A Sustainable Motivation to Go Green

The owners of the Empire State Building are investing $20 million in an effort to reduce the building’s energy use by 38 percent.  All of the landmark’s 6,514 windows are being remanufactured, on site, to be reused as energy efficient replacements on the 79 year-old structure.  All in all, this retrofit of an American icon is easily the most visible effort to “go green” in present memory.  Darius Dixon, How to Get Prompt Payback From an Aging Icon That Guzzles Energy.

Amazingly, the Empire State Building consumes as much electricity as 40,000 single family homes each day.  Given the number of high rise office buildings in New York City, and the estimation that 85% of its current buildings will be standing in 25 years, there is plenty of reason to focus on retrofits.  And New York City is not alone in that respect – I would venture to guess that a substantial number of existing buildings in most major cities and a lot of smaller cities will be standing for many years to come.

There have been plenty of reasons espoused for “going green”.  It’s the “right” thing to do.  It’s the “responsible” thing to do.  That LEED certified buildings and EnergyStar buildings are more attractive to tenants, and those buildings will command a higher rent.  Even if it is more expensive, by 10 to 20 percent.  There are those who say, in the long run, building “green” is less expensive.  The debate rages back and forth.  But a lot of what I hear sounds like so much hype and advertising, and I my guess is that a lot of owners think the same way.  And commercial lenders, who could be a source of retrofit capital, either don’t understand how to underwrite this new business, or don’t want to make any more real estate loans, or both.

But Anthony Malkin, the President of Malkin Holdings, LLC, the owner of the Empire State Building, understands the real reason for undertaking the massive retrofit project.  His company stands to recover the entire retrofit cost in just three years, through energy savings alone.  Imagine the substantial savings thereafter to their bottom line cost.  Malkin has run the numbers and determined that there is significant reason to “go green” with the Empire State Building.  That reason alone – that it is economically profitable – is the only reason that will actually motivate building owners to build new sustainable buildings, or to retrofit existing ones.  As more and more owners, lenders, brokers, builders, architects and other professionals get their heads around the economic reasons to “go green”, then the movement will take off.  Until that time, we’ll continue to be bombarded by green advertising, with little to show in terms of real economic change.

When he appeared before the U.S. Congress Joint Economic Committee last July, Malkin said that his company was “not motivated by doing the right thing”, but rather was motivated by “making money”.   Malkin hasn’t forgotten the lesson from Economics 101 – that an important purpose of a business is to make profits.  Economic profitability is the real reason, and perhaps the only reason, that “going green” could become a reality.

Dale A. Burket is a Florida attorney who is Board Certified in Real Estate by The Florida Bar.  He is a partner with Lowndes Drosdick Doster Kantor & Reed, P.A. (www.lowndes-law.com) in Orlando, Florida.

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Dale Burket is a partner in the Real Estate Transactions, Development and Finance Commercial Leasing, and Environmental Law practices. With over 29 years of experience, Dale focuses his real estate legal practice on multi-site, multi-jurisdictional real estate acquisitions, dispositions, leasing and financing and large, multi-site and multi-state real estate transactions. His hospitality practice concentrates on restaurant leases and financing arrangements. Dale has also represented Real Estate Investment Trusts (REITs) in connections with mergers, securitizations, purchase of income producing properties, and sales of properties by taxable REIT subsidiaries. Dale is Board Certified in Real Estate Law by the Florida Bar Board of Legal Specialization and Education. He has represented local, regional, and national clients in commercial real estate transactions, including CNL Financial Group, Inc., JDS Holdings, LLC., and Northland, A Church Distributed Inc. Dale has also handled purchase and sale transactions in excess of $100 Million, handled real estate aspects of a corporate merger involving more than 2,000 properties, and closed senior credit facilities on behalf of the borrower in excess of $50 Million.

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