Green Retrofitting in Dallas

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Commercial Real Estate Agent with REATA Commercial Realty, Inc. Texas 537349

Advancial Tower in Uptown has new owners! This is a high-rise office tower adjacent to the new Klyde Warren Park. New ownership can be a great thing. Changes brought by visionary owners can make a positive impact on tenants and the neighborhood. The new owners of the Advancial Tower plan to add sustainable practices to the building. What does that mean? Sustainable practices are sometimes known as green retrofitting.

 

Doug Gatlin, Vice President of the Green Building Council in Washington D.C., says “…Green retrofits are any kind of upgrade to an existing building that is wholly or partially occupied to improve energy and environmental performance, reduce water use, and improve the comfort and quality of the space in terms of natural light, air quality, and noise - all done in a way that it is financially beneficial to the owner.”

 

Sounds like a great idea, but do these savings trickle down to the tenants? Typically, major capital improvements to a building are paid by the landlord and don’t get passed through to the tenants. But do tenants care about the whole “green” movement. In 29 years in the commercial real estate business, I’ve never had a tenant ask to be in a “green” building.

 

So here are my questions: Do you care if your building is “green”? Would you be willing to pay more for a “green” building?

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_________________________________________________________________________

Bob Gibbons

REATA Commercial Realty, Inc. | 1211 E. 15th Street, Plano, TX  75074

972-468-1946 p | 866-439-8015 f | 972-984-8580 m

bob@texastenantrep.com | www.TexasTenantRep.com

 

 

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Anonymous
Don Bennett

If an owner opts to spend capital dollars it's not costing the tenants anything, they are not paying higher rental rates because a building is green. Rental rates are determined by the overall market. 

The savings do trickle down to the tenants through energy savings. 

To answer your question with a question, Why would it cost them more to be in a green building?

Feb 13, 2013 05:14 AM #1
Anonymous
Eugenia Robbins - R E R Solutions

It all boils down to the bottom line (for both landlord & tenant) and the level of market relevance desired by a particular landlord.  City building codes are increasingly requiring higher levels of building efficiency regarding energy, water, insulation values, etc. and on most occasions, when retrofitting space, these measures directly impact operating costs (assuming landlords actually permit their projects vs. cutting corners to save short term dollars).

All things being equal, if a tenant's facility decision comes down to 2 office buildings that can accommodate their spatial, location and amenity needs - but one building's PSF electricity is $2.90/SF and the other is $1.75 - it's a "no-brainer". 

Multi-tenant office landlords who have taken initiatives to improve building performance (Note that this is not just limited to LEED-certified bldgs), are able to benefit over the long term by remaining more relevant in a market where cost-effectiveness is prevalent in real estate decision-making - it is simple economics.  While LEED has mainly been embraced by institutional-grade ownership, large corporations and municipal buildings, it is not the only indicator of or path for improved facility efficiency/performance.

Rent rates are primarily determined by market/submarket conditions (as Don states above) - inclusive of OPEX and PSF E-rates  and partially determined by individual building features, inclusive of a "green" or "efficienct" market brand, as evidenced by E-rates and/or annual OPEX stability history.

Contrary to popular belief, there is really not a "green rent premium" out there for buildings being marketed as "greener" than the average building.  Many of the published 'greener' buildings are simply newer buildings whereby external factors are impacting rent - not the 'green' attributes. 

Optimizing facility efficiency (within reason) is smart business (as supported by ROI's for asset-appropriate efficiency CAPEX and/or operational protocol that lowers OPEX).  If Landlord can lower OPEX, then NOI increases, as does asset value...and rents can remain competitive for a market-relevant asset, which ideally results in increased tenant retention/attraction. 

Small and mid-sized tenants may not know to proactively ask the "efficiency" or "green" questions when seeking new space...as a former tenant rep, I believe it is up to the tenant rep to ask their clients whether or not they have an interest in sustainability with regard for their facilities. Then educate the client on the nuances of how to identify the properties that will best satisfy the desired "shade of green". 

Underlyling all of the economics and ROI's for a given asset, finding reasonable ways to conserve energy, water and other resources plus increasing landfill diversion of waste is simply the right thing to do - not because of polar bears and ice caps, but for provable, regional reasons.  It is no secret that Texas' power grid is facing some serious capacity issues within the next 2 to 3 years, and our ongoing state-wide drought conditions, coupled with an aging infrastructure, have made water as precious as oil.  No need to waste if we don't need to, and if utility costs continue on an upward trend, it impacts both landlords and tenants.  There are many no and low-cost ways to mitigate the waste and building/space retrofits are a great place to address these issues - one step at at time, as budgets permit.

Sorry for the rant - but the sustainable movement within commercial real estate is still very misunderstood by so many!

Feb 13, 2013 11:04 AM #2
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