Green … is GOOD, Part 1
Is the green wave now coming to real estate?
No, not Tulane …
From the New York Times, some stirrings in the Big (Green?) Apple suggest it may be so:
THEY are not yet as ubiquitous as the Toyota Prius, the hybrid car popular among the ecologically minded, but “green” apartment buildings have begun popping up around Manhattan.
At least six large buildings designed to meet elevated standards for energy efficiency and for the use of environmentally friendly materials have opened in the last three years, and several more are under construction or being planned.
The green designation is conferred on buildings that incorporate recycled or renewable materials and that slash energy use and water consumption with features like photovoltaic cells, internal sewage treatment systems and roofs covered in soil and vegetation.
Developers say they are building green because they believe in it, but they also expect to gain a competitive edge.
Okay, class, here’s an easy Yes/ No quiz. When a developer says he believes something, and he expects to gain an advantage from it, which motivation is dominant?
Bzzt! Time’s up!
If you said … money … you’re right! How do developers know they’ll make more money? Customers vote with their wallets:
If faced with the choice of renting or buying two similar apartments, the developers say, consumers increasingly will opt for the one with green features, even if it comes at a higher price.
Given a bit of time, and real (as opposed to merely professed) customer preference, markets do work, at least when there’s money involved.
“We think it’s important to do, and we think that other buildings that don’t do this will become obsolete, and our buildings will continue to maintain their value,” said Douglas Durst, who built 4 Times Square, a pioneering green office building, in the late 1990’s.
What’s the market cap value of such good publicity?
He is now building his second green apartment tower.
Green Neighbors TriBeCa Green is diagonally across
Part of the genius of markets lies in their ability to quantify customer desires. For all the appraiser estimates or tort litigator speeches about what something is ‘worth,’ a market tells us when a thing has value (the precise instant that people start deploying more of their hard-won dollars) and how much it has.
Thirty-five years ago, McDonald’s moved its burger wrapping from greasy wax paper to pre-formed Styrofoam boxes, a setting more fitting of a premium burger …
Surrounding it with Styrofoam just makes it taste better!
and then, a decade and a half ago, customer interest in recycling moved McDonald’s to reverse that decision, abandoning the Styrofoam burger box for plain paper, following customer premises.
Now it tastes better wrapped in this.
Meanwhile, as energy prices rise relative to incomes, other economics come into play. While green may be more costly in construction, it may — emphasis on the conditional — save money over the long term:
“With the war in Iraq and gas prices over $3 a gallon, when you’re living in this particular era, you want to do what you can,” said Kelly Caldwell, who rents a one-bedroom apartment at the Helena, a 37-story green building at 57th Street and 11th Avenue. She would not say how much she pays in rent, but a typical one-bedroom in the building is $3,400 a month.
Ms. Caldwell, a freelance researcher, said the air did not seem noticeably fresher or the water purer in her apartment. But she does notice a big difference once a month when the electric bill comes.
In her previous apartment, which was about the same size, she paid about $200 a month in the summer for electricity. At the
Pause for math: let’s generously give Ms. Caldwell her $100-per-month savings for six months (three in summer, three in winter); her electricity savings are equivalent to a $50 monthly rent rebate, so that $3,400 becomes $3,350 — a 1½% savings. Or we can look at it another way; if the green features — economic and psychological — are worth 1½% to Ms. Caldwell, then the landlord gets higher Net Operating Income, so more green yields more green.
= 
Nevertheless, high-income renters are but a tiny slice of national demand, and rent-controlled landlocked sky-high-priced
At 1400 on Fifth, a green condo at
Lark E. Mason Jr., an expert on Chinese antiques who is seen regularly on “Antiques Roadshow” on PBS, moved with his wife, Erica, into a three-bedroom triplex apartment during the recent heat wave, only to find that the air-conditioning was not working properly. Grit from decomposed rock in the water from the geothermal wells was clogging the cooling units in some apartments, and the Masons were told that the developer, Full Spectrum of New York, planned to install filters to remove the grit from the system.
The Masons, who paid slightly under $1 million for their apartment, took the attitude that they were pioneers in a new way of urban living.
Millionaire pioneer … and his wife.
Here in only fifteen words is the quintessential difference between marketing and operations:
“The concept is really exciting,” Ms. Mason said. “Practically speaking, there are still some kinks they’re working out.”
Carlton A. Brown, the chief operating officer at Full Spectrum, said that only some of the apartments had been affected and that he expected the filters to take care of the problem.
This reminds me of the hot-air hand-dryers in many of a public lavatory, including my own Kendall Square Theater, who offer up this consoling message on a plaque:
No, we don’t like them either,
but they use less energy and are better for the environment
Once a feature has value, everybody will claim it (low-fat! high-fiber!), and the green industry, anticipating brand dilution, has created a standard with the infelicitous name LEED (Leadership in Energy and Environmental Design):
No, not lead, lead bad, leed good!
Anybody can call a building green, so to impose some accountability, the United States Green Building Council [itself just a trade association. — Ed.] created a rating system called LEED, short for Leadership in Energy and Environmental Design, to measure the degree to which buildings incorporate green practices and materials.
Branding has value only if it stands for something. The industry benefits from coalescing around a standard, provided by a standard-maker that is disinterested.
The Solaire, Helena and TriBeCa Green have received gold ratings, the second-highest rating. Developers for the other buildings said they expect to receive either a gold rating or a silver, one rung below gold.
The highest rating is platinum, and it would be churlish to point out that mining these precious metals is about as far from green as one can get. Why couldn’t they have created rankings of moss, fern, lichen and kelp?
To receive a LEED rating, completed buildings must be evaluated, and points are awarded for their green features.
Now we’re into another curious area:
[Continued tomorrow in Part 2]
