The real estate industry has reached a pivot point, one at which land use is as much or more about the management and redevelopment of existing space as it is about new development. This emphasis on rebuilding and reusing the old and obsolete illustrates how the “use of land” cited in ULI’s mission encompasses existing buildings and what happens in them, how they are operated, and how they perform over time. Nowhere was this more apparent than at ULI’s recent forum on financing tools for energy-saving retrofits, held in New York City in early June.
The setting, an open-air space cooled naturally on the 61st floor of the rehabilitated, energy-efficient, 79-year-old Empire State Building, could not have been more appropriate. The transformation of this New York City icon serves as a resonant example of how practical, commonsense measures—such as refitting the existing operable windows with energy-efficient panes—can make a fundamental difference. Perhaps like no other structure, the Empire State Building demonstrates the potential of green retrofits to help reduce the carbon footprint of buildings and contribute to the environmental well-being of urban areas.
The forum centered on a specific topic, financing energy-efficient redevelopment, yet it touched several of ULI’s priority areas, including capital markets, sustainability, and public leadership in land use, which demonstrates the Institute’s ability to convene different constituencies around a current topic of common interest. Early in the event, it became clear that the issue of financing is still emerging, and that the participants—a high-level group of private and public sector officials representing the investment, lending, and development community—have disparate views about the prospects of financial instruments devoted specifically to green retrofits.
Among the topics debated: Is energy conservation a discrete component of value, capable of being financed independently of the rest of the asset? Or, is an energy retrofit a tactic to add value, similar to a lobby upgrade that becomes an inseparable part of the underlying value? Is interest in green capital gaining momentum only because the markets remain largely illiquid and market forces are putting downward pressure on asset values? Will an overall thaw in credit availability be sufficient to open up financing for energy-efficient redevelopment, or will this new market segment need an additional boost, perhaps based on superior building performance? And what is the role of the federal and local governments in priming this pump, such as through the nascent Property Assessed Clean Energy finance mechanism?
With the economic recovery far from constituting a rally and so many unknowns hanging over the commercial market as a whole, there was much speculation. What the dialogue reinforced is the need for solid proof of what works best in terms of real costs and investment returns. Yet, while the numbers are still uncertain, we do know the stakes are high.
In New York City alone, 85 percent of the 950,000 existing buildings will still be standing in 2030, according to a projection by the city’s Office of Sustainability. Anthony Malkin, owner of the Empire State Building and a speaker at the forum, says savings gained by greening that building suggest that a 25 percent reduction in energy consumption is achievable for all the city’s building stock. This estimate is based on the use of readily available technology and conservative assumptions regarding the pace and scale of activity already underway.
Yet as the forum reminded us, a lack of financing is continuing to create a gap between the reality and the possibility. Much of the challenge in financing green retrofits lies in generating and distributing objective, peer-reviewed information regarding tools, technologies, capital and operating costs, energy savings, and payback periods. I see this challenge as presenting an opportunity for ULI. The Institute’s long history in collecting and disseminating relevant, timely industry data that inform urban development and redevelopment will serve us well in influencing the green retrofit market.
ULI can play a strong role in helping correct misperceptions about green investments and in addressing the disconnect between costs and benefits, and concerns about risk. One great example of ULI’s current work in this area is the book Retrofitting Buildings to Be Green. This nuts-and-bolts guide offers examples from around the world that show green transformations to be less cumbersome, less time consuming, and less costly than is widely assumed.
We will build on this work with other material, including a report this fall through the ULI Climate Change, Land Use, and Energy (CLUE) Initiative. It will synthesize the financing issues covered at the forum in New York City and tee up further discussions around this critical issue.
I look forward to ULI expanding its involvement in green redevelopment. Skeptics notwithstanding, three major factors make the business case for green retrofits:
- the likelihood of increased environmental regulations resulting from policy changes at the federal, state, and local levels;
- growing tenant and investor demand for more energy-efficient office space; and
- the need to mitigate expenses from increases in energy and water costs.
This sector of the industry holds much promise in terms of employment opportunities in redesign and redevelopment and in providing environmentally conscious buildings with a competitive edge. It will play a big part in shaping the future of land use, and all aspects—including financing—should be guided by sound practices that are supported by sound policies. For ULI, being a force for this change is a not-to-be-missed opportunity.