Five Myths of Green Real Estate

The end of the holidays also brings an end to the many holiday related countdowns – The number of shopping days after Thanksgiving; The 12 days of Christmas; The eight nights of Hanukkah – you get the picture. Now that the clock in Times Square ticking off the final seconds of 2011 has hit zero and the partying, shopping and celebrating is done, I’m adding one more to the list: Five myths of green real estate.

After spending the past year working in the real estate sustainability field, I’ve come to see the same misperceptions and misunderstandings repeated over and over again in the discussions and decision-making process surrounding going green. As 2012 gets underway in earnest, now is a good time to point out the most pervasive green myths circulating in the marketplace to give you a little context for your real estate business decisions in the coming year.

  • Green is good. What is green? Before you can attach a value to green, you have to know what it is and that isn’t as easy as it sounds. The word “green” often gets attached to products and services that are only slightly more environmentally friendly than past methods or they may offer no practical benefit to your sustainability initiatives. Investigate the green stories behind your next sustainable investment, look for reputable third-party support validating green claims and follow the track record. Once you’ve peeled back the layers and found real substance behind green claims, then you’ll know that you’ve made a good green investment.
  • Green costs more. Yes and no. Making an investment into a major improvement to your facility will cost you money. But, whether you are retrofitting an existing facility or if you are one of the few with a construction project today, careful planning and smart decision making can mitigate the “green premium.” Also, many companies charge more for green real estate products and services simply because it has the word “green” attached to it. In many cases there is no good reason for green to cost more as these processes become more widespread in the marketplace. So don’t just accept a higher cost for going green or dismiss sustainable choices because budgets are tight.
  • Green saves money. Efficiency is all about reducing the time and effort it takes to obtain a result and that should include reducing expenditures. But, if not delivered correctly, green can add costs to a property. Adding energy efficient equipment, like photovoltaics and co-generation systems, to an asset brings new costs and complexity to the task of operating a real estate asset. Otherwise, incentives wouldn’t be necessary to offset the costs of those systems. Does something really pencil out if it requires a rebate? Also, a 20-year payback period doesn’t do much good if you only plan for a five-year hold. That being said, these systems and other green investments can provide true cost savings if properly commissioned. That means knowing your facility inside and out, knowing how new systems will integrate with existing ones and knowing how to properly run and maintain new systems. Some of the early adopters of cutting-edge technology have learned the hard way that going green can cost more with poor execution.
  • Green adds value. This should be the case but it remains unproven. The market tumult of the past several years makes it harder to tease out the relative impacts of sustainability on real estate assets. Many market studies have identified improvements in rental rates, occupancy and capitalization rates on real estate assets of at least a few percentage points. But the empirical evidence is lacking in the eyes of the marketplace as whole. Meanwhile, evidence for the biggest value-added benefit – improved productivity – remains largely anecdotal. Until going green gains widespread acceptance and a longer track record, the benefits of sustainability will continue to be debated and the value of green will remain in question.
  • Green is the better option. Going green is not without some risk. Failure to achieve promised benchmarks can cause legal and financial fallout between owners, investors, tenants and other real estate stakeholders. This will only grow as sustainability becomes codified in leasing agreements, loan covenants and building permit applications in addition to the ever-increasing slate of local, state and federal sustainability laws. That is what makes this last myth, a true myth. Green increasingly is not an option, but a requirement. Going green is shifting from a competitive advantage for the minority who adopt it, to a necessity of doing business for everyone.

For the sake of intellectual honesty, there is far more mythologizing surrounding sustainable real estate than these five myths. So I invite you to add your own myths to this list so I can revisit it next holiday season when I can take a break from helping real estate decision-makers achieve their sustainability objectives and I have more time for counting.

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Michael Gottlieb
The Green Report
Van Nuys, CA
Michael Gottlieb is Managing Partner for Advanced Green Solutions, which provides low-cost, high-quality services to help commercial property owners, managers and tenants advance their sustainability objectives and add value to their real estate assets. AGS provides MilliCare Textile and Carpet Care services in Los Angeles, Orange, Riverside, San Bernardino and Ventura counties. Prior to founding AGS, Michael was an award-winning reporter, editor and columnist for Gannett Corp., Times Mirror, Tribute Corp. and the Daily Journal Corp. Most recently Michael was Editor of the California Real Estate Journal, Executive Editor of 8 small business publications located throughout California and an Associate Editor for the Los Angeles Daily Journal, California's leading daily legal newspaper where he oversaw real estate and biotechnology coverage among other areas. Michael also is a noted speaker and writer on real estate matters and is active in the California commercial real estate community.