Nicolas Nemni 05/01/2013 Assignment 4 GREEN COMMERCIAL REAL ESTATE 1) Executive Summary Nowadays everything is about being green,

, and environmental friendly, but what do these concepts translate in concrete? To be more specific, how these concepts apply to the commercial real estate development? The translation of these concepts is throughout three phases. First, we need to identify what are green buildings, by explaining the main adopted standards: ISO 14000 and ISO 14001. Second, we need to explain the techniques used nowadays to reach those standards by explaining the green building practices, how to green existing buildings and how to operate green buildings. And last but not least, we need to explain why these standards should be adopted by showing and proving the financial and nonfinancial benefits to developers and to tenants of a green commercial real estate. 2) Description of Research Question It is important for the Indian developers to understand the right timing to implement green building in their projects and how this will translate in cost/benefits for them. This paper tries to give an overview of the American progress on this front, and to give some suggestions to the Indian developers. 3) Findings 3.1) What is Green Building - Standards 3.1.1) ISO 14000 - Environmental Management Standards The definition of ISO 14000 is: a family of standards related to environmental management that exists to help organizations to: a) minimize how their operations (processes etc.) negatively affect the environment (i.e. cause adverse changes to air, water, or land); b) comply with applicable laws, regulations, and other environmentally oriented requirements, and c) continually improve in the above. Just by having a look at the definition we can promptly find a major issue: minimizing the effect on the environment is something very abstract. Even though there is a whole section of the standard that explains how to evaluate the environmental performance based on indicators (ISO 14031), the developer still have to decide how much is willing to pay to minimize this effect. Sometimes the cost to reduce the effect on the environment is too high to be sustained by the developer. Sometimes the developer is required by the law to respect some emission or pollution standards. 3.1.2) ISO 14001 - Environmental Management Systems (EMS) The implementation of the standards contained in the ISO 14000 are explained in the ISO 14001, in which are also detailed the requirements when setting up an Environmental Management Systems (EMS). The first, but not so obvious,

requirement is vertical commitment: costs will be incurred during the implementation of the standards, and these costs must have been budgeted by the top management. The commitment have to be vertical throughout the organization, otherwise the overall cost will increase. An example is that if the lower management and personnel is not committed to the cause, the training costs will increase. The commitment has to be prior to the commencement of the implementation of the EMS: studies have shown that 18-month is the norm. Before considering the implementation of the EMS, the developer usually performs a Preparatory Environmental Review (PER). This review is not required by the standard, but the Annex to the standard suggests that companies that are new to the EMS should evaluate their current environmental position with a review. The review can be done using internal or external resources. By using the internal resources there is an assumption of the expertise of the personnel on the environmental issues: this is probably not the case for the Indian developer, so I would suggest going for the external environmental consultants. The important fact about the PER is that if its done properly it will be a solid foundation for deriving a meaningful environmental policy and a robust EMS. 3.2) How to do Green Building Practices & Costs 3.2.1) Green Building Practices The following categories of concern are those that nowadays are required to make a building green: Sustainable sites - Sustainable has many different meanings, such as avoiding the building to be close to sensitive sites, locate and facilitate urban transportation, reducing site impacts of construction, enhanced storm water management, lowering urban heat island effect and controlling light pollution. Water efficiency - encouraging water conservation in landscape irrigation and building fixtures and promoting wastewater reuse from on-site sewage treatment. Materials/resources Facilitating construction waste recycling, use salvaged materials, regionally produced materials, agriculturalbased materials and certified wood products. Innovation - Use of innovative approaches to green design and operations and addressing regional issues. 3.2.2) Greening existing retail A research has pointed out that the average costs of greening existing retails spaces. The costs are divided in two categories: hard and costs. Hard costs vary from 2% to above 5% depending on the amount of greening that the developer wants to implement. Soft costs: 0-10% extra design costs, building commissioning 0.4-0.7 USD/ft2 and green certification analysts for 25-50k USD + 0.035 USD/ft2. The numbers are related to the American market, so they will vary when applied in a different country. This data is important for the Indian developers, because they might want to start to green their existing retail spaces in order to be more attractive for foreign/multinational brands.

3.2.3) Operating Green Retail There are many practices and management techniques that are specifically maintained in order to operate a green building. Here is a list of the most common ones: Sustainable site management Exterior and site management The green way is to use less chemicals and more labor to keep the site clean. This increases the maintenance fees. The exterior is usually decorated with trees. Reduce Single-Occupant Auto Use Offer alternative means to reach the shopping center. The Indian developers could offer a bus from important parts of the surroundings. Open Space Conserve existing natural sites and restore damaged site areas. Take care of the surrounding grass. Stormwater Management Collect stormwater to reduce tap water consumption. Urban Heat Island Effect Try to create shade in the paved area as more as possible and place parking spaces under cover. Light Pollution Reduction All light that is not emergency one should be shut down on closing hours. Water Conservation Indoor water conservation Install water-conserving indoor plumbing and train staff to use less water possible. Water metering Submeter each tenant and each section of the mall in order to better identify areas of possible reduction. Water-efficient landscaping Implement high-efficient irrigation technology. Cooling tower water conservation Reduce potable water consumption. An effective way to reduce water consumption is to use cooling tower makeup water that consists of at least 50% nonpotable water. Energy Efficiency Reduce energy consumption Reduce energy demand, harvest renewable energy, increase system efficiency, and recovering waste heat are all methods to improve energy performance. Renewable energy systems Solar and wind power are the most used in shopping centers. Materials and resources conservation Sustainable purchasing Use materials which are recycled, rapidly renewable, harvested or processed locally and purchase rechargeable batteries. Purchasing consumables Buy consumables that are green certified, such as Green Seal or ENERGY STAR. Purchasing durable goods Electricity efficient power equipment and highly recyclable furniture. Low mercury lamps Use lower water fluorescent with as little mercury as possible. Responsible water disposal The developers should educate personnel and tenants to reduce waste disposal. Indoor environment Green cleaning Develop a cleaning program in order to use less hazardous chemicals possible. Air quality To support good hygiene, ventilation rates should be at least 10 cubic feet per minute per person in the store. During construction a preoccupancy phases there might be harms to the future air quality of the construction, so the developer has to implement an indoor air quality management plan.

3.3) Why Green Building The benefits 3.3.1) Owner and investors interests Reduced Operating Costs - Operating costs represents approximately the 15% of the total annual cost of a building, while 85% is for employees. Studies have shown that energy is single greatest operating expense, accounting for 32% of the operating budget. Green building can reduce their energy usage from 20% to 40%. This has an important impact on costs reduction. Another easy way to reduce costs by 5% to 15% is to install a modern central heating and energy control system. Higher Rents and Reduced Vacancy Rates - The following economic benefits vary from geographic location, based on the local perception and adoption sustainability. They can be summarized as follows: comparatively fast absorption period, attraction and retention of high quality tenants, competitive rents, above average occupancy rates. This has been confirmed by a study on the CoStar database in 2007. Vacancy rate LEED Class A All Class A 7.4% 11.6% RREEF Research, 2007 Attracting And Keeping Tenants - Green building have faster absorption rates than regular buildings. Since the following costs are associated with vacancy, this advantage can play a big role in savings: lost rent, real estate commissions, tenant improvement costs, marketing, vacant spaces contributing to building operating budget. Since its expensive for owners to replace tenants, it is financially advantageous to ensure continuous occupancy. One way to do this is to have less variable costs by focusing on energy savings. Resale value - The life cycle costs are calculated on 20 years, but the average holding period is less than 10 years. A study has shown that the 20 year NPV of the life cycle savings is approximately 16 USD/sf while the incremental cost of construction is 4 USD/sf, resulting in a net saving of 12 USD/sf. The productivity saving is between 36 and 55 USD/sf. Many green updates though have a return on investment of five years or less. Insurance - Insurance companies are providing green building incentives, by giving a discount on policies. 3.3.2) Tenants Expectations Health and productivity - Since 85% of the costs are accounted to employees, a key factor of green buildings is to improve workers productivity. A study in 2009 by the University of California showed that 50% of employees reported to be more productive in a green environment. Attracting and keeping employees - Due to high costs of recruiting and training new employers, its in the employer best interest to retain existing employers. A survey of Monster.com found that more than 75% of Canadians would leave their current job for one that more environmentally friendly. Reduced operating costs Rental Rate/sf 39USD 29USD

- Due to the technological advantages, nowadays tenants can look for the best place at the best price. This usually translates into green buildings due to lower electricity bills. Environmental Image - Tenants react to the environmental pressures placed by their employees, customers and business associates. Nowadays companies are required to have a certain level of Environment friendly image to be a player the competition. 4) Conclusions Now that we know what is a green building, how to build it and have proven the benefits of it I want to cite the beginning of the paper: the first requirement is commitment. Since there is not much of a regulatory requirement, everything is in the hands of the developers. It is their choice to whether or not build a greener future. 5) Literature - Adler, A., Andreson, J.S., Armstrong, J., Bradley Guy, G., Fuller, S.K., Kalin, M., Karolides, A., Lelek, M.M., Lippiatt B.C., Macaluso, J., Waier, P.R., Walker, A. 2011. Green Building, Project Planning and Cost Estimating. Wiley. - Morris AS. 1948. ISO 14000 Environmental Management Standards: Engineering and Financial Aspects. Hoboken, NJ: Wiley. - Wikipedia. ISO 14000. - Whitelaw, K. 2004. ISO 14001 Enviromental System Handbook. Elsevier. - Yudelson, J. Sustainable Retail Development, New Success Strategies. Springer. - Yudelson, J. Greening existing Buildings. 2010. Mc Graw Hill. 6) A Discussion of Dissent of a Topic Contained in the Group Case Study Report The main goal of our research is to give advices to the Indians about how to increase the profitability of their malls by providing examples of success stories in the US. One point I did not agree on is whether the inclusion of an amusement infrastructure inside the mall would be useful for them. My understanding of the Indian culture is almost none, but Id like to point out 2 things: 1) The area where the malls will be build is midlow income; 2) Nowadays the malls have cheap brands, which means that people go there not for the experience, but just to find cheap stuff in the same place. Based on these two assumptions I think that nowadays there is both a financial and cultural limit of the population that will prevent the amusement infrastructure to be profitable. Last though: using kind of the same reasoning you could invalidate my whole research, but in green buildings there is one important difference: operating costs are lower. This alone justifies the adoption of the green standards, regardless of cultural opinion on the matter.