Some developers look at a project and ask "How can I get the highest value out of this land?" They consider building green, but then recognize the costs involved and push the idea aside. That could be a mistake. While it might be hard to commit to spending more when fundamentals are tight, when you consider that an industrial building has a lifespan of several decades, decisions made now will follow you for a long time.
In mid-2009, Southern California-based Stirling Capital Investments completed a one-million-square-foot, fully speculative industrial building in the Southern California Logistics Centre (SCLC) in Victorville. Distribution Centre I (DC1) sits on 46 acres and is the largest project to date within the 2,500- acre SCLC, for which Stirling is the master developer. Stirling invested more to build DC1 than a traditional building of the same size, but the added benefits of the investment provide the Stirling brand a strong value proposition in a competitive buyer’s market.
Stirling is building a portfolio of sustainable facilities at SCLC and is committed to achieving LEED standards and certification for all projects. In March 2010, Stirling received LEED Gold certification for Distribution Center 13A, a 296,490-square-foot facility fully leased to plastic-packaging manufacturer Plastipak.
The concrete truck court not only produces less heat, but also requires little to no maintenance.
Part of an even larger, 8,500-acre multimodal freight transportation hub named Global Access Victorville, SCLC Phase I currently totals more than three million square feet of facilities and is benchmarked for 6.5 million square feet. Upon completion of all phases, SCLC will house approximately 60 million square feet of warehousing and logistics operations-related space. The cost-effective, Foreign Trade Zone location is minutes from I-15 and United States 395 and is less than 100 miles from the Ports of Los Angeles and Long Beach. It is only a few miles off the BNSF mainline and home to the second-longest air cargo runway in the continental U.S., offering direct access to a large skilled workforce.
The buildings at SCLC balance private enterprise with community benefit. While they are about more than maximizing profits, they also make tremendous financial sense. This is because Stirling believes that a builder who delivers commercial product today without incorporating sustainable design will see the market pass them by, almost immediately.
Not a Question of Size
Tenants at DC1 will use approximately 48.5 percent less energy than a baseline facility. This is achieved through energy-saving strategies like daylight harvesting with three percent skylights, an improved building envelope and energy efficient HVAC and lighting equipment. Through features like reduced-flow electronic valve restroom fixtures and drought-tolerant landscaping, DC1 uses 40 percent less water for indoor plumbing and more than 70 percent less water on landscaping.
The facility has 179 dock doors, extra large concrete truck courts and 328 parking stalls with another 405 additional trailer parking spaces.
Yet while a LEED building will save the tenant money, it can require the opposite from the building’s developer. A commitment to "go green" binds builders to a more detailed construction process. It demands an investment of time, and requires a company to build a LEED-educated staff with a higher level of technical and procedural knowledge. However, once that hurdle has been crossed, the design and certification process on a LEED project—even at a green giant like DC1—is not dissimilar to that of any other large construction job.
Illustrating this is the fact that Stirling did not approach DC1 based on its size. Moving forward with the project was never in question. At the time, they didn’t even realize that this would be the biggest sustainable building of its kind in Victorville. In contrast, Stirling stood by the commitment to build all projects for LEED certification and live by the mission of creating "enduring benefit." That is not to say that the added cost of building a sustainable facility to the scale of DC1 was not evident throughout the construction process. The facility has all of the features that any modern industrial tenant would demand:
- a 32-foot clear height
- 179 dock doors
- extra large concrete truck courts
- ESFR sprinklers
- 328 parking stalls, with approximately 405 additional trailer parking spaces and a fenced yard
At this scale, the devil is in the details. For example, when you commit to using recycled content, the cost for a 250,000-square-foot building can be significant, but the cost for a one-million-square-foot building can appear staggering.
The use of paints and paving are another example of significant cost. By using low-emitting paints, adhesives and the like, Stirling spent more than a standard build, but significantly improved the air quality within DC1. In the DC1 truck courts, Stirling used concrete versus pavement—the most standard product in California. While the cost of pavement is considerably less than concrete, from a sustainability platform, the concrete is virtually maintenance-free and conducts less heat, thereby reducing the heat island effect. For Stirling, the benefits of sustainable products far outweigh the investment.
Tenants at Distribution Centre 1 will use approximately 48.5 percent less energy than a baseline facility, a potential savings of more than $275,000 per year in energy costs alone.
The Long and Winding Road
Even in the short term, DC1’s LEED Gold designation could give it a leg up on the competition. The USGBC and the Environmental Protection Agency report (and most tenants and buyers recognize) that green development delivers long-term savings.
According to the USGBC, sustainable construction at any significant level can deliver up to a nine percent decrease in operating cost and provide better indoor air quality, better indoor lighting and overall healthier work environment. This makes for lower budget line items and happier, healthier employees. The challenge is in turning that benefit into an incentive for developers; to help them understand that while the value contribution takes a winding versus direct path back to the investor, it does still get back to them. That winding path is the savings that LEED buildings bring to their tenants. At DC1, for example, the facility’s 48.5 percent less energy use will deliver a potential savings of more than $275,000 per year in energy costs alone. The concrete truck court will not only produce less heat, it will also last longer and requires little to no maintenance, as compared to a maintenance-intense pavement finish.
In a competitive investment and leasing market, when deals can be found at every corner, the cost benefits of a LEED Gold building become selling points that, for tenant and investor alike, might be worth more than actual gold. Wall Street is still relatively neutral when it comes to backing LEED versus traditional buildings, but that tide is slowly changing. Most active industry participants are seeing that sustainable buildings have more tenant demand, which translates to greater stability. Capital sources will always look for cash flow, and LEED buildings can deliver that to a greater degree.
Stirling Capital Investments is committed to build all projects for LEED certification and live by the mission of creating "enduring benefit."
Similar Minds Think Alike
With strategic alliances still gradually hoisting themselves on to the green build bandwagon, a developer looking to build a LEED project can benefit greatly from sustainability-minded partners.
At DC1, Stirling joint-ventured with Denver, Colorado-based DCT Industrial Trust Inc., an industrial real estate investment trust specializing in the ownership, acquisition, development and management of bulk distribution and light industrial properties. Stirling also partnered with the City of Victorville on the overall redevelopment of the former George Air Force Base. Stirling collectively created the vision for the redevelopment of the property. By helping us realize our mission to develop sustainable, economically stable properties, Victorville has established rules and guidelines that will be in place for decades. That work includes not only speculative buildings that provide the means for bringing new companies into the community, but also green projects built by major companies for their own use. Within SCLC, Stirling sold 57 acres to soft drink leader Dr. Pepper Snapple, who chose the site for a LEED-certified project of over 850,000 square feet. At DC13A, Stirling secured a 296,490-square-foot lease with leading plastic container manufacturer Plastipak. These companies share their view of the world, and help position Stirling to attract and serve more partners like them.
The tendency in a downturn is to do things lower budget, but you can’t outsmart the trends and demands of the market. Distribution Centre I shows that there is no fundamental difference and no size limit to green. Tenants want this product, and that means builders must become educated and committed to it if they want to be among today’s development leaders.