Chickens, eggs and green buildings

A lack of reliable data is hampering the growth of green building, according to investors, real estate developers, design engineers and others gathered at a Green Building conference today in New York.

Today, there are some 900 LEED-certified (Leadership in Energy and Environmental Design) buildings in the U.S., according to speakers, with thousands more planned.

But real estate investors and venture capitalists admitted in roundtable discussions and impromptu conversations that many of them are unclear of the real costs and real returns of building green.

Virtually all attendees recognized there was an up-front premium to pay to build a LEED-certified green building, but were unclear on how quickly these premiums were paid back by savings in energy costs, acknowledging real data was hard to come by.

“We’re under non-disclosure with Nike and Wal-Mart on new building initiatives … and while all big companies want everyone to know they’re building green, they hold their energy savings data very close to the chest. It’s competitive advantage,” said Arthur Dodge, founder of recycled materials developer Dodge-Regupol.

Some attendees recognized that meeting new environmental standards had become relatively inexpensive.

“We’ve analyzed case studies which show some of our green buildings are being built for between zero and 2.5 percent more than conventional buildings,” Scott Wilson, VP of construction for Regency Centers, a developer, owner and operator of 410 shopping malls in the U.S., told the Cleantech Group, saying his data corresponded with latest figures from the U.S. Green Building Council (USGBC), the originator of the LEED standard.

“It adds about a 10 percent bump to the architecture and engineering side, including the commissioning.”

But real estate professionals at the conference noted builders’ notorious unwillingness to incur extraneous costs, and there was a poor understanding of who—whether owners, investors or tenants—would shoulder additional up-front expenses of building green, despite the promise of long term net energy savings benefits. And that was creating a chicken-and-egg situation.

“People are building green today on perceived value, not hard numbers,” opined David Wells of the greentech group at venture investor Kleiner Perkins Caufield and Byers, one of the few investors at the sparsely-attended event presented by events company Financial Research Associates. “You can’t count on a return on investment.”

Other investors suggested that some of the promising short term opportunities in the green building sector were for new materials companies.

“There’s a smattering of companies. It’s not enormous, but there are some,” noted Michael DeRosa, managing director of DFJ Element, which has invested in a handful of unnamed stealth green building materials startups, including companies in the insulation and pellet heating spaces. But challenges abound for them, he said, particularly in getting their products to market.

“The International Code Council doesn’t exist to approve new products,” he said, forecasting no big green construction materials company IPOs until 2009 at the earliest.

Builders were slow to embrace green approaches because the technologies, and builders’ implementations of them, hadn’t yet been subjected to the scrutiny associated with large public failures, opined one attendee.

“We’re waiting for the one green building to fail, waiting to see who will sue who,” said Brian Goss of Waronzof Associates, a green construction consultancy in Los Angeles.

But Goss was optimistic. He equated the early green building initiatives of today to the impact that steel improvements had in enabling the skyscrapers that now define the New York skyline.

“This is just the way buildings will be built in the future,” he said. “This will become the new standard. If you don’t build green, starting soon, you’ll have a hard time marketing your building.”

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