Green Building Can Produce Profits, Says Developers’ Panel
By A. J. Johnson & Caitlin Jones
6 min read
Tax Credit Advisor May, 2006: Green building can generate a profit for developers who plan their projects carefully, according to a panel of executives from firms specializing in environmentally friendly properties.
The panel, which included Martin Melaver of Melaver Inc. in Savannah, Ga., Pete Eggspuehler of Beam Construction & Management in Portland, Ore., and John Suppes of Clarum Homes in Palo Alto, Calif., addressed the National Housing & Rehabilitation Association’s Annual Meeting in Miami Beach, Fla. The panel was moderated by Ronne Thielen of CharterMac Capital.
A Green Business Model
Melaver Inc.’s CEO said that the key to making a profit on green projects is developing an appropriate business plan. Melaver recommends a three-part strategy.
The first step is defining an overall strategy for green building, including a budget for research and development, he said. Secondly, developers must carefully study local conditions before offering a particular green feature. Citing an example, he said that the operable windows now popular in California and the Pacific Northwest would be impractical in Savannah, given its cool winters and hot, humid summers.
Thirdly, Melaver said, there must be agreement on the implementation of environmental features among members of the development team, and between the developer and prospective tenants.
“Alignment of interests is the easiest thing to miss and the mostly costly thing if you miss it: if you get an architect that fights you, it can add months,” he said. “We spend a lot of time vetting stakeholders.” He said that developers should avoid architects who insist on impractical and costly initiatives.
Melaver currently has 10 green projects in the pipeline, including three with apartment units. One of these projects is a mixed-use rehab of a 19th century millhouse located in Augusta, Ga., that will use hydroelectric power from a canal to power the entire property.
Four of the developer’s completed projects have received a Leadership in Energy and Environmental Design (LEED) certification, the widely-respected environmental rating system. The LEED system, introduced in by the Washington, D.C.-based U.S. Green Building Council in 2000, awards four levels of certification, ranging from certified to Platinum LEED.
Branding, Identifying Funding
Developers who pursue a green approach to building can gain an edge by branding their services, said Beam Construction’s Eggspuehler. He explained that his firm has carved out a niche for itself by building “green” office space that often includes funding with Historic Rehabilitation Tax Credits (HRTCs).
“Identifying ourselves as a green builder has helped us a lot with our marketing effort,” he said.
The firm’s current project, which uses HRTCs, is an adaptive re-use of an old cereal mill in Portland into commercial office space. The project’s green features include a roof with photovoltaic cells, ventilating windows with low-emitting glass, and abundant natural lighting. The developer also plans to include a heating and ventilation system that taps a nearby river as a heat source.
An important part of the branding process, Eggspuehler said, is obtaining an environmental certification for a project, which can help sell it to potential tenants. The developer said that he expects that the mill project will receive a green ranking from the City of Portland and is considering applying for a LEED ranking.
In pursuing green business, developers should also be sure to take advantage of all applicable tax credits and other public incentives offered by state and local governments, Eggspuehler said. For example, the City of Portland offers a sustainable building tax credit. At the state level, Oregon provides Business Energy Tax Credits as well as urban renewal funding that includes grants directed at energy efficiency.
Developers should also be aware, however, that energy efficiency measures can complicate an HRTC application, he said. Citing an example of this, Eggspuehler said that the Oregon State Historic Preservation Office (SHPO) initially rejected its request to add ventilating windows to three previously-windowless floors of the mill building. Eventually, he said, the SHPO relented.
Green Building Innovation
According to Clarum Homes’ Suppes, “green” building now encompasses four different types of construction initiatives: energy efficiency improvements, water conservation, indoor health safeguards, and environmental impact mitigation.
Suppes noted that innovation in each of these areas has gained steam, providing developers with a broad variety of products to choose from, at reduced costs.
Reviewing energy efficiency improvements, he cited solar electric power systems, on-demand water heaters, structural insulated panels, tightly-sealed duct work, high-efficiency furnaces, advanced cooling systems, and “smart” windows that control the passage of sunlight. In addition, “passive solar design” uses site positioning and a variety of construction materials to focus the sun’s warmth in the wintertime and reduce its heat during the summer.
A recently introduced water conservation product uses real-time weather data collected from satellites to manage the watering of plants, said Suppes. Noting advances in environmental impact mitigation, he said that the recycling of construction debris is now routine, with many communities requiring that 75 percent of site waste be reused.
All of these green features are on display at Clarum Homes’ Vista Montana project in Watsonville, Calif., which includes 132 affordable apartments, Suppes said. Completed in 2005, Vista Montana houses the largest building-integrated solar electric system ever installed in an apartment community, supplying 60 kilowatts of power from solar roof panels. The use of this and the other energy-efficient features has resulted in a 40 percent savings in energy costs, he said.
Green Building Costs Drop
Each of the builders noted that in the past several years, the costs of green building have significantly declined. Melaver said that as recently as three years ago, obtaining a LEED Green rating in the Southeast added approximately 15 percent to construction costs. That figure is now about 8 percent, he said. Suppes said that green costs are currently adding about 5 percent to construction expenses in California. Green building costs in Portland, said Eggspuehler, now range between 6 and 8 percent of total construction expenses.
“What we are doing is trying to look at the incremental cost of each specific green component, so we can then justify that either through reduced operating costs or some kind of incentive program,” said Eggspuehler.
