Page 139 - The Green Building Bottom Line The Real Cost of Sustainable Building

118 CHAPTER 4

REDUCTION IN INSURANCE COSTS
For years, my colleagues and I had been buttonholing our insurance underwriter, con-
tending that our insurance premiums should be reduced because of our green portfolio.
Our emphasis on craftsmanship and durability, we argued, meant that our buildings
would hold up better over the long term. Our investment in more energy- and water-
efficient systems would similarly result in more durable properties. We argued that our
buildings, with fewer volatile organic compounds and tighter building envelopes, made
them healthier than others and thus less exposed to lawsuits having to do with sick
building syndrome and the like. To no avail. We simply could not make any headway.
Until August 29, 2005, when Hurricane Katrina hit New Orleans.
As most in the real estate world are well aware, insurance rates since Katrina have
skyrocketed. Particularly hard-hit in terms of price increases has been the southeastern
United States, both along the Atlantic shoreline and the Gulf. In the last four years,
insurance rates in our region have increased by approximately 11.5 percent a year,
which means our own insurance premiums during that time period should have jumped
from $0.83 (per 1,000) to $1.28. The key words here are should have. The fact of the
matter is that during that same time period, our insurance rates have increased more
modestly, going from $0.83 in 2004 to $0.99 in 2008. This equates to $29,000 in annual
savings ($0.29/1,000 × $100 million).
The underlying cause of this stability in our insurance rates can be linked to our spe-
cific values/green orientation—but not necessarily our LEED orientation. We need to be
careful here. With certain caveats in mind, a developer can build a LEED certified build-
ing in most places: in a desert environment, along our coastal marshlands and hammocks,
even in the middle of an old-growth longleaf forest. Our own company standards are
more stringent than those set forth by the U.S. Green Building Council in that we volun-
tarily choose to build in urban core settings well away from the environmentally sensitive
areas of our coastal wetlands. It’s part of our particular ethos as a company. It is also part
of our ethos to devote ourselves to projects that speak to the needs of a particular com-
munity. Hence, we do not replicate one type of product (for instance, condos) over and
over again in market after market. Such a business model, typical for many companies,
simply does not fit our belief system, which holds that every locale is unique and that is
it incumbent upon us as developers to address the uniqueness of the communities within
which we work.
As it turns out, our belief system and practices have also paid off for us financially
(though that was hardly the intent). Because our developments are located well away
from the liminal areas between marsh and high ground, and because we have a port-
folio of properties diversified both geographically and in terms of product type, we did
not match the risk profile that resulted in so many real estate firms having to pay sig-
nificantly higher insurance premiums after Katrina.

REDUCTION IN FINANCING COSTS
Financial markets are changing so radically in their overall approach to green devel-
opment that it is almost certain that in the nine-month time lag between the writing of