Archive for the ‘LEED’ Category

“Green Value” and Mortgage Collateral

Image by Oldmaison. Some rights reserved.

In a recent article, law firm Dewey & LeBoeuf addresses head-on how the only-recently-ubiquitous “green” metrics, terminology, and technology in real estate and development have affected building valuation, and, specifically, how one can hedge the risks when green value is lost.

The Dewey & LeBoeuf piece discusses two general ways that “green” that can add value to a building:

First, green “value genera­tors,” that is, green financial benefits, key directly to a building’s cash flow or capital value. Second, green “market enhancers,” such as green ratings or other green attributes, are perceived to add market value even if they do not key directly to cash flow or capital value.

The article then goes on to detail several specific examples, most of which center around the well-known and commercially acknowledged LEED standards. For instance, building owners should be happy to learn that some cities and states offer tax breaks for LEED-qualified construction (value generator), while potential buyers or tenants may be more likely to rent or buy LEED-certified buildings due to their perceived environmental friendliness or potential savings in utilities (market enhancers).

The flip side of these “green” values is that losing something like a LEED certification can be devastating to a building’s worth. As Dewey & LeBoeuf go on to explain,

Failure to achieve a green rating can reduce collateral value in ways “usual” defaults do not. Why? Typically loss of mortgage value follows a real estate market decline when borrowers and tenants go broke and vacancies or defaults wipe out cash flow.

Green defaults are different. The borrower may be paying debt service in a good market, but property value dives with loss of the green rating. Standard mortgage remedies do not protect against such a loss.

Dewey & LeBoeuf recommends due diligence as a lender’s first line of defense, but in the event that a green rating is lost, lenders are urged to “require a third-party guaranty for some or all of the cash flow” or “require the borrower to provide cash collateral or a letter of credit which burns off as the abatement declines.” For further details, check out the full article.

Is Your Building Living Life to The Fullest?

Move over LEED, there’s a new green building standard in town.

Photo by Steve Partridge. Some rights reserved.

Most of us are at least peripherally familiar with Leadership in Energy & Environmental Design (LEED), a now-ubiquitous green building certification system that, in their own words, provides “third-party verification that a building or community was designed and built using strategies intended to improve performance in metrics such as energy savings, water efficiency, CO2 emissions reduction, improved indoor environmental quality, and stewardship of resources and sensitivity to their impacts.”

The system works by providing builders (or designers or building owners) with a set of criteria – developed by the U.S. Green Building Council and peer reviewed by member organizations – that are each assigned a point value. For each of the criteria met in a given project, the project earns the allotted number of points. For instance, in the latest version of LEED’s “New Construction Project” checklist, up to 10 points can be earned for various efforts relating to water efficiency: 2-4 points for water efficient landscaping, up to 2 points for using innovative wastewater technologies, and 2-4 points for water use reduction.

But all the LEED criteria pale in comparison to the “imperatives” mandated by an up-and-coming certification program called the Living Building Challenge. The Living Building Challenge consists of seven “performance areas” (or “petals”) such as water, health, or materials. Each Petal is further subdivided into a total of twenty “imperatives,” which are broad enough to be applied to development of any scope. To qualify as a Living Building, every imperative must be met.

Browsing the aesthetically appealing website, the Living Building Challenge strikes one more as a philosophy than a checklist – “What if every single act of design and construction made the world a better place?” asks the International Living Building Institute – but the Institute’s flowery language belies its incredibly strict standards. Where LEED merely encourages water efficient landscaping, “Living” buildings’ occupants must derive one hundred percent of their water from “captured precipitation or closed loop water systems that account for downstream ecosystem impacts and that are appropriately purified without the use of chemicals.” Now you understand why there are only – so far – three certified Living Buildings in the world.

Puget Sound’s local public radio station recently aired a story about an elementary school in Seattle poised to be the first “living building” in Washington state. You can read the transcript here.

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