Linda G. Tresslar, Managing Director, Strategic Consulting Group, Grubb & Ellis Co. (Apr/May 08)
Emerging environmental compliance and
reporting regulations, combined with stricter reporting of contingent
liabilities for corporations under pension laws and Sarbanes-Oxley,
should also cause corporate owners of real estate to thoroughly assess
the merits of direct real estate ownership and to make sure that they
are accurately reporting on their real estate holdings under these
various newer legal requirements.
Corporations can no longer
assume that cessation of use will cause liability to diminish; they are
still required to report liabilities for these assets and to hold
reserves against them. Costs of ongoing compliance must also be
factored in when conducting regular hold/sell and valuation analyses.
From an owner/investor perspective, if applicable, there needs to be a
component of ongoing monitoring of emerging regulations, mandates,
timing and assessment of resulting capital obligations, increased
liabilities, and impact on operating costs.
due diligence requires that owners maintain operating protocols
designed to ensure compliance with regulations, but they should also be
designed to drive enhanced efficiency of operations in areas such as
energy management, air quality, recycling and adaptive reuse of
materials, use of more efficient and environmentally safe materials and
products, etc. Site selection criteria for tenants should be consistent
with these desires and provide a means for evaluating the
Environmental checklists are being
developed by both companies and site selection specialists to help
companies thoroughly evaluate their options. These are areas that can
help improve the bottom line for the property as well as for its
tenants, representing a win-win situation and demonstrating the ability
to achieve greater value over the long run. Standard operating
procedures should be reviewed when considering ownership and/or tenancy
at a property. If the property is not operating in a manner that allows
the tenant to comply with its own environmental operating goals, it is
important that the environmental due diligence process be designed to
vet this issue. For example, it could be disastrous from a company's
perspective to wind up occupying buildings that are found to be poor
environmental stewards if its stated policy is to be carbon neutral.
an ownership perspective, adoption of a continuous improvement approach
to environmental review will lead to better risk mitigation, enhanced
operating performance through adoption of best practices, and better
information to use in positioning the asset in the marketplace and for
consideration of the merits of future capital investment. Good
environmental review of operations can achieve cost savings of 50 to 90
percent on water costs, and 30 to 35 percent on carbon and other
energy-related costs. This obviously helps tenants achieve the same
operational and environmental impact goals.
A Holistic Approach and the Impact on Site Selection
the expanding and dynamic nature of environmental impact considerations
relative to real estate, effective environmental due diligence must be
a continuous improvement proposition. It is being conducted by multiple
parties including owners, tenants/users, governmental bodies, and
consumers. The standards and hallmarks have clearly shifted to include
broader social expectations regarding sustainability and collective
community impact on the environment. These shifts have manifested
themselves in not only expanded environmental due diligence regarding
chain of title (historical and prospective) but also of ongoing
operations. Thus, regardless of the industry vantage point from which
you consider environmental due diligence, now is the time to review the
adequacy of your process in relation to understanding the issues being
assessed by the other industry participants.
Adoption of a
holistic, continuous improvement approach will provide multiple
benefits including better compliance and risk management, improved
operations, better value creation, and enhanced participation in newly
emerging community expectations regarding environmental responsibility.
When considering environmental factors in the site selection process,
the weighting of specific attributes must reinforce a company's broader
corporate social responsibility goals and mission.
selectors should also consider the market-based attributes like a
community's own policies and mandates regarding environmental
considerations (i.e., green building practices; air quality; recycling
programs; use of incentives, mandates, or fees; transit patterns;
etc.). After market comparisons, attention will naturally turn to a
favorable market representing the asset-based operational attributes
that are sought, e.g., adoption of green cleaning products, energy
efficiency measures, recycling programs, the use of clean energy, etc.
These factors must be determined and weighted against all of the other
location selection factors during the normal site selection process and
compared in relation to their overall ability to meet a company's own
environmental goals and objectives.