Real Estate Development Law Blog : Real Estate Development Lawyer & Attorney : Summit Law Group : Seattle, WA : Land Use & Green Building

Add the Empire State Building to the list of buildings retrofitting to go green.

According to this AP article, in a challenging tenant market, higher-profile tenants want efficient spaces, and owners of older buildings (the iconic Empire State Building is 78 years old) must update systems to attract them. The article cites a CoStar Group study of green buildings that “found that buildings with the council's certification enjoyed higher occupancy rates (90.3 percent) than their peers (84.7 percent) in the first three months of 2009,” and that such buildings “rented at an average of $38.86 per square foot in the first quarter of 2009 compared with $29.80 per square foot for their peers.”

In fact, construction giant Skanska has chosen to locate their Manhattan offices in the Empire State Building and is working on a build-out they plan to have certified LEED Platinum. My favorite quote in the article echoes what a number of people in the real estate development industry have been saying for a while: "This isn't just a 'We are doing the right thing' movement," said Marc Heisterkamp, U.S. Green Building Council's director of commercial real estate. "In the end, the numbers pencil out."

Is there a downside to retrofitting your aging building to achieve LEED certification? Every case is different, but I’d say the toughest part of that question in these times is not whether to do it, but rather where to get the financing.

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Yesterday G2B Ventures, a Seattle-based hedge fund, launched a $50 million fund that will be used to purchase distressed residential properties and convert them into more energy efficient homes for resale.

This approach has been used with success in the commercial market too - examples below. I’m hoping that the reported drop in office rents in Seattle (and the Eastside) means we'll see more of this sort of sustainability-focused, value-add investment, as its time has come. A report released last August by Deloitte and environmental consultant Charles Lockwood argues that within three years "companies that do not have green workplaces will be at a competitive disadvantage from higher operating costs, lower productivity, declining attraction and retention of skilled workers, and an increasingly negative brand image." 

Earlier this year, an article by Matt Hudgens in the National Real Estate Investor reported on the partnering of L.A.-based builder Shangri-La Industries and Thompson National Properties, who announced a $100 million fund - dubbed the TNP/SLI Green Building Fund - targeted retrofitting and redeveloping commercial and industrial buildings to add significant value.  Hudgins lists examples of similar funds: the Hines CalPERS Green Development Fund (created in 2006), with a current equity commitment of $277 million; and the $100 million Rose Smart Growth Investment Equity Fund.  He points specifically to the Rose fund's $23 million acquisition of Seattle’s Joseph Vance Building (right) and an adjacent property in 2006, followed by a $3.5 million green retrofit guided by Energy Star and LEED standards. 

As someone fully behind green retrofits - both from a financial and environmental perspective, I'm hopeful funds like G2B's in the residential market and TNP/SLI Green Building Fund and Rose Smart Growth Investment Equity Fund in the commercial market proliferate and prosper.

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