Sustainability as a Market Advantage

In my research and writing on the topic of sustainability, I look for examples of developers or owners who are fully motivated to build a sustainable building because of an overriding economic reason to do so.

Sure, there are visible stories about owners who build “green” because it is “the right thing to do”, and some tout that energy savings to the tenants will add attractiveness to sustainable buildings, but those savings seem quite undefinable in a way that will motivate the tenants to pay higher rent.

When a developer puts pencil to paper (or runs a spreadsheet), analyzes the cost of sustainable construction, the current leasing market conditions and the projected ROI, and nevertheless determines that the building will be economically viable and will give the developer a definable market advantage over others, then and only then will sustainable building have a chance of thriving.

A few months ago, I interviewed Craig Ustler, a savvy urban developer with a very clear and practical understanding of the “why” and “when” of sustainable building construction. His seven story commercial office building, named the “GAI Building” for the engineering firm (GAI Consultants) which is the major tenant, just opened this month in downtown Orlando.

The GAI Building has four floors of rentable commercial office space, three levels of parking and a lower floor for retail and restaurants. The top floors will house GAI Consultants. For economically defensible reasons, Ustler decided to seek a LEED Silver certification, although as I’ll describe below, he isn’t all that enamored with LEED standards.

Ustler is the President and Owner of Ustler Development, Inc., a real estate development company, and is Vice President of Ustler Properties, Inc., a commercial real estate brokerage company. He is also President and principal of Creative Village Orlando, LLC, a potential re-development project on the site of Orlando’s newly-replaced arena. For the past several years, Ustler has concentrated on urban infill projects. He holds a Master’s Degree in Real Estate and Urban Analysis from the University of Florida, and a Bachelor of Arts in Economics from the same school.

Ustler sees his choice of building to LEED Silver in terms of practical market advantage. He maintains that the GAI Building creates for his company at least two competitive advantages over other available space in the downtown Orlando market.

First, the existing buildings in Orlando can’t become “sustainable”, at least in terms of their core and shell, and second, older buildings can’t create new parking. The GAI Building boasts three parking spaces per 1,000 square feet of rentable space, which, according to Ustler, “is a better parking ratio than almost anywhere else in this [downtown Orlando] market.

Ustler said that building to LEED Silver certification cost his company 1 to 2 points more than the cost of a non-certifiable building, mostly in technology and professional cost. He doesn’t believe it is economically viable to build to LEED Gold or Platinum certification, at least in this market. “Let the governments and universities go for the higher standard”, he says, “but LEED Silver is the sweet spot for this type of building.”

Ustler points to architects, engineering firms such as GAI Consultants, law firms and other professionals as key drivers creating demand for sustainable space. Can an architectural firm in this economy tout itself as a “green” business (as many have) and yet not keep their offices in a sustainable building?

The answer today is probably “yes, but not for long”. Sooner or later, it will be harder for such firms to market themselves as “green”, “LEED Certified” and the like without walking the walk in their own spaces. Ustler pointed to one law firm that, according to his sources, decided to adopt a directive requiring their lease of office space in sustainable buildings to match their marketing push as an environmentally friendly and responsible firm.

One particularly interesting fact he related is that the Chicago headquarters of Jones Lang LaSalle, the real estate firm which touts itself as the “real estate industry leader in environmental sustainability and energy management," is not located in a sustainable or LEED-certified building. Ustler thinks that kind of incongruity can’t last for long in the marketplace.

In addition to the demand for sustainable space from professionals and companies who market themselves as “green-friendly”, Ustler believes the coming talent pool will arrive with a mindset for living and working in sustainable environments.

It will be a lifestyle choice for them, not an economic choice. Home ownership and living far away from work are less important (and desirable) than living and working in a community where work, play, services and entertainment are located within walking distance or via great public transportation systems.

My college age son just completed a seminar course about energy and the environment, and now he is taking a class called “Energy, Environment and Economics” to satisfy a general education requirement in the area of “Personal and Social Responsibility.” Maybe the rest of us should be required to take such courses as part of our continuing education.

One problem noted by Ustler in creating market demand for sustainable buildings is that, for the most part, you can’t tell by looking whether a building is sustainable or not.

Green is “visually confusing”, he says, and he is largely correct. While the Orlando Utilities Building (certified to LEED Gold) prominently displays a large solar panel and rain collection tower on the roof, most sustainable buildings look just like any other buildings. The reality is, the “sustainable” part of sustainable buildings lies within the systems and materials choices, not in visual elements.

Ustler is not overwhelmingly enamored with LEED Certification as a measuring tool. LEED doesn’t require buildings to be built near mass transit, restaurants and personal services (like doctors, grocery stores, etc.) or that less parking spaces be built.

You can build a LEED Platinum building in the middle of nowhere, and while the building might be energy efficient, the tenants/users may not be because they have to drive long distances to get there, and have to drive just to get to a restaurant at lunch time. Ustler admits that one of his strategic advantages for the GAI Building (the increased parking ratio) is not an environmentally friendly feature, but as he says, “I have to build to this market, so the higher ratio gives me a market advantage.”

As we closed the interview, Ustler was philosophic. “We don’t know if we’re right in building green. We are a local neighborhood developer, and we like to do what is right for our community. It’s the right thing to do. But in the end, with respect to the GAI building, if we are wrong and green/sustainable does not grow legs, we won’t be out a lot of money.”

I’d say that is an economically defensible and safe bet in the real world. Let’s hope there are more developers like Craig Ustler out in the marketplace.