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Sustainability, particularly when it rises to the level of LEED certification, matters more than ever now when it comes to evaluating the current and future worth of commercial real estate. More investors are showing a preference for buildings that boast sustainable features like efficient lighting and HVAC systems, and large corporations who would rent such spaces are also interested in the potential utilities savings and what that means for their images. Additionally, many government agencies and other prospective occupants are insisting upon sustainability and/or LEED certification prior to rental due to mandates within the company. For more on this continue reading the following article from National Real Estate Investor.

Why should sustainability be important to business, and what are we doing about it at Brandywine Realty Trust? Here are eight reasons that sustainability matters, along with suggestions for action.

1. Large corporations are paying attention. Fortune 100 and 500 companies are continuing to take sustainability and social responsibility more and more seriously and are demanding greater visibility into supply chain information. Newsweek publishes yearly statistics on these Fortune 100 and 500 companies and has rated their sustainability commitments. While the Philadelphia region, where Brandywine is based, does not have on overabundance of Fortune 100 and 500 users, as large consumers of space, those companies’ continued focus here will likely result in them targeting buildings that demonstrate the attributes they are interested in. By way of example, Wells Fargo and TD Bank have each mandated carbon footprint reduction for all operations. Thus, this type of corporate mandate will likely ripple through their organizations, resulting in various demands from each bank’s corporate operations, and will, by extension, impact landlords in requiring that we provide information if said landlord wants to be a value-add for it. It’s important to note, however, that both banks are in multi-year leases so they have little choice now, but will have more choice in the future.  

2. Leasing RFPS and peer discussions show preference for sustainability. Per my discussions with large, international full-service firms like Cushman & Wakefield, Jones Lang LaSalle and Grubb & Ellis, along with Delaware Valley, Pa.–based tenant broker Tactix, more leasing RFPs (requests for proposals) on the East Coast are beginning to ask questions about sustainability programs and what landlords are doing regarding energy efficiency, utilities, recycling, water, waste, Energy Star ratings, LEED plans, etc. In the past month alone, we have seen multiple tenants begin to ask about the viability of electric car chargers and whether would we consider such a deployment. (The answer is yes, and we have already installed chargers at properties in California, Virginia and Pennsylvania, and we are currently and working on installing them in some of our New Jersey properties). Other tenants, for instance, Bank of America, ask whether we would be supportive of their attempt to LEED certify their tenant spaces. While the vast majority of these prospects are not making sustainability a per se mandate, sustainability has—and is—starting to/continuing to create a differentiating factor. As other real estate company owners begin marketing pieces of sustainability offerings, it will become incumbent upon their competitors to discuss if and how they are going to respond and, thereby, remain relevant.

3. Monitoring, measuring, verifying and reporting are paramount. All buildings can be helped in terms of reducing energy/utility consumption by educating staff about what to look for, providing simple tools to help them measure consumption and having third parties (or internal staff, if trained appropriately) monitor existing buildings for simple changes that can cause large energy-use reductions. (This includes set points that were not changed back to their original settings, which can create unnecessary weekend HVAC use; ensuring that new control units and metering has been property connected to the building automation or energy management systems; reviewing outdoor air intake set points which may be too low or too high, resulting in over-used equipment; and checking where both heat and air are on and fighting each other.) Where office landlords have vacancy, energy consumption reduction will save money; where commercial landlords are stabilized, it will result in tenants paying less money and should create a retention tool that can be tracked and reported on so that tenants feel and see that landlords are adding value. Note, however, that it is important to focus on who pays for the energy consumption—meaning that where a tenant pays for energy (typical for office tenants), we all need to be cognizant of not creating a split-incentive (where a single entity pays for an energy-efficiency upgrade (typically the landlord) and one entity benefits from the upgrade through consumption savings (in the case of office properties, the tenant)—aligning these interests to reduce consumption, wear and tear on the equipment, costs and fuel consumption. This provides the appropriate win-win-win for the owner, the tenant and the environment.

4. Code mandates and energy-efficiency standards are changing. Adopting code changes to the International Construction Code (ICC), as is the case in Maryland, makes many energy and sustainability upgrades in new construction and retrofits obligatory (not aspirational). The ICC has been scheduled to be voted on in various jurisdictions in 2013 and 2014. If enacted in the states where one operates, upgrades in energy efficiency may be required and owners and tenants will need to prove that they are compliant and budget accordingly for renewal deals

5. Tenants want space reduction and increased efficiency. Office tenants are following a global trend and looking to reduce both occupied square footage and costs; this is a growing trend as shown through many periodicals (including those of BOMA, ULI, NAIOP, etc.). Thus, the more efficient that spaces are in terms of layout, usage, cost and energy consumption, the more likely those types of tenants will gravitate to them. Focusing on layout and what materials are being placed into a given space gives landlords increased relevance to tenants that are looking for a more sustainable space design and materials usage. Sustainable versions of materials such as paint, carpet, ceiling tile, wall board, glues, adhesives and fasteners can all be purchased for no quality deterioration and no additional cost, so why not do so?

6. Energy Star is on the rise. Energy Star has become a de facto standard for building energy efficiency and is being adopted as a mandatory code standard for disclosure obligations in more and more jurisdictions. Thus, whether one likes it or not, being aware of this trend and using Energy Star as a platform for benchmarking and goal-setting is relevant and key for decision-makers, who, incidentally, risk being forced to disclose potentially less than optimal numbers and suffer by comparison. Energy Star disclosure is required in two states—California and Washington—and nine cities: Boston; New York City; Philadelphia; Washington, D.C.; Austin, Texas; Seattle; San Francisco; Minneapolis and Chicago (and is being considered by 12 other cities in 2014). Thus, if you operate in any of these jurisdictions, it behooves you to understand the impact of Portfolio Manager and its FREE online tools, which can be used to assist in measurement and verification and, hopefully, in consumption reduction. As buildings begin addressing issues due to disclosure mandates, the ratings of many buildings will likely increase and, therefore, if landlords will not be continually maintaining and improving their stock of inventory where there are disclosure mandates, thus running the risk of losing existing clients or not attracting them as tenants in the first place. With over 225,000 buildings representing over 28 billion sq. ft. of space in the United States already using Portfolio Manager to track energy consumption (out of the approximately  70 billion sq. ft. of commercial space in the United States), the numeric are unassailable: More and more owners and more and more building data will continue to be tracked via Energy Star, leading one to the conclusion that you can either be a part of the process and learn from the existing tools, or you can elect to watch from the sidelines as others use these tools and reduce consumption.

7. The GSA has mandated LEED for its tenancies. The federal government, pursuant to Executive Order 13514, RSL-2010-02 and Section 435 of the Energy Independence Act of 2007, mandated that all government leases procured via the General Services Administration be rated LEED Silver or better (and LEED Gold after 2012 for all new construction) and be Energy Star rated (scoring 75 out of 100 or better). There are certain exceptions for renewals and for safety concerns if the GSA stays in place. The GSA is the largest user and owner of space by far in the country, owning and leasing over 361 million sq. ft. in the United States, so if one intends to do business with the GSA or to retain government entities as tenants when their leases renew, it again behooves the applicable owners to pay attention and be able to answer the GSA’s questions and mandates for better, more energy-efficient space—or potentially lose out on this opportunity.  

8. LEED is becoming predominant. Irrespective of whether one thinks LEED is a good standard or a less relevant one, it is a means to measure sustainability within the built environment and has become the de facto standard in many parts of the country for sustainably-minded tenants for new development and adaptive reuse of space. Statistics continue to show marked increases in the number of certified existing buildings and new buildings being certified—with over 1.5 million sq. ft. being certified EVERY DAY. If one believes this trend will continue as the data indicates, one should be educated as to what LEED is, what it costs and what its positive attributes are—or risk being deemed less relevant in markets where LEED is or has become the standard (including parts of the Washington, D.C., metro area; Alexandria, Va.; and Austin, Texas). It should be noted that all new buildings and retrofits of more than 50,000 sq. ft. in Washington, D.C., are now required to be LEED certified or risk a daily fine. 

In my view, if your tenants are any of those mentioned above—or if you are trying to market to any of those tenants—it makes good business sense to be paying attention to energy efficiency and sustainability as a deliverable within your space and to find better more efficient ways to run your commercial inventory of buildings. Reducing consumption, being more efficient at how one procures and uses resources and monitoring what materials are being brought into your buildings should make sense to most if not all constituent bases. Thus, these measures will not necessarily make more money in rent as more and more landlords and tenants focus on these issues, but will become relevant to a given RFP or opportunity.

Brad A. Molotsky is executive vice president and general counsel at Brandywine Realty Trust, a LEED Green Associate and a member of NREI's Sustainability Board of Advisors.