Here is an interesting article on green building. It may be be found at
http://www.inlandsocal.com/business/content/technology/stories/PE_News_Local_S_bp_1130_greenbuilding.34af497.html
By BEIGE LUCIANO-ADAMS
Contributing Writer
Devon Hartman’s passion for his work – even for the more mundane aspects like lighting technology – is palpable, even through a dicey phone connection. The architect’s Claremont-based company, Hartman Baldwin Design Build, specializes in sustainable residential design and construction, as well as health and energy audits for homeowners. And right now is apparently a very good time to be in business.
“We personally are noticing a huge uptick in work,” he says. “For last two months there’s been a lot of work coming in, kinda like the old days. I’m hoping it’s leading indicator for the economy in general, because these are people from lots of different geographic areas and walks of life who are deciding to get back in.”
Hartman’s account of increased consumer demand for sustainable practices from architects and builders, “outside of the economic environment,” joins growing chatter from industry experts about the green building movement in the Inland Empire, which will get a timely boost from impending government regulation and funding. At the same time, developers are catching on to the fact that building green can be profitable. The convergence of these forces suggests a fruitful test period over the next several years, both for residential and commercial sectors.
But the region’s construction industry has been hit hard in the recession. When the economy rebounds, will gun-shy developers be willing to make the up-front investments traditionally required of green building? While experts say these costs have come way down in recent years, they also stress the gap in perception and awareness that might be keeping people from choosing sustainable options.
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Stan Lim / The Press-Enterprise
The Frontier Project in Rancho Cucamonga was built with water and energy efficient and sustainable materials. The public demonstration building opened to the public on Nov. 16.
Moreover, the industry is still far from standardized. Early reports of high ROI are weighed against many perceived risks, and rigorous assessments that can show the true bottom-line benefits of green building are still marginal.
Assessing the risks
Whether they’re in it for a long-term investment or just the sales premium afforded by a LEED certification, developers and owners will presumably want to know more about the particular risks associated with green building.
In May 2009, the Marsh Group (New York) came out with a survey of 55 senior executives involved in green design and construction who identified financial and performance risks, regulatory and legal exposures, and consultant/contractor risks among their top concerns.
Financial risks included questions about how sustainable the industry would be in the downturn, affordable and adequate insurance options, volatile commodity prices, subcontractors’ credit capacity, surety bonds, costs of LEED certification and “a lack of understanding by lenders and financial institutions with respect to the green building environment.” Legal and regulatory risks included liability issues and developing standard of care in a nascent industry with an evolving regulatory environment. To a lesser extent, participants also identified branding, ROI and technology as issues of concern.
With regard to the practice of comprehensive risk assessment, Marsh’s Michael Feigin, leader of the company’s Global Construction Practice, says it really depends on who you talk to – that a corporation with a “culture of doing comprehensive risk assessments” can easily add a green component.
“I used to manage risk for large construction company,” Feigin said, “and whenever we dealt in anything new, we did a new risk assessment. A new market sector, new technology, new geology. Green fits into that,” he said, suggesting that it will soon become a more ordinary part of doing business.
However, the availability of information – and the drive to acquire it – is still inconsistent.
“I think a lot of people rely on the LEED certification process as a stand-in (for risk assessment), but it’s not. I think that it’s prudent right now, if you’re going to add LEED to a program, you really need to do a comprehensive risk assessment.”
Seeing a need in the market, Feigin recently launched a program to help owners and developers get to the bottom of the potential risks and profits of building with green certification – or, as he puts it, “we’re helping owners make informed business decisions about how to get the most bang for their buck with LEED.”
“Ultimately,” he says, “if you’re concerned, you buy insurance.” Incidentally, Marsh published a report in 2008 noting the expanding insurance market for green building. Many major companies already have products on the market, but the kinks – like large premium discounts, for example – are being worked out as people attempt to better understand the overall risk picture.
Cost vs. ROI
The costs of green building – how much extra developers must put into a project over normal construction costs – are a crucial factor in decisions to embrace or pass up sustainable systems.
In a 2009 report entitled “Who Pays for Green? Economics of Sustainable Buildings,” CB Richard Ellis Group found that basic “green” certification levels in the UK add about two to three percent to the overall construction costs, while higher levels of accreditation add between five to seven percent. And while both the CB survey and a recent CoStar report showed higher rental, sales and growth rates among LEED buildings in the U.S. (CoStar reported a $12.25 per-square-foot rental premium, and $184 per-square-foot sales premium), the former showed the gains to be more or less on par with the extra costs.
However, the CB Richard Ellis report also found that energy savings could be anywhere from 10 to 50 percent and up – a huge margin that might be too often overlooked.
Tom Donahue, special projects manager at Turner Construction, which just wrapped up Rancho Cucamonga Water District’s new sustainability demo-building, the Frontier Project, worries that developers will be shortsighted.
“Initial costs could hold back the green movement,” he says. “Certainly cost is a factor. The initial cost of building green is more expensive, but over the life of building the costs are recouped, and it can save money in the long run.”
What few people realize, he says, is that buildings normally have a 50-year life cycle. “So if you measure over 50 years, then using alternative energy, you start to get a return on your investment.”
Several businesses in the region that have successfully integrated sustainable systems did so on the strength of a rigorous lifecycle analysis. A good model is the utility companies, says Rick Fochtman, president of the U.S. Green Building Council’s Inland Empire and a builder by trade. “They have long understood the burden of annual operating budgets and the principles of life-cycle cost analysis,” he says, leading them to adopt LEED standards and embrace sustainable building. “They understand that small steps taken toward efficiency during construction leads to significant savings in the long run.”
Both Fochtman and Donahue also say the up-front costs have come down in recent years; Feigen says you will hear the same report from any builder in the industry.
“Businesses run on numbers… the numbers have to work,” says Glenna Wiseman, vice president of marketing for Murietta’s HelioPower / The Helio Group, which performs solar installations, energy audits and works on B2B marketing with commercial clients.
“I think that people touted green issues without showing how the numbers would work,” she says, which means the emphasis in marketing will have to be on ROI. “How do you increase ROI delivery rate? What kinds of energy efficiency can you bring, and how do you save money, not just power?”
To do this, she says, you have to have a comprehensive picture of a building’s overall efficiency and production, “see exactly what your load is, get down to very specific metrics. Real depth. You’ve got to be able to drive into that level of detail. And then ask where does renewable energy fit in after that. Then you can look at federal plans, State initiatives – there are lot of ways to reduce your initial investment in solar, for example.”
People will be looking for viable business mechanisms, she says, and that’s where education will come in.
Other costs and values
Hartman asks us to consider another set of costs and benefits. Using the example of sustainably harvested wood – which costs more up front but doesn’t return any immediate monetary profits – he says some people will choose it because of the “cost to society.”
“I think people are getting more sophomoric in understanding that ROI figures have not considered the societal costs or health costs or the costs to the environment,” he said. As people become more aware and factor in this missing element, “the cost-benefit analysis comes out pretty good.”
This “softer side” of green, as Feigen terms it, is also becoming a more common subject of reports that developers will attention to. He notes McGraw Hill surveys reporting happier hospital patients and better-performing students in LEED-certified hospitals and schools, respectively, or studies showing tenants will pay higher rents for certified buildings.
“A lot of people are taking potshots at it, but I think we will see more and more reliable studies. Because every time you talk to a developer, they wonder if it will generate higher rents. I’d be shocked if you didn’t start seeing lot more reports on this,” he says.
Developers looking for the lowest costs and highest profits might not be so attuned, notes Donahue, but even they “are seeing the market out there and seeing that people are looking for buildings that are LEED certified – because their employees enjoy it, or because it helps the marketing of the company.”
Reasonable expectations
The change in corporate strategy and social norms Donahue points should help bring green building mainstream. “Climate change, sustainability, green – almost every major Fortune 500 company is talking about sustainability issues,” Feigen says. “And a lot of them have chief sustainability officers now,” a position which didn’t exist a few years ago.
Lower costs, energy conservation, billions of dollars in government funding and regulation – like California’s Green Building Code, which will become mandatory next year – all create a fertile environment for the trend to take hold in the Inland Empire, where advocates hope the abundance of undeveloped land will mean a fresh start.
Nationally, reports from the USBG and Turner Construction’s Green Building Market Barometer in 2008 indicated a sturdy market through the downturn, while the Freedonia Group expects the market for green building materials to exceed $80 billion by 2013. McGraw Hill projects green building starts will comprise 20 to 25 percent of commercial and industrial construction by the same year, up from current levels of about 10 percent. But experts say it will be a gradual process.
“The more sophomoric conversations about green building will take a while,” Hartman said. “I think in the Inland Empire it will start with energy – this is the first thing pricking people’s ears’ right now. People are feeling the pinch when they’re talking about energy bills – but they’re also flat-out just not comfortable. We now have the technology to make them comfortable for a fraction of the cost.”
Hartman sees alternative and efficient energy systems taking root much faster than certified lumber, for example, the immediate impact of which is perhaps less noticeable on people’s everyday lives.
“I think the market will be fractionalized for a while until the education level gets up to speed in the general market. But I think the market does exist for these sustainable technologies. The laws are changing as we speak, the building codes themselves and municipal laws – until the whole idea of green building goes away and just becomes mainstream.”
When the housing market does recover, Craig Keys, president of the Inland Empire’s Green Valley Initiative, expects to see a wider growth and diversification in the regional market for green building. “We anticipate long-term, significant growth in the volume of business conducted regionally by green product suppliers, manufacturers and marketers, he says.
And developers, says Hartman, will sell to the market. “Some will sell to the trailing edge of the market, and some to the leading edge of it. The smartest will be able to time it in the middle.”
