Page 138 - The Green Building Bottom Line The Real Cost of Sustainable Building

GREEN IS THE COLOR OF MONEY 117

Multi-family residential projects—condominiums and affordable housing develop-
ments—reflect the same constraints. In both product types, the investment in higher-
performance technologies is made by the developer while the savings in utility costs
accrue to the occupant. With affordable housing development underwritten by tax
credit financing, there actually may be innovative ways to recapture some of the devel-
oper’s initial investment in green, with the developer essentially serving as the utility
intermediary/provider. But the market for green affordable housing is still too new and
dynamic to document this potential.
Finally, there is the office lease, in which a tenant pays to the landlord a base rent
plus its pro-rata share of taxes, insurance, and operating expenses above the base year
of its occupancy. Say, for example, a tenant enters into a lease in 2010. In the initial
year of the lease, the owner receives base rent of $20 per square foot and incurs
expenses from taxes, insurance, and operating expenses of $6 per foot, for a net
income of $14 per foot for this tenant. In future years, the tenant will pay to the land-
lord its base rent plus whatever amount in excess of $6 a square foot the landlord
faces in increased operating expenses. Investing in high-performance technologies
will enable the landlord/owner to reduce its operating expenses and hence recapture
some of the value of its investment. But owing to the structure of office leases, new
tenants and renewing ones will get a “free ride” as a result of the owner’s investment.
Note that in all of these various product types, I have focused only on the limited
recapture potential of investment in high-performance technologies. Not factored
in at all are the other LEED-related investments having to do with materials and
resources, indoor air quality, etc. In short, current market conditions and outdated leas-
ing structures provide little opportunity for a landlord to participate in the reduced oper-
ating expenses of its tenants, even though the landlord has made a significant investment
in its tenants’ operations. As the market for green matures and greater numbers of inst-
itutional developers construct green buildings, I think this situation is likely to change.
To promote green buildings, we need an innovative green lease structure where the
interests of the landlord and the tenant are aligned. In today’s scenario the landlord is
effectively penalized financially as improvements to the energy and/or water manage-
ment in a property typically result in costs that are absorbed by the owner and bene-
fits that are realized by the tenant. A green lease structure, where landlord and tenant
share the costs and benefits of energy improvements would seem logical, as there are
enough advantages to be shared by all.
Despite the current limitations, Melaver, Inc. does realize some small degree of sav-
ings through reduced operational expenses. Our offices in Savannah, Atlanta, and Birming-
ham are all in LEED certified quarters and, as such, realize energy savings annually of
approximately $1,000 and water savings annually of around $500. Going to double-sided
printing has resulted in a reduction of paper consumption amounting to $300 each year.
Purchase of a company hybrid car is anticipated to reduce gas consumption and be
financially better than reimbursing miles. And the decision to stop purchasing canned
sodas for staff members and instead provide them with chits to purchase soft drinks from
a neighboring retail tenant has resulted in a small but symbolic saving of $1,800 annually.
Most of these financial benefits have already been considered in the previous chapters.