Tuesday, September 16, 2008

Green's Coming of Age in Development Circles


DALLAS-With the retail industry eyeing "green" gains on all fronts, the International Council of Shopping Centers has spent two days huddling over built projects, weighing future ones and learning as much about investment intricacies as design. The force behind the movement is coming from tenants.
"Green is essential today in all business," said David Houle, an award-winning author and futurist consultant from Chicago and keynote speaker for ICSC's first greev conference. "Green is now main stream." About 500 retail professionals from development, financing, design and brokerage circles in the US, Canada and Puerto Rico attended the conference at the Hotel Inter-Continental Dallas in Addison.

Houle first laid out the energy situation and where it's headed and then told the roomful of professionals that "the future of shopping centers is going to be retro." High-density, mixed-use development in and around transit stops or stations will hearken the return of Main Street America if for no other reason than the spiking cost of gasoline. "Historians will look back to 2005 to 2010 as the beginning of a new age," he said, citing climate change and global warming, regardless of its cause, as the force behind companies now thinking about the future. Among the certainties will be electric cars, possibly with plug-ins to recharge batteries lining city streets much like parking meters.

Houle recognizes there are science breakthroughs that first must occur before his futurist predictions become reality, but what he does know is the acceptance of the green movement in the past few years is now deep-rooted enough to be the catalyst for change. The outcome is destined to be a mix of renewable energy sources, possibly including space solar panels, so the world can be on track for a zero carbon footprint. "I believe by 2050 that 40% of all the energy we consume in the US will be from renewable [sources]," he said.

Watters Creek at Montgomery Farm in Allen was the bricks-and-mortar proof for conference attendees, who were bused to far north Dallas to tour one of the largest green mixed-use projects under construction in the region. The 52-acre development is awaiting LEED CS certification, achieving 27 points or one more than the minimum for the ranking. One of its more innovative green features is a water-use system that filters run-off from surface lots and recycles it for irrigation and other design elements, including a creek reconstruction.

Trademark Property Co. of Fort Worth has about 30 shops open in the 550,000-sf retail component for the 1.15-million-sf Watters Creek. By October, another 20 stores will open doors and its first residents for the 380 apartments will be moving into their units. A seven-story hotel with an entertainment district is on the drawing board.

"It's the first LEED-certified project for Trademark. We are learning from this project, going in baby steps and will move it onto the next one to help mould retail tenants," said Trademark executive James Reynolds.

Project ideas, though, can't become reality without funding. In a session about new sources for investment capital for green projects, the take-home clearly was developers needed to stick to basic fundamentals when it comes to projects. The bottom line for funding remains location and demographics, with green as merely a component, the panelists said.

A University of California at Berkeley draft report, released last April, showed green projects do carry a financial premium, according to Leanne Tobias, principal of Malachite LLC of Bethesda, MD. Direct rental rates are 2% higher while effective rents are 6% to 9% more and sales up 16% over conventional projects.

Tobias said municipalities and states in some regions are starting to require all private construction to have green components. Likewise, a handful of institutional investors are mandating green underwriting requirements.

"The green building movement right now is being driven by tenants today," emphasized Mychele R. Lord, principal of Dallas-based Lord Green Real Estate Strategies. And with that is coming a change in lease structuring as splits emerge in contracts, allowing the owner to recoup some costs for green initiatives before the tenant reaps benefits from reduced operating costs.

Nicholas E. Stolatis, director of strategic initiatives for New York City-based TIAA-CREF Global Real Estate, advised owners to benchmark their portfolios so they have a starting point to measure future energy gains. "The tool's benefit is not to give you a marketing piece, but to let you know what you're doing," he stressed.

Stolatis assured owners that "not all energy efficient projects require capital investment." Vendors are now following BOMA's lead with neutral agreements. He said it's possible to get new equipment by striking a deal with the vendor for a performance-based contract with the cost predicated on the savings.

"We are pursuing our bottom line from a financial standpoint. We are pursuing our bottom line from an environmental standpoint. And, we are pursuing our bottom line from our investors standpoint," Stolatis said, adding TIAA-CREF's portfolio holds a 75 point Energy Star ranking. "Benchmark properties, set goals and pursue low cost, no cost opportunities and the rest of the plan will fall into it."