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Build a Business Case for Building Green

Feb. 1, 2008
This is the year you need to get your green building act together. Here’s why: In 2007, there was a more than 75% growth in cumulative LEED-registered and certified projects, on top of more than 50% cumulative growth in 2006.

Jery Yudelson

This is the year you need to get your green building act together. Here’s why: In 2007, there was a more than 75% growth in cumulative LEED-registered and certified projects, on top of more than 50% cumulative growth in 2006. Essentially, the cumulative number of registered and certified projects has increased 250% since the end of 2005!

What does this mean for you? If you’re not doing LEED projects today, your competitors are, and they’re gaining the experience and expertise to get those projects in the future. There were more than 3,500 new LEED registered projects in 2007. Figuring a conservative $12 million average size, that represents $42 billion of new projects. What’s the mechanical and electrical percentage of $42 billion? Do the math! There’s a lot of business out there for firms that want to learn a few new tricks and aggressively market their services to architects, engineers, developers, general contractors, and building owners doing LEED projects. Why has the pace of green building accelerated? To my mind, there are three seminal events over the past two years:

  1. An outpouring of global concern over carbon dioxide emissions from energy use of all kinds;
  2. Al Gore’s Academy Award and Nobel Peace Price for An Inconvenient Truth;
  3. Hurricane Katrina’s exposure of the vulnerability of a major American city to natural forces.

As a result, the American public is finally demanding action on climate change, in ways large and small. Even the Bush Administration, long an agnostic on the issue of climate change, has completely changed its tune since the 2006 elections.

Since American business does know how to listen to the consumer, and a Republican administration knows how to listen to business, you should realize that a good part of its future success will come from reducing “carbon footprints,” through energy conservation retrofits and reducing the energy use of new buildings.

What does this have to do with the business case for green buildings?

During the past year, I’ve spoken to more than 20 business and industry groups. This is what I’ve learned:

Saving energy is now a civic virtue. What had been a mostly technical specialty has gone from being a “good idea” to a business necessity, and now to a cardinal value of most large business, government, and academic building owners.

It’s not just that energy conservation has a positive life-cycle cost impact, but also that it offers a direct reduction in an organization’s “carbon footprint.” A number of studies have shown that energy conservation not only also offers a positive “life-cycle-cost” investment (you make money), but that it’s the most cost-effective way to lower society’s carbon dioxide output, one that doesn’t require new technology, just an ability to finance the investment.

As one wit put it, “not only do you get a free lunch, you get paid to eat it, too!” What can you do to bring new energy efficiency and on-site energy production technologies to the table for the next green building project?

Marketing and recruiting are two sides of the same coin. American companies are desperate for good people. The “Gen X” group, now roughly 30 to 43 years old, is particularly in short supply.

By 2014, in the 35 to 44 year-old age group, there will be 7% fewer people than in 2005, in absolute numbers. In terms of the size of the economy in 2014, it will be a shortfall of nearly 20%. This group represents senior managers, young CEOs, top salespeople, top technical people — those who help the most in growing revenues and profits.

If a company cannot attract and keep these people, by conforming business practices to their values, it will not prosper. What steps is your company taking to demonstrate that it shares the values of this new generation of business leaders?

The evidence is in: green building increases property values. Look no further than a study released in October 2007 by Professor Norman Miller of the University of San Diego. Reviewing more than 2,000 large office buildings in the CoStar database of commercial properties, Miller’s study revealed that Energy Star-rated office buildings (those in the top 25% of energy performance) since 2004 have had 2% greater occupancy and a $2 per sq.ft. higher rent rate.

To top that, in 2006, Energy Star buildings sold at a 30% premium (in dollars per square foot) to non-Energy Star-rated buildings.

Case closed! Green buildings are more valuable than non-green buildings, and destined to become more so each year. This means that owners and developers are demanding them from design and construction teams. You can’t just bring the “tried and true” VAV box solutions to the table anymore, or try to value engineer anything new out of each project.

The demand is growing. Commercial office tenants are waking up to the business case for productivity and health in LEED-certified buildings, especially those that offer superior daylighting and indoor air quality (IAQ).

In the public sector, the demand is also growing, as one jurisdiction after another makes a commitment to LEED-certify all future public buildings.

More than 67 U.S. mayors have signed a pledge to reduce greenhouse gas emissions in their cities to 7% below 1990 levels, by the year 2012. Mechanical and electrical contractors have a big role to play in energy conservation retrofits and new building design and construction. Are you ready to step up to this challenge?

Investors are flocking to green buildings. Investors of all stripes made 2007 the year that “responsible property investing” became the norm for Real Estate Investment Trusts (REITs), public and union pension funds, other investment groups, and many individual investors.

People want to invest in buildings that will increase in value and that have a lower carbon footprint; green buildings fit the bill. Even with the global crisis in subprime mortgages, many leading banks have stepped forward with aggressive green lending programs. When it’s easier than ever to finance green buildings with both equity and debt, developers get on board in a hurry.

When you see Larry Silverstein, developer of the World Trade Center “Ground Zero” properties commit to LEED Gold certification for all WTC buildings, what does that tell you about where the smart money is going?

Green buildings no longer carry a cost premium. All of the above business case items have certainly stimulated demand for green buildings, but many business people think that the major barrier is still a significantly higher initial cost.

A 2007 study by the World Business Council for Sustainable Development showed that business people still believe green building practices carry a 10% or greater cost premium. However, this year Harvard’s Green Campus Initiative delivered the first LEED Platinum building with no capital cost premium, the Blackstone renovation.

With more than 1,200 LEED-certified projects already finished, there’s no shortage of design and construction teams with the experience, skill, and knowledge to deliver high-performance buildings on conventional budgets. Savvy building owners and developers are beginning to demand this level of performance from everyone in the food chain of building construction.

There are more people trained in the LEED system than ever before. With more than 42,000 LEED-accredited professionals on record and more than 65,000 people having taken LEED workshops, there is plenty of capacity to deliver another 1,000 LEED-certified commercial and institutional projects in 2008, and that’s my prediction.

With each project averaging 100,000 sq.ft., we’re looking at 100 million sq.ft. of such projects, nearly 10% of the total commercial building market (This is only for certified projects; look for more than 4,000 new LEED projects to be registered in 2008 for future certification).

Jerry Yudelson is principal at Yudelson Associates, Tucson, AZ, a consulting firm whose motto is “growing the business of green building.” Jerry chairs Greenbuild 2008, the U.S. Green Building Council’s annual conference. Jerry has authored six books, including The Green Building Revolution and Marketing Green Building Services: Strategies for Success. E-mail him at Jerry@