Investing in Green Buildings Can Generate Greenbacks
by Jim Shrier and Tricia Casari
Construction/Real Estate Advisor, 2004 Issue No. 1

Real estate developers and investors from coast to coast are discovering the benefits of “green buildings” — commercial or residential projects that are both environmentally responsible and financially rewarding.

Last summer, the University of California adopted a policy for designing green buildings on all its campuses. In addition, the university has established clean energy standards across the board. At the same time, in Long Island, N.Y., the Suffolk County legislature introduced a bill that would require new county construction and renovations costing more than $1 million to follow rigorous environmental standards established by the U.S. Green Building Council (USGBC).

Reasons for Interest

Why all the interest in green buildings? For one, demand is increasing. Consumers, business owners, and government officials are united in their support for greater environmental responsibility in real estate projects. According to a survey by the Illinois Clean Energy Community Foundation, a Chicago nonprofit organization, 75 percent of the state’s residents believe that new and existing buildings should be more energy efficient, and 84 percent favor greater energy efficiency standards in new construction projects.

Rising power consumption is another factor affecting growth in this market. The blackout of August 2003 left 50 million people in 8 northeastern states without power for up to 30 hours. If nothing else, this event underscored not only the growing demand for electricity, but also the poor state of the country’s aging power grid. Greater efficiency in new construction may help offset the rising demand for electricity.

Green buildings make business sense, too. Although environmentally responsible houses, offices, stores, and factories sometimes cost more to construct, their lifetime cost of operation is substantially lower. Moreover, the green building market is a profitable niche with relatively little competition and many customers willing to pay a bit more for environmentally responsible construction and products.

Green Building Characteristics

What makes a building green? Typically, it:

• Requires less energy. Through proper design, ample insulation, and efficient appliances and lighting fixtures that cut down on water and energy consumption, green buildings cost less to run. Even a structure’s orientation on a piece of land can contribute to cost savings over time.
• Uses environmentally responsible sources of energy. Green buildings often rely on resources such as solar power in place of oil, gas, or electricity from non green sources such as coal and nuclear power. In residential construction, this can mean using the sun for passive space-heating, providing domestic hot water with solar collectors, or generating clean photovoltaic electricity.
• Provides a healthy indoor environment. Green buildings avoid products and finishes that release harmful chemicals. Natural or mechanical ventilation provides good interior air quality. Studies have shown that green schools produce better students, and retailers have experienced higher sales throughput in green stores.

In addition, green buildings are typically constructed from recycled materials and, thus, require minimal maintenance. This is because the building materials were manufactured without dangerous materials and are, therefore, more environmentally friendly. Clearly, green building investments can conserve resources and save money in the long run.

The Financial Incentives

In addition to their environmentally friendly effects, green buildings also provide a variety of financial incentives. In Michigan, the state government has one such incentive program for qualified licensed residential builders. But the state is also looking into other financial incentive programs for green buildings.

The State of Ohio provides tax exemptions for qualified facilities for energy conversion, solid waste energy conversion, or thermal efficiency improvements. The owner of the qualified facility does not have to pay sales tax for the transfer of tangible properties into the facility. Additionally, the owner would not be subject to real property taxes for improvements, personal property taxes or franchise laws.

The tax and financial benefits of green building investment vary from region to region. Fully research the laws in your state or municipality before investing. For laws applicable to Michigan, visit www.michigan.gov, and for Ohio visit www.ohio.gov.

Rewards Abound

As more real estate developers and investors gain experience with green buildings, they are discovering that it’s good for not only the environment, but also for business. For more information, please call Jim Shrier at 517.336.7561 or Tricia Casari 517.336.7488.