Burnham-Moores Center for Real Estate University of San Diego

Burnham-MooresCenter for Real Estate

University of San DiegoThe Economics of Green

October 30, 2007

Dr. Norm Miller, Jay Spivey (CoStar Research Director and Andy Florance, CEO, CoStar)

Evolution of a Cynic

• 2002 on a panel at Realcomm in Chicago my view was basically this… as long as landlords used triple net leases there would be little owner driven incentive to invest in any form of energy or building efficiency. …most benefits of high performance and healthy buildings do not accrue to landlords

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Certified Silver Gold Platinum

Extra Costs in Percentage to Build GreenSource: USGBC

External estimates average closer to 3%

down from prior year when 15% was

the norm

EXTRA COSTS VARY BY MARKET

Platinum Gold SilverUCSB Ave. 7.8 % 2.7 % 1.0 %

San Francisco 7.8 % 2.7 % 1.0 %Merced 10.3 % 5.3 % 3.7 %Denver 7.6 % 2.8 % 1.2 %Boston 8.8 % 4.2 % 2.6 %

Houston 9.1 % 6.3 % 1.7 %

Source: U.S. Green Building Council, USGBC.org

Real barriers to going green

• The Who Moved My Cheese Mentality– If it ain’t broke don’t fix it…..– Culture– Education– Coordination– First time mental blocks (inexperience)– Cynicism over benefits– Perverse incentives, i.e. admin fees charged on pass

through and common expenses by management.– Lease structures that don’t align incentives

Actual proportion of green LEED certified buildings

• Only a fraction of existing stock but…• 30% of all new Class A buildings • 100% of all new Class A in NY City• 100% of all new Class A in Boston (50,000

sq ft or larger)• Quickly LEED is becoming the de facto

standard

So let’s look at the numbers from the first nationwide study using CoStar data…

Costs and Benefits

30% premium

Summary• Green is not “easy” but it is getting easier.

– The big hurdle is mental!• Non-green buildings are going to become becoming

obsolete much faster today.• The benefits of green are not only the quantifiable but also

qualitative (happier workers, more retail sales but also simply doing good by saving resources)

• We need more transparency, better standards, more shared best practices and more enlightened government.