Cities are Enacting Green Building Requirements

On Earth Day, the City of Los Angeles enacted a green building ordinance. According to the Sheppard Mullin Real Estate and Construction Law Blog:

The program sets mandatory standards of sustainability for large projects. In essence, the program provides that no building permit shall be issued for projects at or above 50,000 gross square feet of floor area unless “[t]he project applicant…demonstrates that the Project meets the intent [emphasis added] of the criteria for certification at the LEED certified level.” See LAMC, Section 16.10 D.1. Formal LEED certification, however, is not required.

Boston enacted its green building ordinance last year. In January of 2007, the Boston Zoning Commission approved several amendments to the Boston Zoning Code to require all projects over 50,000 SF to be designed to meet the “certified” level.

• Green Building presentation to the Boston Zoning Commission. (.pdf file)
  
• Boston Zoning Code Green Building Amendments. (.pdf file)

REsource magazine

The latest issue of Goodwin Procter's REsource magazine has been released. Here are the articles in this issue:

Green Building: Now on Firm Footing
by Rachael Simonoff Wexler and Shahrzad Mostofi

Green building is no longer the passion of a few; it is the new standard for commercial and residential developments alike. Green design is an undisputed selling point, remarkably enhancing commercial and residential project value. Green building practices reduce the tremendous impact that building design, construction, and maintenance have on both people and nature. The concept of environmentally friendly real estate is so ubiquitous today that green can be used to describe building without concern that readers will think it refers to the color of a structure.

Negotiating in a See-Saw Market
by Andrew Kirsh

In today’s market, however, the number of real estate transactions that make economic sense is dwindling. Fewer buyers are able to obtain adequate financing due to the recent credit crunch. Thus, an imbalance between seller supply and buyer demand now exists in the real estate market. The negotiating pendulum long thought to be stuck at the top of the seller’s side is finally returning to an even position. The return of balance due to the changing market should allow buyers to negotiate more favorably certain hot button issues concerning due diligence, deposit, as-is and release provisions, representations and warranties, and seller remedies.

Turn Down Service: Key Aspects of Hotel Real Estate Due Diligence
by Christopher Barker and Benjamin Tschann

Investors know the importance of conducting thorough due diligence in the acquisition of real estate assets. Generally speaking, the due diligence tasks for completed and stabilized projects are the same regardless of the type of assets to be acquired. For those evaluating hotel assets, however, the due diligence tasks are greater, and these expanded investigations are crucial to understanding not only the real estate being acquired, but the business that comes with it. For hotel assets, apart from the due diligence associated with tax structuring issues that arise if tax-exempt entities or REITs are involved, there are four main categories of additional due diligence required to evaluate both the real estate and the business: (i) branding; (ii) hotel management; (iii) employment matters; and (iv) operating licenses and permits. Each area must be evaluated for financial as well as legal consequences.

Issues in Joint Venture Capitalization
by Dean Pappas and Hamilton Tran

As the allocation of global investment capital to real estate has increased in recent years, joint ventures between capital partners and developer partners have become commonplace in real estate transactions, making joint venture agreements familiar real estate documents. Familiar as they may be, however, many joint venture agreements overlook or do not adequately address critical issues that often arise during the joint venture relationship. One basic but significant provision found in joint venture agreements is capitalization – the funding of the venture by its partners. Capitalization will become even more significant in the current volatile real estate and credit markets as traditional debt financing becomes scarcer and the infusion of equity may be the only means to sustain joint ventures.

Real Difficult: Structuring Investments in Real Estate
by Christopher Price and Rishi Sehgal

The existence of publicly traded real estate investment trusts (REITs) and the proliferation of commingled real estate investment funds has made investing in institutional-quality real estate increasingly mainstream and available to a
wider class of investors. Fund sponsors in particular, through the use of creative structuring, have been able to access a diverse array of capital sources and have given real estate a prominent seat at the capital markets table. To attract capital from investors as diverse as governmental and corporate pension plans, U.S. and overseas insurance companies, university endowments, private foundations,
and sovereign wealth funds acting on behalf of foreign governments, fund sponsors typically use a variety of structures including “blocker entities” and private REITs to marry their capital with their investment strategy by accounting for investors’ tax and regulatory requirements. While the goal is to attract the greatest amount of capital into their funds, the tradeoffs sponsors face are less flexibility, greater complexity, and increased costs when actually making investments.

Why Green Building Has Staying Power

National Real Estate Investor has an article by Beth Mattson-Teig: Why Green Building Has Staying Power.

I found it interesting that 84% of corporate users expect to own or lease a green building five years from now with only 52% currently owning or leasing a green building with corporate users expecting the amount of green facilities they own or lease to more than double from 9% to 21%.

For green building to stay, two factors need to come into play: costs and market demand.

As long as green building is more expensive than conventional building, developers and operators will stay with conventional methods. Tax breaks and financial incentives can reduce the price differential and encourage green building.

Once there is more market demand, then developers and operators will pay more attention. If tenants are willing to pay more for a green building, then the price differential will be affected as well. A developer and operator will be more more willing to take on the premium cost of green building if the tenants will also carry part of the burden. The survey mentioned in the article indicates that the market demand is there and is growing.

The big problem with green building is that it is hard to retrofit existing buildings to green standards. Building a brand new building, instead of rehabilitating an existing building leads to a greater consumption of resources. It is hard to turn any existing tower building into a green building. But by being in a central business district close to public transportation and encouraging the use of public transportation you can reduce the environmental impact of the building. I have not seen any studies, but I would guess that more resources are consumed driving to a building than the building itself.

Putting up a new building in the suburbs means tearing down the trees and biomass that was on the site. The parking lot leads to more runoff and damage to aquifers. The new materials need to be harvested, manufactured and transported. That means more mining and more energy consumption.

I am all for green building and assessing the impact on the environment. I think more resources need to be focused on retrofitting existing, centrally-located buildings, with an emphasis on public transportation, biking and lower impact means of commuting.