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.


Equalized Value: Learn It Before Filing a Tax Appeal

If you own CRE in NJ, how do you feel about your latest assessment?  Given how bad the 2009 market was, many of you are probably looking at the assessment and thinking about filing a property tax appeal.  (The appeal deadline is 4/1/10, unless there is a revaluation taking place.)  That's good.  Just know that in many cases the amount of the assessment is not an accurate indicator of the "true value" of your property and, therefore, not the number that should be considered.  Instead, you need to know the Equalized Value for your property when deciding whether a tax appeal is warranted.

Many owners do not realize that the assessment amount on the Notice of Assessment (green card) may not necessarily reflect the true value at which a property is being assessed and taxed by the municipality. This can turn out to be an expensive misunderstanding.

Keep in mind that in NJ property taxes are supposed to be based on the fair market value (FMV) of the property and that the annual assessments are supposed to reflect the FMV of the property.  However, as time passes between revaluations, that is often not the case.  Between revaluations, assessments generally remain unchanged from year-to-year whereas market values are constantly changing.  To address market fluctuations, each year the Division of Taxation analyzes current sales of properties across all property classes in a municipality as compared to the values established under the last revaluation. This results in what is known as a municipality’s annual Equalization Ratio (a/k/a Average Ratio) The Equalization Ratio for a particular municipality can be obtained from the assessor or County Board of Taxation. You can also find 2010 Equalization Ratios here.

The Equalization Ratio is used to translate the current assessed value of a property to its true assessed value a/k/a “Equalized Value.”  The Equalized Value is supposed to reflect the FMV of the property based on the current assessment and county data.  It is calculated by dividing the total assessment from the Notice of Assessment by the municipality’s Equalization Ratio.

For example, the 2010 Equalization Ratio for Linwood, NJ, is 61.99% whereas in Margate, NJ it is 84.28%. Thus, a $1M assessment in Linwood reflects an Equalized Value of $1,613,163.40 ($1M/61.99%). Meanwhile, a $1M assessment in Margate reflects an Equalized Value of $1,186,521.10 ($1M/84.28%).

Why is Equalized Value important?  Because the Equalized Value tells an owner the true value at which the municipality has assessed the property and, in turn, is collecting taxes under the tax rate.  Only by comparing the Equalized Value to the appraised FMV of a property can one begin to determine whether a tax appeal is warranted.

So, if you are still trying to decide whether to file a tax appeal, don't just look at the assessment, look at the Equalized Value of the property.  (You should also talk to an appraiser and attorney experienced w/ tax appeals, because the "fun" does not stop w/ "Equalized Value" when pursuing a tax appeal.)

Round-Up: Multifamily Insiders

If you own or manage apartments in South Jersey, I encourage you to check out Multifamily Insiders, which is a site dedicated to the Apartment Industry.  There are a variety of resources on the site, including job and vendor listings as well as blogs and discussion threads.  I seem to always find some useful/interesting information + there is a real sense of "community" building on the site.  (Full disclosure: I have signed up to be a member of Multifamily Insiders but have no ownership interest or other financial interest in it and absolutely no involvement in running it.  I just find it to be a useful site.)

Anyway, I wanted to pass along some recent blog posts from Multifamily Insiders which I thought you might find useful/interesting:

  • Pablo Paz, National Safety and Maintenance Instructor for NAA Education Institute, warns that apartment properties will be subject to the EPA's new Lead-Based Paint Renovation, Repair and Painting (RRP) Rule which takes effect April 22, 2010.  For those unaware, among other things, the new Rule requires employees and contractors who perform any renovations, repairs, and painting in homes built before 1978 to be certified by an EPA-accredited training provider as to regulations and guidelines on how to work safely with lead-based painted surfaces.  The training has to be completed by the April 22/2010 deadline.  The post includes useful links to further information from the NAAEI and the EPA about the Rule and compliance.
  • Brent Williams has an excellent series of posts about the ugly, the bad, and the good (somewhat) that he was subjected to during the lease renewal process at his apartment complex.  The posts contain excellent analysis and food for thought for all managers or owners.  MORAL OF THE STORY: customer service and attention to detail add value to a property and are worth the effort.
  • On the topic of customer service, Eric Brown of the Urbane Lab has an excellent post on what he calls "Partnership Marketing" which, in this case, involves working w/ several businesses -- including local restaurants -- to provide custom shuttle service to residents at no cost to the property!  (You may recall Eric Brown/Urbane Apartments from an earlier post on marketing via social media.)  The free bus service clearly adds value to the property and it sounds like a real "win-win" for all involved.  What kind of "Partnership Marketing" opportunities might be available to your properties that would help add value?

A New Way for a Garden to Add Value

Can a garden increase a commercial property's value?  Sure, a garden adds aesthetic value, but how about to a property's bottom line?  And, how about if the garden is on the side of the building? 

Welcome to a concept known as a "Vertical Garden," a/k/a a Vegetal Wall, which was conceived by French scientist Patrick Blanc.  (A couple of pictures of existing Vertical Gardens are included w/ this post.)  I ran across the concept in the "First Look" section of the Winter/2009 edition of Development Magazine.

According to the article, Vertical Gardens contribute to reduction of greenhouse gas emissions and can also use recycled water, either from grey water from the building or recycled through the collection bay at the bottom.  Proponents have also found that a building's insulating properties are increased dramatically.

 HOW IT WORKS: A Vertical Garden is composed of 3 parts: a metal frame, a PVC layer and felt.  The frame is hung on a wall or can be self-standing.  It provides an air layer acting as a very efficient thermic and phonic isolation system.  A thin PVC sheet is then riveted on the metal frame.  This layer brings rigidity to the whole structure and makes it waterproof.  After that comes a felt layer that is stapled on the PVC.  The felt is corrosion-resistant and allows for uniform water distribution.  Watering is provided automatically, 4-5 times a day, through a drilled hose running along the top of the Vertical Garden.  Since there is no soil involved, the water must be supplemented w/ low concentrated nutrients through an automatic device.

According to the article, more than 200 Vertical Gardens have been installed around the world.  A check of Patrick Blanc's website shows only 7-8 in the U.S. so far, including installations in Tacoma, WA, and Charlotte NC.

I have no green thumb, but I like the idea b/c it could reduce HVAC costs and it could differentiate the property from competitors

The success of a Vertical Garden depends on using the right choice of plants according to the local environment.  Anybody know what kind of plants might work best in South Jersey?  :)

While a Vertical Garden can be of any dimension, it would seem that the highest return would be found w/ a larger building.  Obviously, not every type of building would be a good fit, as I doubt that a "big box" would want a garden growing on the side of the building, but I would think that a mid-rise office or multi-family building would work, as would certain retail and public buildings.

Who wants to be the first to grow a Vertical Garden in South Jersey? 



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.