It has
become common today to dismiss the fact that there are signs of global climate
change taking place. Yes, I know, you claim that you don’t take part in this
argument and that it doesn’t matter since it won’t affect you. However, whether
you do take part or not you as a buyer quite possibly will be affected by this
climate change and argument. Many people that do take part in this argument
have done what they can to make as much of a difference such as buying an
electric car with zero emissions, growing your own vegetables, or even going on
meat free diets. Many of these buyers that are making these changes are also
looking towards new ways they can help the environment. That is where the real
estate market is introduced. As said in a real estate journal by Franz Fuerst:
“buildings are estimated to be responsible for 20% of greenhouse gas
emissions.” (qtd. in Fuerst) Given this number, many investors and buyers are
beginning to change the way we perceive our property such as the homes we live
in. Buildings that are beginning to adhere to these sustainable changes are
being referred to as “Green buildings”. By definition, green buildings are
commercial and or residential properties that seek to address the environmental
and human health impact of the entire life of the building itself from
construction to deconstruction. (Matisoff 330) Whether an old building is being
retrofitted with solar panels or a builder’s new project includes completely
“Green” materials, these projects are appearing increasingly more in the real
estate market. Given that these “green buildings” are making their presence
more aware in the market, these buyers and investors are concerned with their
long-term reality. This long-term reality is defined by real estate experts as:
pricing, occupancy needs, and evaluation. With these in mind the overall
question within the market is will these green buildings represent a fair and
sustainable market evaluation moving towards the future?

one of the most well-known elements of green buildings are the LEED and BREEAM certification
systems. Within both the US based LEED system and the UK based BREEAM system,
they both provide a building with a certification if it meets standards that
are given by each system. Standards range from water efficiency both inside and
outside the buildings to things like heat island reduction on the land itself.
What both systems hope to achieve from these ratings are to set sustainable
standards across the world with all buildings. Both systems are also relatively
young in nature as BREEAM began in 1990 and LEED in 2002.  Their age matters because the idea of a
sustainable rating system is a new concept and many environmental economists
and policymakers are skeptical as to how reliable and justified these
certifications really are. This is where these systems come into play within
the real estate market and adopting to its ever-changing future needs. More
specifically, the UK market paired with an increase in the supply of green
buildings, has seen a significant economic impact on commercial real estate
prices (Chegut 39). This economic impact is mainly through the prices of these
standalone green buildings within scattered neighborhood. It hasn’t only been
the green buildings that have been seeing an increase in price however.
Non-Green buildings that are near these green variants have been able to
“capture some of the gentrification benefits through higher average location
rents and prices.” (Chegut 39).  Andrea
Chegut points out this gentrification as one of the reasons BREEAM has been so
successful throughout the UK. In comparison to the US, the real estate supply
in the UK is highly regulated, with many policies that limit may development
projects (Chegut 39). Granted these policies have been limiting the overall
growth of green building throughout the UK, the market still has been quite
profitable and there is economic growth taking place. One problem that is
nestled in this economic growth is a lack of available data. By this Andrea
Chegut refers to the costs associated with certification and its ROI (Rate of
Investment). Chegut notes from a separate article (qtd. in Chegut) “transaction
costs associated with certification… and development are largely unavailable. Similar
to this lack of data within BREEAM, the US based system LEED has the same issue
for investigators. James Delisle, an economics writer, points out that the
certification system itself is complex and this affects the way people perceive
certain ratings. Delisle continues to mention that “there must be sufficient
transparency to overcome the complexity embedded in the certification process
as it evolves over time.” (Delisle 37) Instead of strictly criticizing the systems
lack of “transparency”, he identifies that this issue could be solved over time
as the system evolves. While both systems mundanely evolve, BREEAM may be a
step ahead than its counterpart LEED. UK policy starting in 2018 is mandating
that “all new construction must adhere to zero-carbon standards.” (Chegut 38)
The whole idea of making zero-emissions mandatory is quite bold for the UK, but
if it works out the supply of these green buildings would increase by the
thousands and could even spread to US policy. This idea while hypothetical
could prove true if US policy changes. However just like BREEAM, there is a
problem that remains apparent in the US Market, there are transparency issues.
Daniel Matisoff, a teacher and sustainability investigator, adds that “linking
specific performance outcomes to specific investments remains a challenge.”
(Matisoff 341) This is a challenge for many to measure because it is hard to
determine just how sustainable a building is. Granted energy consumption can be
measured in a building, the long run environmental  impact for many projects remains unknown. For the most part the
data that is collected from green buildings is through “engineering cost
studies (i.e., simulations).” (Matisoff 342) This in turn means that most of
the data that is collected are just computed simulation averages. Of course,
many will probably disagree with this assertion that there isn’t enough
concrete evidence to convince people to convert to green buildings. However,
this just means that most skeptics will just have to wait for more promising
data to be discovered. It would be at this point that hopefully with more
concrete knowledge investors would trust the market. Matisoff complicates
matters further however when he writes, “although LEED is the main certifier
for the majority of U.S. green building policies, 17 states and 83 cities in
the United States identify other certifiers (e.g., Green Globes)” (Matisoff
341). In making this comment, Matisoff addresses that given there are multiple
other certifiers, it is hard to compare “greenness” across the buildings (341).
I completely agree with this statement for it outlines a problem within the
systems compatibility. Granted many of the certifiers use the same grading
principles, they all will be different in their core scoring and rubric. This
means that a score by one company for a building could be completely different
than that administered by another. Given this research, these findings
demonstrate the complexity of sustainable building certifiers and how this
affects the overall reliability seen by all.

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implication, perhaps seen by most buyers, of green buildings are the price tags
associated with them. In general, buildings that offer more in a competitive
market are able to charge more money on the sale price. In the case of
sustainability amenities, you have what are called “Premiums”. These premiums
represent the sustainable features that the building has such as the materials
it was built with or even LED lights throughout the building. Spenser Robinson,
a real estate finance writer, elaborates from his research that “eco-labeled
office buildings tend to command price and rent premiums over un-certified
buildings all other things being equal.” (Robinson 114) Robinson is
corroborating the idea that sustainable amenities are the single reason that
these office buildings are being labeled with a higher price tag. While
Robinson agrees that the premiums are just, he offers a refined method for
defining these premiums in comparison to other green buildings. Robinson
insists that we employ a propensity scoring model that would give each
individual amenity a dollar value that could all be added up to the premium.
The essence of Robinsons argument is that with a propensity model, as the one
he suggests in his writing, premiums would no longer be randomly assigned
dollar values and thus the price would be more fairly represented. Now the idea
that Robinson employs is not to compete with certifiers like LEED and BREEAM
who assign a certificate for having these sustainable amenities or materials. Rather
his propensity scoring model would provide a universal price for every
sustainable amenity. In a similar light Piet Eichholtz, a real estate finance
professor, investigated large office spaces with a “green” certification such
as LEED or an Energy star rating. What he had found was that office spaces that
were identical in nature with a rating and size rented for higher prices.
Eichholtz dictates, “an otherwise identical commercial office building with a
certification will rent for about 3 percent more per square foot;” (Eichholtz
2508). Not only does the square footage price increase, Eichholtz notes that
sellers will mark up the sale price to “as much as 16 percent.” (2508).  Eichholtz reminds us that these building
prices aren’t anything irregular for it is “consistent” within the commercial market
that green buildings sell up to “$5.7 million more” (2508). Given that many
traditional buyers won’t be buying commercial office space, it doesn’t mean
that these price premiums aren’t seen in the residential market. In fact,
that’s where much of the population will see the premiums through their life. Sadly,
these premiums may be the main factor that turn most people away from buying
these green buildings. It’s not that the buyers don’t want to be green, its
just that the price increase doesn’t justify the long run impact that these
buildings make. The upshot of all this is that buyers don’t feel the need to
spend more money to not see the long
run impact of being sustainable.

considered the certification process as well as the premiums associated with
Green buildings, it is important to know the demand of buyers. As in any market
whether it be consumer goods or homes, there must be a reasonable level of
demand for the product or it will not last. Consumer preferences are what drive
most markets around the world and the same goes for real estate. Given the real
estate market is more static, it still undergoes influence in terms of
consumers wants and needs. Within the market for sustainable homes, consumer
demand is at the utmost importance. Unlike the traditional real estate market,
the sustainable market is a relatively new concept that has a lot of convincing
to do. As mentioned before, these sustainable buildings come with price
premiums that these buyers will pay for out of pocket. While many could argue
that the price is justified for buyers looking at sustainable buildings, that
doesn’t mean the buyer will pay extra for it in all cases. In this case
specifically, the buyer has been looking for a sustainable building. However,
what happens in the case that a buyer has no idea what sustainable amenities
are? Or if they just don’t care for these amenities? Chances are that they
wouldn’t pay extra for them or go out of their way to find them. Here in lies
the market struggle for sustainable buildings. Erika Smith, a real estate
expert conducted an interview of multiple commercial real estate sellers across
Boise, ID. What Smith had found was that almost all clients under these
commercial real estate sellers had no serious intentions toward a sustainable
property. Instead they consistently asked for the “age-old amenities” that an
office space usually provides such as “Great natural light”, “ample parking”,
and even a “universal A/C system.” (Thompson) Here many people would probably
object that that’s only a few of the sellers. But in this case, it was the top
four sellers in the whole Boise area and they represent a majority of the
commercial property sales. The primary reason given by DJ Thompson of Cushman
and Wakefield, is that “sustainability is not more of an issue for office
tenants because they do not view their workplace as having a high negative
impact on the environment.” (Thompson) However, as Thompson pointed out in his
interview one of their main commercial buildings is approximately 250,000
square feet which is the equivalent to “83 3,000 square foot residential
homes.” In other terms Thompson multiplies the significance of commercial
buildings in regard to traditional homes and exemplifies the size of their
footprint. When Smith asked one of the other sellers, Debbie Martin, how many
buyers place sustainability as one of their “main priorities”. (3) She
responded with: “I have been doing office leasing for 28 years and I haven’t
had one client who that is their main priority.” (Martin) Given the size and
impact of commercial buildings regarding sustainability, one would be almost
certain that more buyers would be aware of this. Commercial sustainability
isn’t only problem in the US however. In the Singapore market they too are
experiencing a lack of trust in sustainable commercial buildings. Dr. Kwame
Addae-Dapaah, an accounting professor out of London, conducted research where
400 commercial real estate users across Singapore were asked about sustainable
property. The main findings were that buyers are concerned with the “monetary
returns” associated with sustainable features (Dapaah 203) On top of this, many
sustainable commercial buildings are new in nature and thus are considered
“remote, unquantifiable, and uncertain.” by many buyers (Dapaah 220) With this
finding, Dapaah labels this presence as a “credibility stigma” that is
affecting Singapore and perhaps even “the whole world.” (220) This stigma is
not only holding the sustainable market back, its pushing most attempts to
become sustainable in reverse. Yes, the sustainable real estate market is a new
niche, however that doesn’t define it as being untrustworthy. All that it calls
for is attention. With this attention it could possibly become more mainstream
in Markets across the globe. Just like any consumer item, once it becomes
mainstream within the market, prices eventually come down with the increase in
demand. Sustainable buildings affect a lot more than just the real estate
market. Within his piece, “Sustainable property investment”, Thomas Lutzkendorf
highlights that if the sustainable building market becomes mainstream,
engineers and architects will experience a shift in planning solutions. The
idea of sustainability in buildings introduces a new client-side demand that
would reshape most designs. Through this, Lutzkendorf notes that if sustainable
buildings become “normal” it would “help overcome the communication problem that
exists with regard to the benefits of sustainable buildings.”  (231) In making this comment, Lutzkendorf urges
the idea of making sustainable buildings “normal” within the real estate market.
Through doing so many of the problems highlighted by other articles would become
resolved. These conclusions straining from Dapaah, Smith, and Lutzkendorf all add
weight to the ever-changing real estate market. Their findings elaborate on the
uncertainty that nearly all buyers demonstrate in concern to these new green buildings.
Ultimately, what is at stake here is that if the sustainable building market doesn’t
get the attention it needs, it will eventually become un-sustainable and perish.



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