This “Green Building” is Making Me Sick!

If you live or work in a LEED-certified building, how should you feel? Good? Would you expect to feel no different than if you worked in a ‘normal’ building? Believe it or not, you may feel worse.  Mixed reviews are starting to surface regarding the effect that living or working in a LEED-certified building will have on human health.

A Michigan State University study published on July 15 of this year boldly declared that people who work in LEED-certified buildings are less likely to be sick, are more productive, and feel less stress than those who work in buildings which are not LEED-certified.  (Singh, Grady, et. al, “Effects of Green Buildings on Health and Productivity,” http://news.msu.edu/media/documents/2010/08/840514e8-0b32-4aa4-9fc8-276b688dfed4.pdf).  Surprisingly to us, this study relied on self-reporting of those people who had moved from a non-LEED-certified building for information as to their health, or perceived health, rather than strict scientific study.

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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.

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Orlando’s New Amway Center Goes Green

There is “magic” in the air in Orlando, Florida.  Orlando’s Amway Center, the brand new home of the Orlando Magic basketball franchise, is due to open in early October.  Central Florida is abuzz with interest about the final touches being put on the events arena which is situated so prominently in the city’s downtown, and which marks the first of three major public construction projects for downtown Orlando (the others being a new performing arts center and an upgraded football stadium).  But our interest in this venue is Amway Center’s hope to be the fourth NBA facility to earn  the Leadership in Energy and Environmental Design (“LEED”) new construction certification from the U.S. Green Building Council (www.usgbc.org).

Engineers and architects have designed the new Amway Center not only to provide a world-class sports and entertainment facility, but also to be one of the greenest arenas in the country.  Following completion of construction, application will be made for certification from the U.S. Green Building Council’s Leadership in Energy and Environmental Design (“LEED”) program.  It expected to receive at least a basic certification, but hopes to earn silver recognition. (Mark Schleub, “Orlando touts benefits of ‘green’ Amway Center,” Nov. 4, 2009).  The arena was designed to use twenty percent less energy and forty percent less water than other sports and entertainment areas of the same size.

In addition to having a high-efficiency heating and cooling system and ultra low-flow toilets, the Amway Center will have a reflective and insulated roof to assist with cooling costs and energy retention, monitoring systems which turn off lights when rooms are not in use, bike racks and showers to encourage biking to work, preferred parking for hybrid vehicles, recharging outlets for electric cars and recycling services for arena visitors.

Impressively, approximately eighty-three percent of the wood, concrete and steel construction waste was recycled, rather than sent to a construction landfill.  Many of the building materials used in construction were made from recycled materials and locally sourced.

Amway Center representatives are confident the arena will obtain LEED certification. Indeed, its website says that the arena “will” be LEED-certified. (http://www.amwaycenter.com/leed-certification). The Hunt Construction Group, builder of the Amway Center project, has had other projects receive LEED certification, including the Consol Energy Center, home to the NHL Pittsburgh Penguins team, which just received a gold certification. (http://huntconstructiongroup.com/landmarks/project-news/amway-center-update/).

Not much has been written about the Amway Center’s attempts to use green construction methods, obtain LEED certification or how much more the green design added to the total project cost.  Due to the enormous amount of taxpayer dollars which were utilized to build the arena, we look forward to reviewing the USBC’s report detailing the LEED certification review of the Amway Center, and hope that the building is openly and publicly monitored to determine what the environmental and cost savings are to local taxpayers.   No doubt there will be plenty of fanfare about an exciting new center among the press, but here’s hoping that a significant portion of the news is devoted to how a beautiful new public facility will also benefit the environment AND taxpayers’ pocketbooks.

This article was authored by Laura M. Walda, who is a Florida attorney and an associate with Lowndes Drosdick Doster Kantor & Reed, P.A. (www.lowndes-law.com).  Commercially Green Florida is a blog authored and maintained by Dale A. Burket, a Florida attorney who is Board Certified in Real Estate by The Florida Bar, and who is a partner with Lowndes Drosdick Doster Kantor & Reed, P.A.

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The International Code Council’s Brilliant Stroke

Well, it is starting to happen.  The International Code Council, drafters of the International Green Construction Code (the “IGCC”), have their first governmental adoption of the new IGCC.  The City Council for the tiny town of Richland, Washington (population 47,527) recently adopted the IGCC as part of an amendment to the Richland Municipal Code.  So significant was this “first” that Rick Weiland, CEO of the International Code Council, flew to Richland to address [and, no doubt, profusely praise and thank] the City Council on August 3.

Citing in Ordinance No. 11-10 that it “desires to promote green construction practices and sustainability . . . for both private development and for City projects . . .” the City Council adopted the IGCC as a non-mandatory addition to its Municipal Code.  According to the City’s press release of August 2, 2010, Richland Building Inspection Supervisor Kevin Rex said “When we saw that it [the IGCC] did not have to be a mandatory code adoption, that we could use it as a document to help everyone become familiar with green construction, we decided to adopt it.”

While one might argue that Richland was simply jockeying to lay claim to be the first to adopt the IGCC, I believe the International Code Council was the smart one here, by brilliantly making its code provisions voluntary until specifically made mandatory by the governing jurisdiction.  Section 301.2 of the IGCC provides “this chapter requires that the jurisdiction indicate in Table 302.1 whether specific provisions are mandatory for all buildings regulated by this code and, where applicable, the level of compliance required.”  This approach allows the IGCC’s adoption in a manner which minimizes the initial and inevitable arguments that it will have a negative economic effect on new and remodel building construction.  This design of the IGCC will likely appeal to city and county governments across the country, and will no doubt speed the adoption of the IGCC in the coming years.

After adoption of the IGCC by a city or county as a non-mandatory addition to their building codes, then the real work of making mandatory its’ various provisions can begin.  But this approach will allow widespread adoption of the IGCC, so that local governments can work at their own pace, as their local economies will allow, to turn their building codes “green”.

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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The Net Lease and the “Split Incentive”

I recently ordered, paid for (ugh!) and received a copy of the “Model Green Lease” offered by the Corporate Realty, Design & Management Institute (www.squarefootage.net).  Of course, I read it with great interest, looking both at the suggested terms and the overall philosophy of the document.  I’m sure that a lot of thought, debate and editing went into the creation of this lease, as it has for the several “green” leases which are available, either free or for a fee.

I’ll save a discussion of the merits of particular provisions of the Model Green Lease for a later date.  The matter I want to comment upon is the concept of the “split incentive” contained in the Reference Guide to the Model Green Lease, which was prepared by B. Alan Whitson.  His point, if I read correctly, is that although the market seems to favor net leases for many commercial building types, the net lease does not provide a suitable framework to properly incentivize the landlord and tenant to either build or operate in a “green” manner.  Whitson ends the Reference Guide with a sort of “call to arms” for the commercial world to ditch net leases in favor of the gross lease.  In so doing, he ignores the economic desires of a very large segment of commercial landlords and tenants, all of whom have built their businesses around a net lease structure.

Whitson’s argument goes something like this:  significant reductions in energy cost, particularly in an office building, directly and materially increase a building’s value, while the same reductions in energy cost by a tenant result in only a small savings in the tenant’s overall operational cost (including rent, tenant improvements, furniture, technology, salary and benefits).  Because of this division in the motivations between the landlord and tenant to adopt energy saving alternatives (the so-called “split incentive”), Whitson believes that the landlord is in the best position to reap the benefits of “going green”, and therefore only the gross lease will properly align and environmentally motivate both parties.

While I agree that certain commercial properties that already work well with gross leases, such as high-rise office buildings, could be designed, built and operated with green features, I disagree that the remainder of the commercial world should (or even could) throw away the financial and tax structure of the net lease in order to become green.  The net lease structure provides a division of the ownership “bundle of sticks” which allows the landlord to invest in real property without having to be present to fix the roof, while at the same time allowing the tenant to deduct rent as an operating expense and to make repairs to the property that it notices.  Many REITS with properties spread out across the country have thrived over the years with this structure since they are by nature “passive” landlords, and their tenants are free to focus on their core business, rather than also carrying the burden of owning properties.

If “green leases” are going to become commonplace, chances are it will not be because net leases have been shelved in favor of gross leases.  Rather, it will more likely be so because the sum total of economic, tax and other motivations of the parties, as well as mandated governmental requirements, will lead landlords and tenants to adopt green alternatives in whatever lease structure matches the entire balance of their needs.

If you have any thoughts on this particular (and far from settled) topic, I invite your comments.  There will have to be a lot of debate before we’ll ever get to workable answers.

Dale A. Burket (dale.burket@lowndes-law.com) 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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