Page 143 - The Green Building Bottom Line The Real Cost of Sustainable Building

122 CHAPTER 4

TABLE 4.4 GREEN, INC.’S SAVINGS FROM RISK REDUCTIONS

Gross Revenue $12,000,000
General & Administrative expenses (15% of GR) $ 1,800,000
Risk related expenses (5% of G&A) $ 90,000
Savings by sustainable orientation (5% of risk $ 4,500
related expenses)

relatively useless. In 2007, for example, we were notified by the state Department of
Natural Resources (DNR) that a small property we had owned briefly fifteen years ago
and that was once tenanted by a local dry-cleaning business contained ground contami-
nation from the tenant’s dry-cleaning fluids. It would cost about $400,000 to clean up
the site, and DNR was looking at every owner of the property in the chain of title to
determine whom they would ask to foot the bill.
My points are these:

■ Oftentimes, irrespective of actual culpability, regulatory agencies such as DNR (and
others) will look to the deepest pockets for remediation of point or non-point source
pollution. A green company, one that is more sensitive to and knowledgeable about
the processes and practices of its tenants, is much less likely to lease to a user who
might present a potential liability risk—environmentally, socially, or financially.
■ The benefit of being green as analyzed by Willard is probably significantly under-
stated, especially when it comes to small to mid-sized real estate companies. There is
an accounting gap between the relatively small amount of savings Willard’s formula
provides for (particularly in regard to small companies) and what actual exposure to
risk might be. We sold the property with the dry-cleaning operation over a decade ago
as part of our shift to a more sustainable orientation. Using Willard’s formula, that
decision would have reduced our exposure by $45,000 ($4,500 over ten years)—when
in fact our actual potential exposure turned out to be almost ten times that amount.

In short, it is challenging to estimate with any accuracy the savings that come from
reducing a company’s risk to regulatory censure and litigation—particularly when it con-
cerns companies such as ours. As such, I will include it in my overall calculation of the
value of going green, but will try to understate this savings in the interest of being con-
servative. Suffice it to say that a company such as Green, Inc.—with total assets of $100
million in green properties—is much less prone to the type of clean-up penalties DNR
was looking to collect than a conventional portfolio of properties of similar value. The
savings for a green portfolio in terms of reduced risk exposure is a very relevant sav-
ings, much more significant than Willard is allowing for. A very conservative estimate
of the reduced risk exposure of having a green portfolio would be to consider that once
in ten years, one-half of a percent of a company’s total assets may be at risk. In the case