Driven by increasing demand from tenants and investors, real estate developers and owners of all sizes are beginning to make significant, tangible strides in embracing energy-efficient, sustainable buildings for the future. But industry experts, speaking at the ULI Spring Meeting in Houston, say there are still major hurdles—such as the battle with traditional utilities and the higher cost of building energy-efficient buildings—that stand in the way of true, broadscale energy-sustainable real estate, especially for smaller developers that might lack the resources to contribute to the effort on a meaningful level.
Gary Holtzer, senior managing director and global sustainability for Houston-based real estate giant Hines, said the topic of sustainability—and how to achieve it across the full spectrum of real estate developers and owners—has become front-and-center of any investment or development conversation.
“What is interesting to us is that 15 years ago, the general topic of sustainability just equaled energy—it was the same thing,” Holtzer said during a boardroom conversation session called “The Future of Energy and Its Impacts on Real Estate.” “If you were sitting down talking to a large-fund investor, there were zero questions about anything regarding energy, sustainability, water or trash. Today, in every single RFP discussion with any major investor, you will get between one and 100 questions about where you are getting your energy from. They are interested in sustainable investments. If you want to know where this topic is going, follow the money.”
But although Hines two years ago successfully completed a net-zero office building in San Diego—a city known for its year-round mild temperatures—Holtzer admits that when the company looked at expanding the blueprint to other markets around the country, the model did not work in three-fourths of the other cities that were considered.
One of the major issues was that public utilities in those markets would not allow the developer to dial the power meter backward on a proposed office building, a roadblock that can stop a project like this one in its tracks.
“In trying to bring together public utilities and innovators and users, there needs to be policy change,” Holtzer said.
Phillip Payne, principal and CEO of midsize multifamily development firm Ginkgo Residential in Charlotte, North Carolina, said sustainable development is an even more difficult proposition for smaller developers like himself, who have more shallow pockets and even less clout with the utilities.
“It’s like running into the wall with the utilities,” said Payne, who is active in the sustainable arena. “If I said I wanted to put solar panels on one of my rooftops, the utilities would say no you’re not. Utilities are like robots with antiquated business models based on selling more electricity. Until we change that model, I don’t know how we get there.”
Michael Skelly, founder and president of Houston-based Clean Line Energy Partners, said the next step in moving toward the goal of true sustainable real estate development will be the creation of a grid for alternative energy sources such as wind energy and solar energy. Because alternative energy sources tend to produce lower-grade energy, there needs to be a scalable way to gather them up and distribute them economically, he said.
Skelly points out that huge strides have been made in furthering the generation of alternative energy sources. Fifteen years ago, about half of the nation’s electricity came from coal, 20 percent came from nuclear sources, 20 percent came from natural gas, and a portion came from hydroelectric sources, with almost none coming from wind or solar. Now, at least 6 percent comes from wind, and 1 percent from solar. In Texas, nearly 10 percent of electricity comes from wind, a number which Skelly said could double or triple by 2030. But distributing those sources of power is another story.
“We need a grid under a whole variety of energy production scenarios,” he said.
Despite the challenges associated with powering real estate using alternative forms of energy, all of the experts that gathered for the panel agreed that tenants and investors are demanding solutions, no matter the costs and constraints. While Holtzer said a dialed-down “plan B” can include finding ways to use existing energy technology in more efficient ways, tenants and investors are demanding more.
Skelly said tenants like to both understand and physically see the sustainability elements of office buildings. In addition to helping pull some power needs off the grid, visible alternative-energy tools such as solar panels on office rooftops can be leveraged into marketing efforts targeting tenants and investors, and can even help tenants in recruiting efforts for employees, according to Holtzer.
He said the younger generation of office users have come to expect some sort of tangible sustainability when it comes to their office space. As an example, Holtzer said when Hines interviews candidates for employment within its own company, the topics of sustainability and resilience in real estate unfailingly surface at some point during the discussion.
He said the push to find solutions for energy consumption tied to commercial real estate plays into the bigger picture as well in that it is part of deep-rooted effort to find long-term solutions by bringing players of all sizes into the circle.
“Some of the smaller real estate developers don’t know how or don’t have the resources, so we’ve got to capture more of those people in a voluntary way,” he said. “We don’t want to force people to the table, and that has been the real struggle.”