LEED – the acronym for Leadership in Energy & Environmental Design – is something that has become synonymous with quality and ecological stewardship in the building and design community, but experts say it is also becoming the standard. As such, more developers are concerned with the perceived value versus LEED performance over time. In other words, they want to know that they’re still getting value for their money for a label that still means something. This, analysts at the U.S. Green Building Council say, is why it’s important for the LEED identifier to be closely tied to the performance savings of a building so that it may draw the kind of investment it deserves. For more on this continue reading the following article from National Real Estate Investor.
With a background in real estate law and more than 20 years of experience advising real estate investors, my role as the senior vice president of global policy and law at the U.S. Green Building Council has brought one fundamental principle into sharp focus: Perceived property value is enhanced by proven performance over time.
I find myself reminded of this again and again. Most recently, I took my team to Boston to discuss financing and policy vehicles in the income-producing real estate sector with friends of mine who are experts in the industry. This notion once again surfaced, articulated by Bryan Koop of Boston Properties, who asked, “What is the discount for a non-LEED-certified building?”
And that is just it. The LEED plaque and LEED green building certification are synonymous with quality. LEED has proven this time and again. For many companies, green building has moved beyond a premium offering, crossing the threshold into the “new normal.” In this perspective, Bryan Koop’s question becomes perfectly representative of the transition. Ultimately, you don’t want to be the guy buying the last Hummer off the assembly line when you could have been buying a Tesla—and if you are buying a Hummer, you want to know what the discount is for buying the last of an obsolete product.
The investment community sees engagement with LEED as a sign of a management team’s strong, thoughtful stewardship of investment dollars. The teams committed to providing solid risk-adjusted returns are highly sought after by investors.
We know that green buildings demand higher rents and asset prices, yield higher returns and hold value better than conventional spaces in a less-than-ideal market. LEED is the representation of a suite of attributes tied to astute investing in the green building market. It’s about assets trading at a premium, faster lease-ups and mitigating the risk of obsolescence. It’s also about signaling that you know what you’re doing.
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Where the value goes, so go the investors—or the perceptive ones anyway. So LEED becomes more than a sign for a high-performing buildings—LEED is a proxy for a savvy investor.
International investors use complex algorithms to make investment decisions. For them, LEED has become shorthand for high-quality real estate and decision-making. LEED’s simplicity in representing many complex variables has established it as the currency of quality, making it the darling of the international investment world.
With nearly 17,000 LEED-certified commercial projects in the United States, LEED has established itself as the premier mark of a class-A property in major domestic markets. LEED’s market penetration continues its relentless growth in major markets across the country.
The total square footage of LEED-certified commercial real estate exceeds 20 percent in several major cities, including Atlanta, Denver, Houston, Seattle, Chicago and Washington, D.C. One-third of Minneapolis’ commercial stock is LEED certified, while San Francisco leads the country with more than 37 percent of commercial space adopting LEED.
Let’s take this from the theoretical to the empirical for a moment. The publicly traded REIT market is a prime example, as it is embracing LEED and showcasing its engagement with industry best practices. These 120 companies total more than $430 billion in stock market capitalization. REITs own 220 million sq. ft. of LEED-certified buildings, with a strong growth pipeline ahead.
Leading public and private real estate companies including Boston Properties, Tishman Speyer, Vornado, Brandywine, Hines and Highwoods use LEED to deliver higher value to their tenants and greater transparency to investors. Green leasing has arrived. Since the financial market calamity in September 2008, commercial REITs delivered nearly 20 million sq. ft. of LEED for Commercial Interiors space for their tenants. This year, REITs are on pace to surpass their record year of 2010 with continued strong growth of green fit-outs.
From REITS to private equity funds and other major institutional investors, LEED is the language of choice. And investors are listening.
Roger Platt, JD, is the senior vice president of global policy and law with the U.S. Green Building Council, and a member of NREI‘s Sustainability Board of Advisors.
