The "Green" Dilemma: Is it Worth It?

I ran across an article by Diane Mastrull of The Philadelphia Inquirer that does a nice job of capturing the dilemma facing owners and managers of existing office space when it comes to going "green"; namely, does the ROI justify the expense?  A couple of things about the article caught my eye in particular:

  • According to green-building advocates, in the last few years employers have reported a growing number of job applicants asking about workplace-sustainability efforts.  Really? This surprised me given the employment climate over the last couple of years.  Has sustainability become an employment deal-breaker?  If anybody can point me to studies on this issue, I would be much obliged. 
  • One of the owners profiled in the article -- APF Properties -- started out wanting to pursue a silver LEED rating upon purchasing 1601 Market Street (managed by Cushman & Wakefield's Philadelphia office) but quickly had to downgrade to qualifying for LEED certification to start given the fact that $200k in capital improvements would be needed to seek a silver rating.
  • Developer Donald Pulver, of the Oliver Tyrone Pulver Corporation, which has built a mini-empire of office space along the Schuykill River and otherwise has an impressive portfolio, does not see the upside to LEED certification, indicating that "what you get versus what you pay was not worth it to us."

MY TAKE: the song remains the same.  Green building is laudable across the board and can serve as a point of distinction for purposes of marketing and rent.  However, most owners of existing office space will be reluctant participants unless and until the ROI outweighs the cost.  This will be especially true when Class C properties are involved.

 

Local Press Round-Up

 Here are a couple of articles from newspapers serving the South Jersey area that caught my eye over the weekend:

The first is by Diane Mastrull of The Philadelphia Inquirer about an upscale multi-family property in New York using a wastewater-recycling system designed, installed and managed by American Water, which is based in Voorhees, NJ.  The name of the property is the Visionaire, located in Battery Park, which opened in September/2008 with LEED Platinum certification, the highest of the U.S. Green Building Council's sustainability standards.

The information about American Water's efforts to become more efficient and green is interesting, but what caught my eye was the fact that the owner's decision to use the system at a cost of nearly $2 million was an incentive from NYC: a 25% reduction in water rates.  According to Russell Albanese of the Albanese Organization, developer of the Visionaire:

The city's rates have been increasing on average 11 percent a year, so the savings over time should become more significant.

The second article was from Erik Ortiz of The Press of Atlantic City about the generally still-bleak outlook for local malls and retail in Atlantic County, NJ.  What caught my eye was the efforts by the new owners of Heather Croft Square to increase occupancy which apparently will include new frontage.

The moral of the stories for me: sometimes you have to spend money to make money.

Green Building and Surety Bonds

I am a regular reader of the Best Practices Construction Law blog by Matt DeVries. If you work for a small business in the construction industry, I highly recommend that you check it out.  Matt has an excellent sense of the issues -- legal and otherwise -- of interest to professionals in construction. 

Recently, Matt provided an informative "guest post" from Kevin Kaiser of SuretyBonds.com about how green building is becoming increasingly more problematic for the surety industry.  As noted in the post, many surety companies will not bond a contractor where any type of "green" or "energy efficiency" benchmarks must be met under the contract.  The primary reason for the surety industry's reluctance to embrace green building: issues of risk management and liability.

If the contract calls for third-party certification -- e.g., by the U.S. Green Building Council -- who is liable if the building fails to meet the third-party's requirements?  Your initial answer may be the bonded contractor, but what if the contractor does not have control over LEED certification? Interesting stuff. 

The impact on contractors should be obvious: if unable to get bonded or if the bond cost is too high, then a contractor's ability to get the job and profit from it is dramatically diminished. My take: green building is here to stay in both the public and private sectors, the "friction" discussed in the post will be around for a while and it will be left to contractors to press the issues.

The key for contractors will be to have well-crafted construction documents clearly defining the following with respect to "green building" benchmarks: how will compliance be measured; who is responsible for meeting the benchmark; and the extent of liability -- e.g., monetary cap? Rebuild the entire building? -- if the benchmark is not met. This seems to be an area where contract ambiguity is not the contractor's friend.