In the summer of 2006 an engineering consultant came to the regional offices of Regency Centers Corp. in Walnut Creek, Calif., to preach the benefits of green building to Scott Wilson, the firm's vice president of construction. The consultant pointed to the U.S. Green Building Council's LEED certification program — widely recognized as the industry standard for sustainable design and construction. At the time, Wilson recalls thinking that the idea was “neat,” but he was dubious about the practicality of green building.
After all, Wilson was already facing annual double-digit percentage growth in standard construction materials like wood, cement and steel. He couldn't justify adding any more to project budgets for what he then saw as a frill. He thanked the engineer for his time, but put any thought of sustainability to the back of his mind.
A year later, things have changed dramatically.
On Nov. 1, Regency officially launched what it is calling its Greenlight program, an initiative that aims to incorporate environmentally sustainable features not only into new construction projects, but into existing properties and throughout the company's corporate offices. Regency plans to seek LEED certification for 20 percent of its 2008 construction starts, 40 percent of its 2009 construction starts and 60 percent of its 2010 construction starts.
What occurred at Regency is emblematic of the sea change under way within the retail real estate industry. Suddenly, the color green is everywhere and you can't have a conversation about a company's development portfolio without hearing about how one or more projects include some sustainable aspects.
At Regency, things changed when Brian Smith, Regency's chief investment officer, approached Wilson last October and asked him if the company could go green. Smith, it turned out, kept getting inquiries from people both within and outside the firm about what Regency was doing to become more environmentally responsible. And after seeing analysts laud other REITs for incorporating green building practices, he felt certain that major change was afoot. “We can't ignore this,” he told Wilson. “We need to set up a task force.”
Wilson then thought back to the consultant's presentation. At the time, inflation in materials prices started to slow dramatically. With less pressure mounting, going green didn't seem like a daunting task. Regency is now working with the Green Building Council to make LEED certification for shopping centers easier to obtain. Whereas the program currently certifies individual buildings within a property, Regency would like to make it possible for centers to be certified as a whole. The company also launched a search for a sustainability officer.
In making this decision, Regency joins a growing list of retail developers who are embracing the marketwide push toward environmental sustainability. In the past, most firms that considered going green were the smaller, privately held entities that could afford to be on the cutting edge because they were not under the watchful eyes of Wall Street, says Cheryl J. Steigerwald, senior design architect with Cleveland-based ka architecture. But in the past year or two, more and more REITs have entered the fray.
In October 2006, for example, Cleveland-based Forest City Enterprises, Inc., a diversified real estate operating company with a 9.5-million-square-foot retail portfolio, opened its first LEED-certified retail property, the 1.2-million-square-foot Northfield Stapleton lifestyle center in Denver. When the company completes work on its 1.2-million-square-foot mixed-use Ridge Hill project in Yonkers, N.Y., in 2009, that center should qualify for LEED certification as well.
Meanwhile, Chicago-based General Growth Properties, Inc., one of the country's largest mall owners, began using reflective roofs and energy-efficient HVAC systems at some of its properties. And White Plains, N.Y.-based Acadia Realty Trust will break ground next year on a project it hopes will garner a silver LEED rating — the 1.6-million-square-foot City Point mixed-use center in downtown Brooklyn, N.Y. (The development is a joint venture between Acadia, MacFarlane Partners, Rose Associates, Washington Square Partners and P/A Associates.)
“We no longer have to be the ones to suggest it,” says R. Kevin Nice, associate principal with Arrowstreet, a Somerville, Mass.-based architecture firm. “In some of our initial discussions, it is the developer who is bringing up the question.”
Among Arrowstreet's green projects is Patriot Place, a 1.3-million-square-foot mixed-use center in Foxborough, Mass. The development, built around the Gillette Stadium, will feature a white roof for reduced energy consumption and a wastewater treatment plant. Foxborough-based Kraft Group is the developer of the project.
Part of this change in attitude has to do with the greater awareness of the importance of environmentally sustainable design. Many municipalities now require it for public buildings. In California, regulations go even further, as the state has put new green regulations into place for all commercial buildings that put developers well on the way to LEED certification. And a number of national tenants recently made commitments to build eco-friendly stores as well, including such powerful names as Wal-Mart, Target, Best Buy and Kohl's. That puts new pressure on developers to do their part in helping preserve the environment.
In addition, the spread of green building in other commercial real estate sectors means that many of the largest architecture firms already have some experience working with the LEED program and using sustainable design techniques. They're now imparting that experience to retail developers.
In some cases, going green is simply a matter of picking the right design style. “You go to Las Vegas and in the middle of the desert you see Mediterranean architecture, which is designed to deal with a lot of moisture” and is totally ill-suited for the harsh, dry local climate, says Todd Stoutenborough, principal in the Orange County office of Long Beach, Calif.-based firm Perkowitz + Ruth Architects.
Some additional cost-effective ways to become environmentally responsible include the use of recycled materials, day-lighting (incorporating skylights and transparent walls to let natural sunlight into the property) and using the center's parking lot for stormwater retention. Putting patches of soil in the parking lot, for example, serves as a natural filtration system and reduces the amount of storm piping a project needs.
Meanwhile, a 2003 study by the Heschong Mahone Group, Inc., a Fair Oaks, Calif.-based building design firm, found that day-lighting at retail stores brought energy costs down by $0.24 per square foot per year, while simultaneously increasing sales by $0.66 per square foot per year. “The shoppers are responding very well to having more of a natural environment,” says Stan Laegreid, principal with Seattle-based architecture firm Callison.
That's how GreenbergFarrow, the Atlanta-based architecture and engineering firm responsible for Acadia's City Point project, plans to maximize energy efficiency at the retail portion of the development. All the stores, located at the base of the building, will face outward, according to Navid Maqami, principal, with natural sunlight coming through the glass walls. The firm also plans to incorporate reusable materials, energy-efficient mechanical systems and a green roof element into the property.
What's the cost?
That's not to suggest that environmentally sustainable design does not pose some challenges. A building that incorporates enough green features to be legitimately considered sustainable drives up the cost of construction by close to 2 percent, or $3 to $5 per square foot, according to “Green Building Costs and Financial Benefits,” a 2003 study sponsored by the Barr Foundation, Equity Office Properties, Environmental Business Council of New England, Inc. and the Massachusetts Technology Collaborative. The study found that the extra costs come from the increased architectural and engineering design time. Another study in 2006 by the U.S. Green Building Council, “Cost of Green Revisited,” found no significant difference in construction costs for green and non-green projects.
But if incorporating green features in and of itself may only add marginal costs to a project, qualifying for full-fledged LEED certification can be a bit expensive. The certification fee to the U.S. Green Building Council can amount to $15,000 on a large project. Plus, there is a fee for building commissioning, which is a certification requirement and can range anywhere from $70,000 to $200,000. Lastly, a LEED consultant fee can cost $15,000 to $50,000.
The location of the project site can make a difference in how expensive the certification process ends up being, according to John Bemben, senior associate with Greenbarg Farrow. Centers built on brownfields or on high-density sites near transportation stations automatically get points for being green, lowering what a developer needs to spend on other green features. (LEED is based on points, with 26 points needed for the lowest LEED rating). “It really does come down to the particular project and the particular site — in an urban setting, you get a number of points sort of for free,” Bemben says.