Is "Green the New "Black" in Real Estate?

Green Costs and LEED Certification: What Does It Mean For Tenants?

Green is most certainly the new black – and everyone who can afford to go green is doing so. Note: the key phrase in that sentence is “everyone who can afford to go green” – that’s right, folks, going green can be pretty expensive, especially when it’s commercial real estate that you’re talking about.

Most people think that carbon footprint we’re creating is thanks to transportation. They’re wrong. Buildings give off 2/3 of the carbon emission in the world, whereas transportation only makes up 1/3. Indeed the battle for a greener planet really rests with the real estate industry. So what do tenants need to understand about green buildings.

First and foremost: What is LEED Certification?

LEED Certification is The Leadership in Energy and Environmental Design (LEED) Green Building Rating System, which was developed by the U.S. Green Building Council(USGBC).

There are four different levels of LEED certification (certified, silver, gold, and platinum). Buildings that aim for LEED certification build their properties based on the tenants of the LEED rating system – these include the use of recycled material, reducing the amount of waste leaving a job site, using sustainable building material, and utilizing low‐emitting materials. Buildings who have followed the above guidelines can then submit an application for LEED certification. Applications are reviewed by The Green Building Council and if accepted, are awarded one of the above levels. Utilizing sustainable materials and building according to the LEED guidelines isn’t cheap. For architects, designers and builders, there are also fees associated with applying for LEED certification

Key things tenants need to know about signing a lease in a green building:

I. Going green is expensive and will be reflected in the cost of the lease

Most of the green buildings in the United states tend to be new construction, and tend to be very expensive. It’s expensive to build a sustainable building, and expensive to apply for and obtain LEED certification. What’s more, 75‐80 per cent of the buildings in New York are 50 years or older, thanks to the building boom that followed The Great Depression. These buildings aren’t at all eco‐friendly and it will cost the landlord money to put the green elements in and those costs will be transferred directly to tenants. A green building generally contributes to a higher price per square foot and a tenant is going to feel that when it comes to rent.

II. Landlords love to talk about green. But few are taking action.

Virtually every landlord is talking about going green, but few can afford to walk the walk. Sure, some landlords have taken measures to make their properties greener, such as adding new windows, but there’s only so much that can be accomplished by retrofitting. To make any kind of significant change, like installing a new boiler or HVAC system, a landlord would have to relocate their tenants or limit services to make any large changes on an old building. It’s rare to find a landlord willing to kick out tenants just to retrofit their space and make it more expensive.

Until building owners have enough incentive to make meaningful changes to their buildings, a tenant interested in going green will unfortunately have to shoulder the cost. As of now, renting in a green building won’t save a tenant any money. In fact, it’ll cost them more.