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The Value of "GREEN"

The decision to ignore the growing trend toward "green" development could have a greater impact on a company's bottom line than just the actual physical expense.

Feb/Mar 07
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Because the standards by which buildings can be certified "green" are so new in comparison to the data available for analyzing traditional construction, the current challenge of valuers and underwriters is to gather sufficient market data to prove (or disprove) any of the aforementioned potential benefits. There is ample anecdotal information to do so, but the valuation and lending communities are reluctant to rely on such data.

However, there are a few potential benefits that have been recognized by the investment community. The potential of reduced risk - one of the most significant and critical considerations in the investment assessment and valuation of any property - was acknowledged by Fireman's Fund Insurance recently when they guaranteed a premium reduction of 5 percent for any commercial property achieving either a LEED or Green Globes certification. Similarly, the mandate to meet LEED requirements by a growing number of municipalities is viewed as support for the premise that these properties will be less susceptible to obsolescence created via planning, zoning, or code changes.

Thus, it appears at this point in time that the physical costs associated with green development are much more easily quantified than the potential benefits. However, there is sufficient data on the identified and potential benefits to indicate that green development should at least be strongly considered when assessing the possibilities of acquiring, developing, or re-developing a facility.

Market Acceptance

The more compelling consideration may be the "cost" of market acceptance if an owner/developer does not at least consider this form of development. In a time of contentious corporate governance issues and an international focus on corporate responsibility, to dismiss a healthier, more efficient building methodology outright could be much more expensive strategically. With pension funds having the stature of CalPERS and CalSTRS and institutional investment advisors like Kennedy Associates embracing green development as a responsible alternative for their investors, the decision to ignore this growing trend could have greater impacts on the bottom line than the actual physical expense.

This probability is discussed in-depth in the book The Ecology of Commerce by Paul Hawken, an entrepreneur, journalist, and environmentalist whose works have appeared in The Wall Street Journal, Harvard Business Review, and The Washington Post. In this widely acclaimed work, Hawken suggests 20th century industry should internalize some of the environmental costs its production methodologies have created, and if it refuses, it should be taxed accordingly. It is further explored in Ray Anderson's book, Mid-Course Correction. Anderson is the founder, chairman, and CEO of Interface, one of the most successful providers of interior furnishings on a global basis with annual revenues of over $1 billion. He is also an environmentalist committed to being an agent of change for the business and industrial communities worldwide. The following quote from his book epitomizes the growing attitude toward both corporate and environmental responsibility:

"There is not an industrial company on earth, and - I feel pretty safe in saying - not a company or institution of any kind.that is sustainable, in the sense of meeting its current needs without, in some measure, depriving future generations of the means of meeting their needs. When earth runs out of finite, exhaustible resources and ecosystems collapse, our descendants will be left holding the empty bag. Someday, people like me may be put in jail. But maybe, just maybe, the changes that accompany the new industrial revolution can keep my kind out of jail. I hope so, most assuredly."

So perhaps the appropriate question to ask yourself, your board, and your shareholders when deciding whether or not to consider green development and what its value might be to you or your organization is not if you can afford to - but if you can afford not to.

Theddi Wright Chappell is managing director of Advisory Services at Pacific Security Capital and CEO of Sustainable Values, Inc. She holds the CRE, MAI, FRICS, and AAPI designations and is a LEED Accredited Professional. Chappell has extensive experience in both national and international investment analysis, valuation, and consulting services. Her practice focuses on objectively assessing both the business case for, and cost benefit analyses of, sustainable development and redevelopment and how to optimize investment returns for corporations, investors, developers, and owners.

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