opportunity to push the threshold forward with the same profit margins? As with any development, the investment strategy is tied to several factors,”says Hickman. “Is it a short- or long-term hold? What is the leasing language? Who is the user and who is taking ownership of operational costs? Pending the answers to these questions, pursuing certifications such as LEED may make more sense after one to five years. It is critical to consider the life-cycle cost of the investment.”
Hickman adds that certification is just the tip of the iceberg in what makes these programs meaningful.
“It’s about creating a healthier and more resilient product,” she says. “This is especially important for seniors, as our immune systems become more fragile as we age. Whether it’s environmentally friendly or focused on the internal health of the space, sustainable design can have a very real and positive impact on cognitive function and overall health of a building’s occupants, regardless of whether your team is seeking LEED.”
Bohn says current trends focus less on LEED and more on simply making climate-friendly development and acquisition moves.
For example, Bohn says there was motel overbuilding in the 1980s, which ultimately led to the proliferation of extended-stay motels, a category that’s considered a blight on most communities.
Many developers in California are planning adaptive reuse projects of existing motels by converting them into middle-market-priced seniors housing, according to Bohn.
“The greenest way of helping the environment is reusing a building that is already in place,” he says. “So even though you can’t say those buildings are LEED, it’s a very green, sustainable approach to reuse an existing building. When I first started in this profession, most of my work was brand new buildings. I’d say one-third of my work is now adaptive reuse.”
According to the USGBC, repurposing existing buildings was one of the top five green building trends in 2017.
Studio One Eleven opened its Senior Arts Colony in Long Beach, California in 2012. The LEED-certified building has numerous green features, but Bohn is quick to point out its location might be the greenest.
It’s located at an intersection of a trolley line and one of the most heavily used bus lines in the city.
“Having that building at main and main in terms of transit has shown us that seniors will adapt to using public transit and even embrace it,” says Bohn. “Locating the building here is much greener than putting that same LEED Silver building in the desert where there’s nothing around it. Our company looks at sustainability as more than just the building itself, or checking off boxes for LEED.”
Many ways to go green
LEED might be the most popular of the green building programs, but it’s certainly not the only one. Atlanta-based seniors housing company OneStreet Residential, for example, is now building all its communities to EarthCraft standards.
EarthCraft is a third-party verified certification that is tailored to the climate zone of the Southeast.
“EarthCraft was originally for the single-family sector,” says David Pedrick, EarthCraft technical project manager. “But we quickly found out that there was a desire for a region-specific green building certification for multifamily.”
Pedrick explains that many of the green building programs started in cold climates, where humidity issues aren’t as prevalent.
EarthCraft standards are primarily related to a building’s “envelope,” or anywhere there is insulation and an air barrier such as walls and roofs. To achieve program standards, a developer or builder contracts with an EarthCraft technical advisor to provide design consulting and verification that the standards are being applied correctly.
In Ohio, Woda Cooper Cos. Inc., which develops affordable senior housing, is among the few companies in the nation to apply Passive House standards, a German energy efficiency program. Passive House is concerned with a “super envelope,” which means walls, windows and insulation are chosen and installed with attention toward insulating the building.
Fairwood Commons, opening later this year in Columbus, Ohio, is a 54-unit, age-restricted community funded by tax credits. It will meet the requirements of the Passive House Institute and will cut energy consumption by 60 to 80 percent compared to other buildings built to local code.
“The Passive House structure is a really interesting way for us to explore and work with architects and design consultants to come up with a solution that’s very different and very cost sensitive in what it returns to the end users,” says Joseph McCabe, vice president of development at Woda Cooper, which is a long-term holder of its properties.
“Is it necessarily cheaper the day you’re building it? By no means. But the end benefit is for the tenant and for operations.”
McCabe says with the super envelope, an average apartment that might have a heating bill of $40 to $50 a month might go down to a range of $16 to $20.
Woda Cooper must project a 15-year outcome to qualify for the tax credits. Without the ability to raise rents, the company must keep operating costs as low as possible.
McCabe also says that, like MWHS, lowering operating costs is a directive because of a vulnerable tenant population that needs money for healthcare and groceries, not heating bills.
Development costs for Passive House construction will be higher due to items such as an increased amount of insulation, energy recovery ventilation systems and triple-glazed windows, as well as a higher skill set required of the construction team.
Construction timelines are longer for Passive House construction than they would be to build a typical seniors community.
LEED certification is also in progress for Fairwood Commons. Out of Woda Cooper’s portfolio of 320 properties, 55 have been certified through LEED, Enterprise Green or EarthCraft green building certification programs.
Part of doing business
Green building construction, design and operations are likely to become so commonplace that eventually asking whether it pays to be green will be a moot point.
“Twenty years ago, I saw very limited interest in green buildings from the perspective of residents or their families,” says Bill Cook, director of development for Benchmark Senior Living. “And there was almost no interest from owners or developers. The overwhelming response from owners was that it was too expensive, took longer and wouldn’t come close to generating a payback.”
Cook says about 10 years ago LEED became more mainstream and somewhat fashionable, which allowed owners to charge higher fees.
But now, from the owner’s perspective, LEED or green requirements are simply becoming standard practice. Building and energy codes — even outside California — are requiring increased insulation, ventilation and reduced utility consumption just to comply. Cook says that utility companies are offering rebates and incentives for increased efficiency.
“Volatile organic compounds (VOCs) in products such as flooring, painting, adhesives, wall coverings and cabinets have gone the way of leaded gas,” adds Cook.
“Site orientation, passive solar and ventilation and locally sourced products are now not ‘special,’ but rather the basis of good design. In terms of residents and families, I think they have learned that LEED is just another label. They have become informed and savvy enough to ask the questions to see if the building has the features they desire.”