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March 12, 2012

Demystifying Green Sustainability Real Estate Development

If you?re like most small- to mid-size real estate developers, the idea of going green and sustainable is intriguing, almost sexy at times. But then a fear begins to grow like algae in the back of your mind: additional expenses, hidden costs, dealing with consultants, engineers and green experts. Then if you manage to get through that ?green mine field,? the idea of explaining this to your subcontractors, bankers, and investors just gives you a not-so-sustainable feeling in your stomach, and you cave in and build just another building.

Well, it doesn?t have to be that way.

As I was analyzing the idea of my latest commercial development, a medical office building, I realized that not going green was the single biggest mistake I could make. From a sustainable and energy efficiency standpoint, to future value, it made sense to be sustainable. What didn?t make sense was the labyrinth of green sustainable initiatives, cost analysis methods and measuring tools available to me. This was not something I could just pass along to one of my people. I personally needed to learn and understand as much as I could. The one message I kept hearing is was that if done efficiently and measured correctly, green and sustainable made sense ? even financial sense ? and that was very green to me.

I looked at countries around the world not as wealthy as the US or Canada, saw truly sustainable buildings at half the cost of ours here in North America, and wondered ?how??

The first thing I did was eliminate LEED ? yes the North American Holy Grail of sustainable yardsticks ? from my business plan. When I discussed this matrixs with people who wish to remain anonymous (almost like ?the Emperor has no clothes? ?fable) I quickly learned that LEED signified ?Big Boys Club / P3?s? and ?expensive.? I simply didn?t hear the benefits outweighing the negatives.

One man set me on my path. He was an engineer turned developer and he said, ?You must decide if you want a plaque on the wall or to be motivated by sustainability and efficiency.? I have never been one for awards, and accolades. Rather, I was driven by the fact that our healthcare industry is in dire need of new, modern and highly efficient facilities. I?m not referring to hospitals. I?m referring to medical offices, day surgery, ultrasound and labs. If I could mitigate their costs, increase their productivity and give them an environment that is truly healthy and keep it cost effective, then I would deliver a better building to the community. I will get back to measuring sticks like LEED later on because it is important to discuss.

So the first thing I tackled with my project was energy, heating, and cooling. I was fortunate enough to collaborate with Sustainable Buildings Canada, and Enbridge, one of the largest unities companies in Canada. We initiated a design Charette where we would bring in a select group of engineers, consultants, and green experts. Over 75 delegates attended from Canada, the US and even as far away as the UK. We brought in sophisticated software like BIM and EQuest and we round-tabled ideas that made sense, from geothermal and rainwater harvesting to solar and LED. The large group was broken up into three separate groups. One focused on energy and building envelope, another focused on site environmental impact, the third on a sustainability matrix model. Data was imputed over a six hour session and then the three groups joined all the findings and we saw a clearer picture of what gave me the most bang for the buck.

For example, it was determined that a building of our size would typically require 90 tones of roof top HVAC. Seeing that our building was utilizing Hemcrete panels instead of traditional systems, we were able to cut our load by half so the requirement dropped to 50 tons. Our Hemcrete walls delivered up in the area of R40 before allying insulation. With insulation we jumped to about R50. This started a chain reaction of requiring half the bore holes for the geothermal and reduced that cost by a third and thereby accreted the ROI. This also eliminated roof top units and future maintenance and replacement of them eventually. All our mechanical components were now designed into the basement mechanical room away from exterior elements that take their toll on equipment exposed over time. The pumps now had a life expectancy of 20 years with maintenance being filter replacement. No rooftop penetrations for future leaks, no noise to bother top-floor tenants, and room for our solar panels and roof top gardens.

Over and above these benefits, we learned we could depreciate the geothermal systems capital cost at 50 percent per year. When we factored that in, we had a fantastic ROI. Now, in the US, the incentives Obama announced make not going with geothermal a missed financial opportunity.

By providing additional space on the roof for the gardens, our rainwater harvesting managed to cut our water demand on the city?s water system by almost 40 percent. So the additional cost of the roof top gardens have a payback. To accelerate that payback, you must investigate the right installers who will not take advantage of you being ?green.? For example, I investigated one of the leading rooftop garden suppliers, a turn-key solutions provider with a stellar track record, but I simply could not afford them. Instead I used our roofer with whom we?ve had a ten year relationship. We designed the rooftop garden system ourselves and it cost almost 50 percent less. These types of savings I?ve seen along the process.

In other areas, the more you spend, the more you get. This is true with glass and glazing. Here you get what you pay for, so going cheap will be very expensive in the end. Windows are primarily a determination of framing material (i.e. wood, steel, aluminum, etc.). I found anodized aluminum protected by proprietary clear coating in our situation to be the best choice frames. ?Having said that, you still must financially model your building with the understanding that you will inevitably have to replace the window as the thermal break will happen.

Solar played a part, with the carrot at the end of the stick being the FIT program which in Ontario has been going through its downward spiral in terms of rates. So I did not even model the FIT revenue into the financial performance of the building. The payback seems to sit at between eight to 12 years, which, even at twelve years is not that great, but this sector needs a boost from the battery storage technology guys.

So now comes the question of LEED, Energy Star, BREEAM or all of the above.. Here is my take on these sustainable measuring metrics: they all serve a purpose but they should not be your end goal. The goal is to cost-effectively deliver a sustainable, energy efficient building that benefits the community it serves and enriches the lives of those that use it. To do that you must think clearly and fiscally responsibly. Simple pay-back models cannot be used; when modeling your project you must look at life cost analysis. We must think legacy ? of our buildings and our work. Hopefully, yours is longer than five years.

Frank Deluca is CEO of DCL Equity Partners.

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