“Green” for Commercial Brokers

Filed under: Real Estate Law

The trend towards “green” building is not longer a fad, it is here to stay. Building green or converting existing commercial buildings to green is quickly becoming a mandate, especially in California. While the costs involved in green building measures or smart building technology can be daunting, government regulation is pushing the industry inexorably in that direction, and public pressure is increasing to “go green.”

So what is “green?” The U.S. Green Building Council has developed one of the primary rating and third-party certification systems for green building. Its Leadership in Energy and Environmental Design (LEED) standards rate both existing and new construction in categories including: sustainable sites, water efficiency, energy efficiency, materials selection, indoor environmental quality, and innovation and design. The LEED system is becoming widely accepted because of its comprehensiveness. Other systems include the Green Globe on-line assessment tool and Energy Star, familiar to consumers for rating efficiency in appliance energy consumption.

California is in the lead nationally in the push for going green. It has passed legislation with aggressive greenhouse gas emission standards and is adopting a new green building standards code with the goal of reducing energy use, toxic substances and greenhouse gas emissions. Individual jurisdictions within California are also beginning to adopt strict local requirements, such as San Francisco’s formal adoption in 2008 of the LEED standards.

With state government clearly pushing in the direction of “green,” there are multiple reasons for a developer or building owner to be a leader in this area, including: tax benefits may exist for building green; both public and private financial incentives are often available for green building innovation; net metering of energy production may be possible if energy-reducing or generating efficiencies are incorporated into green building; depending on the project, there may be tradable credits resulting from green construction or operation; reduced building energy costs will translate into reduced reimbursable expenses for tenants, thus making leases in green buildings more attractive to prospective tenants; and there is also a cachet to being what is often called the first adaptor, which could translate into a commercial competitive advantage, especially given both the public’s and business’ ever-increasing desire to “go green.” There are, however, also multiple potential problems, including the potential legal liability from new technology, tenant claims for unrealized advertised energy savings, potential health concerns raised by the use of new, untested materials and techniques, increased building and maintenance costs, the need for new, different insurance coverages and design and construction claims. All of these have already been experienced in the marketplace.

So what about the commercial broker’s involvement? This isn’t something that can be done by the broker alone, and certainly not by a commercial broker who has not studied the industry. Education is the first key to success – if one does not speak the language and understand the issues, one cannot effectively represent a green owner or landlord. Fortunately there are an ever increasing resources available in this area. Next, “green” will also require a completely new approach to marketing to potential clients, in order to distinguish oneself in this area. Third, given the newness of the technology and potential large costs involved for owners, a commercial broker who is interested in working in this area should assemble an experienced, go-to team of architects, engineers and contractors early in the process to ensure maximum effect with minimal costs and the least potential liability. Finally, have a strategy: put an integrated team in place, define the owner’s expectations and document, document, document.

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