OWNERS , AND INVESTORS , HAVE THESE PEOPLE BECOME MORE WILLING OR MORE ABLE TO INVEST IN GREEN INITIATIVES ?
AMERIKANER : The market has been tight in many sectors . But like I said , the payback periods for sustainability projects can be shorter than initially expected . Even in existing buildings , the savings that can be realized on utility bills from some retrofits can be quick . Additionally , in many places , carbon reduction mandates are becoming law . I ’ m thinking specifically about New York , which is in the process of implementing its local law 97 , which covers buildings that are 25,000 sf or larger . It imposes mandatory greenhouse gas ( GHG ) emission reduction requirements that kick in starting in 2024 — all in service of a goal to reduce emissions from the building sector . The city ’ s goals are to reduce GHG emission by 40 percent by 2030 and 80 percent by 2050 against a 2005 baseline . Similar initiatives are happening in Boston , Seattle , and other cities across the country . So whether it ’ s voluntary or mandated , building owners and landlords are finding that this is something they need to reckon with . Once they do , they ’ re seeing benefits that they may not have anticipated when they started .
CIRE : WHAT HAS SHORTENED THE TIME- LINES FOR DEVELOPERS AND BUILDING OWNERS TO SEE A QUICKER ROI ON GREEN INVESTMENTS ?
AMERIKANER : Decreasing costs is a factor . Look at things like solar panels , which have become more affordable — the supply chain issues of the last year or two notwithstanding . Some of these things are fairly easy to do . If you install LED lights , for instance , that ’ s a relatively simple way to substantially reduce your energy bills . If you have vacancy controls in individual offices , you can have the lights turn off and the climate control set to be smart about heating and cooling . But even for more complex projects with longer payback periods , affordable financing and tax incentives are available to help reduce the cost . For any commercial real estate investment , it may be a longer hold . But these things we ’ re discussing position a building to be more attractive to both tenants and investors .
Also , in places like New York , legislation has addressed new building being encouraged to install solar panels or other green features on roofs to improve energy efficiency , reduce water waste , and reduce energy consumption . That ’ s one easy way for cities to improve the efficiency of their buildings and reduce carbon emissions if you have distributed energy generation as well as a reduced strain on the water supply .
CIRE : LOOKING AT OTHER SECTORS BEYOND OFFICE , IS THERE A CRE
MARKET THAT HAS BEEN ESPECIALLY SUCCESSFUL IN ITS EFFORTS TO BOOST SUSTAINABILITY ?
AMERIKANER : I would say that anything new is what ’ s been most successful . It ’ s easiest to implement green practices from the ground up . We ’ re seeing many major homebuilders really put themselves out there as focusing on energy efficiency , carbon reduction , and water efficiency . We ’ re seeing strong efforts in sustainability in the multifamily sector that are being well received by the market .
But from the tenant side of the equation , a lot of commercial tenants have ESG goals of their own . They have published goals that they need to meet in the short , medium , and long term — goals related to energy efficiency of the spaces they occupy , water use in those spaces , use of recycled materials , carbon recovery , and emission reduction . So when a prospective tenant is looking for a space , they will be looking to advance their own published ESG goals . Because of this , tenants are certainly willing to pay a bit more for that . On the countervailing side of that , though , the market is very competitive , particularly for commercial tenants , but many are still prioritizing a commitment to sustainability .
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CIRE : MOVING FORWARD , WHAT OBSTA- CLES WILL CONTINUE TO BE CONCERNING FOR CRE ADOPTING AND IMPLEMENTING GREEN PRACTICES ?
AMERIKANER : Obviously , we hope to see as much progress as possible — and the trend is undeniably in the direction of greater sustainability , more investment in green practices , retrofits , and distributed energy generation . In terms of obstacles , cost is No . 1 when you ’ re asking a commercial property developer or owner to make an investment . Something that can be an expensive proposition is always an obstacle . Communicating how short these payback periods can be for some investments will be crucial in convincing CRE developers and investors . We ’ ve seen resistance to solar and wind energy in some areas of the country , but as the costs continue to decrease , it ’ s harder to remain opposed . The market decides in many cases .
Another risk would be the temporary status of government incentives — some tax incentive programs will expire , so they require an extension . Lastly , the supply chain is an area of concern . We ’ ve seen a tremendous amount of disruption in the global supply chain over the last year or two from COVID-19 . As these issues continue to get worked out , this will aid in the implementation of green technologies . But right now , there are problems because it ’ s simply harder and more expensive to import components needed to implement some of these technologies .
CIRE : AS MOMENTUM CONTINUES TO BUILD FOR ESG PRACTICES , WHERE DO YOU SEE SUSTAINABILITY AND GREEN BUILDING PRACTICES IN THREE OR FIVE YEARS ?
David Amerikaner
AMERIKANER : I see them continuing to be an integral part of the industry — and they will become increasingly visible to investors , tenants , and other stakeholders . We see that companies are now setting goals and advertising their success when meeting them . Companies continue to focus on these matters and making their assets and practices more environmentally friendly . I also think we will see more mandates from various levels of government along with more incentives to encourage sustainability in commercial real estate . Whether it ’ s from city , state , or federal action , there will be more and more encouragement for CRE owners and tenants to make investments in this area .
Nicholas Leider
Senior content editor of Commercial Investment Real Estate Contact him at nleider @ ccim . com .
Editor ’ s note : This article is an adapted excerpt from a fulllength Commercial Investment Real Estate podcast . To listen to the full episode , head to SoundCloud , iTunes , Spotify , or wherever you listen to your favorite podcasts . Don ’ t forget to subscribe , rate , and review .
CIREMAGAZINE . COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 7