Posts Tagged ‘green projects’

Green Buildings Impacted by the Credit Crunch, Recession

Tuesday, December 23rd, 2008

The credit crunch and sluggish return-on-investment environment are impacting green commercial real estate development – and not in a good way.  Even on projects where dirt actually gets moved, it will be more difficult to incorporate sustainable design principles as companies become more cost conscious.  The greening of the workplace should pick up once again if the high cost and availability of capital eases during 2009.  Already, the Federal Reserve Board’s two half-point interest-rate cuts, which slashed the overnight Fed funds rate to one percent, are having a measured but positive influence. According to National Real Estate Investor magazine, the credit freeze is not the only stumbling block to green projects right now.  Moderating fuel prices, currently at their lowest level in four years, are making renewable power sources – such as solar and wind – seem expensive at a time when people want to save money.  Still, companies with a serious commitment to green principles are motivated by a willingness to minimize their carbon footprint and conserve resources, rather than to just save a few dollars on utilities.

The bad news for sustainable-design proponents is that the recession may frustrate the federal government’s plan to offer tax credits to promote green design.  The reason is that tax credits cut a company’s tax bill; they offer little motivation to firms whose earnings are likely to be flat or suffer net losses during 2009.  Looking on the bright side, the credit crunch may stimulate awareness of sustainability by businesses looking for ways to control expenses over the long term.

The economy shouldn’t put green in the tank, and people should recognize that deflation is always temporary.  The options and futures market will bring energy costs up again.

Lenders Get Green

Thursday, October 2nd, 2008

Marketing green is a new step in the emergence of sustainability.  In a tight credit environment when rates have climbed and LTVs have dropped, green may offer a way to ease the underwriting criteria on a deal.

The green-building revolution is spreading, and the underwriting community has embraced sustainable design because it enhances marketability and income.  To illustrate, net rent in a particular office market may include a $15 psf in base rent and another $8 in common-area costs – the latter driven largely by energy and water-use costs.  It adds up that if you reduce that common-area cost and pass the savings along to the tenant, your building will be more attractive because it operating costs are lower.

Community banks in environmentally conscious markets or in areas where local building requirements foster sustainable projects are offering standard loans with terms favoring green development.  In San Francisco, the New Resource Bank offers qualifying green projects a generous loan-to-value ratio of as much as 80 percent, and a slightly better interest rate than it does to conventional project developers.  Green lenders look for incremental steps such as preferential review, quarter-point interest-rate discounts, longer amortization and relatively small changes in return for LEED or Energy-Star certification.

In Houston, the Green Bank recently moved into a 20,000 SF headquarters specifically designed to earn LEED’s gold certification.  Previously known as the Redstone Bank, it was acquired by a local banker who rebranded it as Green Bank and launched in January of 2007 with a focus on sustainability.  Just 1 ½ years later, Green Bank has $275 million in assets and is creating a group of environmentally conscious companies and individuals.  One vital goal is to educate team members to identify green-oriented customers, whether they are recyclers or LEED-certified construction space users.