A Spec of Green: Award Winner Does Well By Doing Good

[ By Ellen Rand ]

Premium for building green was about $2.84 per square foot; to achieve an 11 percent unleveraged cash yield, developer needed an additional 31 cents in rent on an annual basis.

"Over time, this will be the norm," said Peter Z. Garver, director of development services at Corporate Office Properties Trust (COPT).

"This" is sustainable development - or, green building - using environmental principles, building techniques and materials to reduce consumption of energy and fresh water while providing a comfortable, healthy indoor environment for occupants.

Corporate Office Properties Trust has received NAIOP's first Green Development Award, sponsored by XL Insurance-Environmental, for its National Business Park Building 318, a four-story, 125,000-square-foot speculative building in Annapolis Junction, Maryland. Substantially completed in March 2005, it was fully leased to a large creditworthy tenant during construction.

One of 12 projects that COPT has registered in the U.S. Green Building Council's pilot program for Leadership in Energy and Environmental Design (LEED) Core & Shell Development, the project was designed with a Silver LEED rating anticipated. Instead, it received Gold. (The difference between Gold and Silver is that Gold is a higher LEED rating. LEED works on a point system - the more environmental features a building has, the more points a project will receive. Out of a possible 69 LEED points, a building needs at least 26 to be certified at the lowest level; at least 33 points for Silver; at least 39 points for Gold; and at least 52 points for Platinum.)

Some of the green elements that stand out include:

• Highly filtered air
• Extremely efficient mechanical systems, using 40 percent less water than a typical office building
• A green housekeeping program, involving maintenance staff trained in the use of low toxicity cleaners to maintain a healthy indoor environment.

Although the green designation may not yet be a competitive advantage, in that prospective tenants would line up to pay a premium to locate in such a building, the fact is that the premium in this case is not dramatically higher than it would be for conventional construction.

In applying for the NAIOP award, COPT's economic sustainability statement said that "There are two ways for us to consider this question: long-term market position and short-term viability. Our shareholders today are arguably more concerned with the short-term issue of our ability to provide their expected returns."

"We analyzed the building's first cost and compared that to the annual energy savings. Working with Clark Construction, we broke out the premium costs, and found them to be about $2.84 per square foot. To achieve an 11 percent unleveraged cash yield on this cost, we would need to get an additional 31 cents in rent on an annual basis. The modeled energy cost savings on this building is 70 cents per square footWith these savings, other green benefits such as reducing our liability exposure for things like mold and sick building syndrome are free added benefits."

Economic Sustainability Counts
"The long-term economic sustainability concerns our place in the market. NPB 318 is in a park that is a core asset of ours, so long-term ownership is all but guaranteed. We are convinced that green buildings are a trend, not a fad. While the office market, thus far in our experience, is not prepared to pay a premium to go into a green building, we are starting to see signs of tenants appreciating the value that sustainable development brings."

"For example, with NPB 318, the tenant's leasing representatives claimed that green had no value, and they didn't want to pay for it. However, after the lease was signed, the tenant decided to pursue a LEED silver rating for its interior and is pleased that the core and shell are designed as a LEED building."

COPT has developed an extensive set of guidelines for tenants, outlining not only the rationale behind green principles for interior improvements, but also offering recommendations, resources and definitions to help tenan ts create a healthy and comfortable environment.

Garver observed that it is becoming easier to find contractors versed in green development because most have done at least one. "But they are averse to risk," he said, explaining that NBP 318 had a cost-plus contract mainly because the contractor thought - erroneously, as it turned out -- there would be a $7 price premium, versus conventional development. Green construction did not pose any issues or delays in the approval process; nor did it take longer than conventional construction. Garver also believes that premium will continue to diminish. How much more green can the future be? Garver said "We're not sure yet. But I expect that the Green Building Council will keep raising the bar." As for COPT, he said, "we would love to use green roofs in a to-be-built fee development."

About the Green Development Award Recognizing the growing importance of sustainable development, NAIOP, with the assistance of the Green Building Alliance, an affiliate of the U.S. Green Building Council, has initiated a Green Development Award to honor commercial real estate for outstanding green development. More than 30 companies applied for the inaugural award, which was presented to Corporate Office Properties Trust at NAIOP's recent Annual Conference in Hollywood, Florida. Award-winner Corporate Office Properties Trust thanked the members of the Green Development Award Taskforce for its work. Members are: Dewitt Peart, Pittsburgh Regional Alliance; Jack Fersko, Farer Fersko, A Professional Association; Lynn DeLorenzo, Lynn R. DeLorenzo & Co., LLC; Nancy Carey-Cassidy, Picotte Companies; and Stephen Crosby, CSX Real Property, Inc.

Sustainable Design and Building Features
Among the reasons why NBP 318 is green:

• Energy performance is designed to be approximately 40 percent more efficient than the level required by code, using such features as demand-controlled ventilation and 100 percent economizer cycles. There are no CFC-based refrigerants. Efficient Mamouth evaporatively cooled rooftop units are installed.
• The irrigation system will require less than 50 percent of the water than a typical system, through the use of sophisticated controls and other special equipment. Water use is reduced by over 40 percent compared to a typical building, through the use of low flow fixtures and dual flush toilets.
• The storm water system will remove over 80 percent of the total suspended solids and over 50 percent of the average annual post-development total phosphorous. A white roof is being used to reduce heat islands. Exterior lighting is being designed to prevent spillage beyond the site.
• Bicycle racks are being provided, as are showers and changing rooms to encourage users to ride their bikes to work.
• CO2 will be monitored to ensure safe levels.
• Low VOC adhesives, paints and carpet are used, and no urea formal-dehyde is used in the composite wood products.
• Over 50 percent of wood materials in construction were grown in Forest Stewardship Council (FSC) certified, sustainable forests.
• Over 10 percent of the materials used are recycled.
• 75 percent of construction debris is diverted from landfills to recyclers.

COPT's portfolio consists of 13 million square feet in 145 buildings, primarily in the Mid-Atlantic region. It is also doing build-to-suits for existing tenants in San Antonio and Colorado Springs. COPT became a REIT eight years ago. Since then, its capitalization has grown from $200 million to $2.75 billion, by the end of last year.