Green buildings are going up, but so are the prices

By Josh Brown

The Virginian-Pilot

Amid a softening local office market, some developers are testing a new strategy to attract tenants: stamping their buildings as green.

Touting benefits such as cheaper utility bills and more productive workers, developers are spending as much as $100,000 on top of construction costs to get a certification from the U.S. Green Building Council.

"Obviously we wouldn't be doing it if we weren't making money," said Craig Cope, a local vice president for developer Liberty Property Trust. "It does differentiate us from the competition for now."

Liberty constructed the first commercial office building in South Hampton Roads to be certified by the Green Building Council, and this month, the company completed its second building and is awaiting certification.

The certification, called Leadership in Energy and Environmental Design, or LEED, sets guidelines for builders on everything from construction materials to window tinting.

Buildings are awarded points for each eco-friendly guideline followed and, based on accumulated points, can achieve silver, gold or platinum levels of certification. Many of the guidelines, such as those related to energy efficiency and waste reduction, are common modern building practices.

The program has been around for about a decade, and locally it has been used for municipal projects like Virginia Beach's Renaissance Academy. But experts say the certification process only recently has started to catch on with private developers who see value in touting eco-friendly business practices. Some developers, however, see little advantage to paying for the expensive certification for what they see as ordinary building features.

"The tipping point happened in 2006," said Sally Wilson, a senior vice president and director of environmental strategy for CB Richard Ellis, a commercial real estate services firm. "Companies realized there is a demand. And in a down market, setting themselves apart is very important."

Parking spaces reserved for hybrid vehicles line the front of Liberty's newest office building in Chesapeake's Independence Place office park. Otherwise, the rest of the three-story, 73,500-square-foot building looks fairly typical for the area.

Cope said constructing an office building that meets LEED guidelines usually doesn't cost much more than normal, and sometimes the price is the same.

"The additional cost is certainly more than paid back in terms of quicker renting, keeping tenants longer, charging higher rents," he said. "Every building we do from here on out will be certified."

Despite its pending green certification, the building at 676 Independence Pkwy. has no confirmed tenants, Cope said.

When completed in the summer of 2010, the Wachovia Center in downtown Norfolk will be the largest LEED-certified office building in the region. It also will set the record for the highest rental rates.

Tom Johnson, senior vice president at S.L. Nusbaum Realty Co. and a member of the Wachovia Center development team, said the firm decided the long-term benefits of LEED certification outweighed the costs.

"It may not bring us any tenants today, but we think in 10 to 15 years, tenants are going to increasingly want LEED," Johnson said. "And we'll probably still be the only high-rise in town that is certified."

Johnson said about 78 percent of the building's 250,000 square feet already is spoken for.

It's still not clear whether developers can count on higher rents for LEED buildings, said Dan Winters, managing director of Evolution Partners, a Washington, D.C., real estate investment consulting firm.

"It's just what the market can bear," he said. "But it's definitely a selling point."

Winters' firm helps developers and investors secure capital for their green developments. He said national lenders are starting to pay more attention to how buildings are being constructed.

"Most developers don't know the difference from the LEED gold and silver," he said. "They just want the moniker."

Some developers, however, say the cost of hiring a consultant to certify a building LEED outweighs the benefits.

Michael Barrett, chief executive of Runnymede Corp., a real estate management and development company in Virginia Beach, said he decided on a recent project not to pursue the certification process because of the cost.

In addition to the cost of constructing a more environmentally friendly building, developers must pay to have it certified by a consultant. That cost alone can range from $25,000 to more than $100,000 for an office building, depending on the level of certification.

"I think there's a certain cachet to it," Barrett said. "But, again, people have to make that choice. We think it's better to put the money back into the building."

Barrett said for an office building he constructed recently in Virginia Beach, he instructed his architects to incorporate most of the basic LEED guidelines.

"I understand the administrative costs related to a certification program," he said. "I'm just not sure if I want to pay them."

Josh Brown, (757) 446-2318, josh.brown@pilotonline.com