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Posted: March 01, 2010

Q1 Real Estate: Downscaling but not out

Sustainable developers adjust to downturn

David Lewis

Q1RealEstate_(Credit_Skidmore_Owens__Merrill)1.jpg

Rendering of Union Station project in Denver, courtesy of Skidmore, Owings & Merrill

Real estate's Big Slump is far from over, despite cheery GDP numbers. Yet real estate developers and experts in sustainability persist in seeing sunrise amid the gloom.

Observers note that sustainable building has taken its knocks like every other part of the economy. But all argue, often passionately, that the recession adds up to not much more than a pause in sustainability's remarkable growth.

Assessing the impact of the downturn on the sustainability movement seems to be "one of those things where it depends on your mood that day, whether it is optimistic or pessimistic," says Josh Radoff, principal and co-founder of Boulder-based YRG Sustainability Consultants. "The official line, if there is such a thing, is, yes, of course it has hurt. But the feeling overall is that the percentage of projects and people interested in sustainability one way or the other is increasing non-linearly," that is, growing geometrically or exponentially.

Meantime:

• Thirty-four percent of 200-plus business executives surveyed for an Economist Intelligence Unit study, "Managing for Sustainability," said "their firms' immediate financial goals were the most pressing priority that prevented the incorporation of sustainability into company strategies and goals." About 24 percent said lack of funding was the chief obstacle to putting sustainability into strategies and goals.

• Aberdeen Group tracked more than 200 enterprises' sustainability initiatives. Forty-six percent of respondents said "budget challenges remain an impediment to sustainability initiatives." Forty-two percent "still find it difficult to demonstrate quantified business value and return on investment, ROI, in order to make a business case for sustainability."

The economic recession "obviously is going to have a very significant negative impact on what might be considered the sustainability market, the green building market," says Karl Dakin, CEO of DaVinci Quest, an offshoot of the Louisville-based DaVinci Institute. "We're still moving forward, but at a far, far slower pace than we would have."

(DaVinci Quest, with the city of Longmont, in January announced the Smarter, Safer, Greener House contest, to award a cash prize up to $5 million. "We wanted a competition in which people would figure out how to turn the house into an interface device," says DaVinci Institute executive director and senior futurist Thomas Frey.)

Sounds like a downer, no? And yet sustainability seems to be yielding gains. Aberdeen Group found that companies pursuing sustainability best practices "experienced a 16 percent increase in customer retention rates while driving sustainability-related costs down by an average of almost 8 percent across the board."

In the slump, business has been looking for low-cost sustainability, says Graham Russell, executive director of Denver-based CORE, Connected Organizations for a Responsible Economy.
"To the extent that companies are looking for low-hanging fruit in sustainability practices, those things are still continuing," Russell says.

But what most of all is keeping the sustainability movement going is that it is a movement. Going green is more than a set of practical solutions: For many it is a passion.

For the movement to matter, however, builders have to start building again.

One developer still building is Denver-based Zeppelin Inc., developer of TAXI 3.3, an 18-acre, mixed-use development in Denver's River North neighborhood.

The project "is a reuse of a former industrial building on the site, and it might be the only multi-tenant office building that gets done this year," says vice president Kyle Zeppelin. "It is really the fact that it is an existing building, and that we are basically reusing it, which makes it finance-able and marketable."

The development originally was designed to cost $29 million; then the developer downsized it to about a $5 million project. The smaller TAXI will not be built to Leadership in Energy and Environmental Design standards-certified, Zeppelin says. "High-profile, LEED-certified, large-scale projects are not possible right now. What is possible are these smaller, smarter and more cost-effective buildings," he says. "There is a renewed emphasis on sustainability, if anything, but it is not the kind of green-wash, high-profile, throw-money-at-it-and-brand-it-as-green that things had been trending toward."

Denver-based East West Partners, a major player in the huge Union Station project, also sees sustainability coming up roses.

"We're working on an office building now that will absolutely go for some form of LEED certification, the IMA Financial building," to be a $32 million, 100,000-square-foot, five-story building just north of Union Station, managing partner Chris Frampton says.

There are three reasons people love sustainable building, Frampton says, and why the movement will put the downturn behind it and steam ahead:

One, "Regardless of where you come down on the macro-issues of global warming and that kind of stuff, we all intuitively know doing good for the environment is pretty good." Also, "For office tenants it seems to be important for their corporate image to be in green buildings."

"Two other things go along with green building," Frampton says. "One clearly is energy savings; three is that tenants know they are getting quality product.

"I don't think the slump will hurt the green building movement one little bit," Frampton adds. "Building sustainably is just something that seems to have such great momentum."

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