GREEN LEASES Acquisitions of triple net leased buildings have become extremely popular as passive investors looking for bond‐like returns in commercial real estate continue to enter the market. In a NNN lease, several of the identifiable benefits of green buildings such as lower utility costs and improved occupant productivity flow directly to the tenant’s bottom line. Many owners of NNN leased buildings, content with their existing non‐green investments and unconvinced by other benefits, consequently find little incentive to incur greening costs from which they do not directly profit. ‘Green leases’ have been suggested as a remedy for the valid apprehension of owners regarding the disproportionate financial burden in greening their buildings.

1. o v e rv i e w
Greening the Commercial Real Estate Industry
By: Joan Pino
1 1 1 5 0 S U N S E T H I L L S RO A D, S U I T E 3 0 0 | R E S TO N , VA 2 0 1 9 0
5 0 0 N W E S T S H O R E B O U L E VA R D, S U I T E 6 0 5 | TA M PA , F L 3 3 6 0 9
M I D - AT L A N T I C 7 F OX D E N P L A Z A , S U I T E 1 0 0 | M C H E N RY M D 2 1 5 5 0

2. TABLE OF CONTENTS:
Commercial Real Estate & the Green Building Movement
What Is Building Green?
Green Building Classification Programs & Rating Systems
Green Building Perspectives & Bottom Line Benefits
o Developers
o Owners
o Tenants
Green Leases
Government Incentives & Mandates for Private Commercial Buildings
Green Building in a Down Economy
Successful Commercial Green Building Projects
1

3. COMMERCIAL REAL ESTATE & THE GREEN BUILDING MOVEMENT
The much anticipated green building movement, which started with dedicated grassroots
environmental activists, has finally reached the commercial real estate industry. Global corporations as well
as federal, state, and municipal governments are seeing the need for intervention on their behalf to “green”
buildings for a number of reasons. Currently, buildings use immense amounts of key resources and produce
an excessive quantity of waste and pollution, which is detrimental to the survival of our planet. Until this
point in time, the adjustment in conventional practices required by professionals in the industry coupled
with widespread speculation regarding the ‘green cost premium’ curtailed the development of sustainable
buildings. Growing numbers of successful new green buildings and existing building retrofits supply evidence
that confirms feasibility of sustainable, cost effective buildings. With rising energy costs, existing and
looming government mandates, and social responsibility at the forefront of concern for corporations, the
shift to building new and updating existing buildings with sustainable design and high energy efficiency
standards is here to stay.
A study released by CoStar Group in 2008 stated “non‐green buildings are going to become
obsolete.”1 This statement may seem exaggerated and impracticable, yet it is an ever impending truth which
the commercial real estate industry must consider. An industry professional, Lee Arnold, CEO of Colliers
Arnold, said in a recent interview on Tampa Bay’s Studio 10 daytime talk show “you will not see commercial
office buildings that are competitive in the future if they are not green, it will impact their cap rates and
value.”2 Although some leaders in the industry are embracing the movement, others have been slow to
realize that sustainable buildings are not just a trendy fad. They provide ample tangible and intangible
benefits to all who are involved with them, from developers to tenants. Whether its increased asset value,
significantly decreased operating costs, or a boost in employee productivity, everyone has something to gain
from the transformation of commercial real estate into a sustainable industry.
1 Miller, Norm, Jay Spivey and Andy Florance. “Does Green Pay Off?” The Journal of Sustainable Real Estate (8 July 2008). 29 June 2009
2 “Commercial Development Turns Green.” Studio 10. Gannett Broadcast Station. WTSP-TV, St. Petersburg.
2

4. WHAT IS BUILDING GREEN?
Currently, conventional buildings in the U.S. have an enormous carbon footprint (see table 1)1
which can be prevented and reversed through the construction of new and retrofitting of existing buildings
to be environmentally friendly, or “green.”2 Green buildings are designed, constructed, and operated to
maximize operational efficiency and minimize environmental impact. There are several different green
elements that can be incorporated into a building that not only reduce environmental impact but have also
proven to be cost effective investments.
U.S. Buildings Account For...
100%
90%
80% 72%
70%
60%
50% 39% 38% 40%
40% 30%
30%
14 %
20%
10%
0%
Electricity Energy Use CO2 Raw Materials Waste Output P otable Water
Consumption Emissions Use Consumption
Table 1
1 The numbers in the chart are representative of the impact of all buildings in the U.S., including commercial, residential, industrial, and infrastructure
construction, on the U.S. environment.
2 U.S. Green Building Council. 2008. U.S. Green Building Council.
3

5. Features of Green Buildings
Rainwater recovery systems
o Rainwater and other non‐potable
water such as condensation can be
recycled for toilet flushing and site
irrigation
Occupancy sensors that ensure lights turn off
when not in use
“Green” cleaning products
Cool roof
o materials with highly reflective coating
on the roof that allow the hottest rays
to bounce off
Recycling and solid waste management programs
Strategic landscaping
o Select plans that require little water
and maintenance
Tinted windows
o Maximize natural light while blocking
heat
Low‐flow fixtures and waterless urinals
Preferred parking for high efficiency vehicles
Highly energy efficient HVAC systems
Low or no‐volatile organic compound (VOC)
paints and adhesives
Solar panels
Bicycle storage
Location suited to take advantage of mass transit
4

6. The widely misunderstood cost of green building materials continues to defer development and
construction of environmentally friendly buildings. In the early stages of the green building movement, it
was in fact more expense to build a green building rather than a conventional building due to the extra cost
of green materials. However, as industry professionals have become informed on and experienced with
green building practices, the “green cost premium” has begun to disappear. This could be attributed simply
to demand due to increased market adaptation, which stimulated availability and thus lowered prices.
Comparative cost studies have been conducted to show that green buildings do not require an increase in
capital outlay. For example, Davis Langdon, a global construction consultancy firm, released a study in 2007
that found:
“There is no significant difference in average costs for green buildings as compared to non‐
green buildings. Many project teams are building green buildings with little or no added
cost, and with budgets well within the cost range on non‐green buildings and similar
programs.”
This particular study also examined and considered the ability to achieve green building standards through
lower cost strategies,3 which is becoming a popular cost effective means to certification and recognition.
3 Matthiessen, Lisa Fay and Peter Morris. 2007 The Cost of Green Revisited. Davis Langdon, 2007.
5

7. GREEN BUILDING CLASSIFICATION ROGRAMS & RATING SYSTEMS
Classification programs and rating systems have been created in
LEED Certification
order to educate professionals and support their green building
Process Overview
aspirations. At this time, the two most common classification systems are
Decide if LEED is
the U.S. Green Building Council’s (USGBC) LEED® Green Building Rating
aligned with overall
System and the Environmental Protection Agencies’ (EPA) ENERGY STAR® goals
http://www.usgbc.org/Displa
for Buildings label. yPage.aspx?CMSPageID=1718
USGBC created LEED, which stands for Leadership in Energy and
Environmental Design, with the goal of providing a comprehensive system Register project
for designing, constructing, and operating high performance, sustainable with USGBC &
assemble project
buildings. USGBC highly recommends and encourages implementation of
team
LEED in the early stages of a project to avoid complications and potential https://www.leedonline.com
added costs. To begin the process (see table 2), a project team must
register their project with USGBC with the intent of achieving certification Prepare application
for their project (registration is $450 for members of the USGBC and $600 (utlize templates/forms
4 and tools)
for non‐members) . Once registered, USGBC provides the project team
with a variety of tools and resources, including reference guides and
templates for documentation. Upon completion of the green building and
Project
project application, USGBC’s Green Building Certification Institute (GBCI) administrator
submits project for
awards one of four levels of LEED to recognize the building’s degree of
review
achievement and performance in five key areas: sustainable site
development, water savings, energy efficiency, materials selection and
indoor environmental quality. Formal application
review
conducted by Green
Building Certification
Institution
Certification
project team can either
accept or appeal decision
Table 2
4 Process Overview. 2008. Green Building Certificate Institute. 10 July 2009. www.gbci.org
6

8. 100 base points plus 6 possible Innovation in Design and 4 Regional Priority
points:
Certified: 40‐49 Points
Silver: 50‐59 Points
Gold: 60‐79 Points
'LEED' and related logo is a trademark owned by the U.S.
Platinum: 80+ Points
Green Building Council and is used by permission.
Applicable LEED Rating Systems for Commercial Real Estate:
New Construction
Existing Buildings: Operation and Maintenance
Commercial Interiors
o In support of the tenant improvement market
Core and Shell
Retail
o Addresses the specific and distinctive needs of retail spaces
Healthcare
o Addresses the specific needs of healthcare facilities
The fee USGBC charges for certification is different for every project because it is determined based
on a variety of factors, such as size and type of building, credits selected to complete, level of certification,
and USGBC membership. This cost is a contributor to the green cost premium and adds on average $2,000
to the total cost of a building.5 The cost of LEED does not include soft costs such as the time and experience
needed to complete the required documentation for certification. In an attempt to further encourage the
development of green buildings, USGBC made LEED free for projects that receive the highest level of
certification, platinum.
The overall total cost difference of building to LEED standards versus conventionally has been a
source of debate among many executives in the commercial real estate industry. Understandably, people
are not willing to increase initial capital outlay when they are seeking short‐term profits and may not realize
the key long‐term benefits green buildings offer. The Davis Langdon firm conducted a study on 600 buildings
in 19 states in order to aid professionals in understanding the true cost of LEED certified buildings compared
to traditional, non‐green buildings. The studies main findings were that constructing a building to meet LEED
silver standards adds on average less than a 2% premium. The study further stated there was no statistically
5 “FAQ: LEED Green Building Classification System.” U.S. Green Building Council. 2008.
7

9. significant cost difference between a LEED certified (the lowest level of certification) and a non‐green
building.6 Although LEED certification isn’t necessary to construct a green building, it supplies third party
verification that a building is maximizing operational efficiency while minimizing environmental impact,
which may be important to perspective tenants and clients.
As a U.S. federal government agency, the EPA has several monetary and educational resources
available to utilize in the advancement of its overall goal to protect human health and the environment. The
EPA created the Designed to Earn the ENERGY STAR and the ENERGY STAR for Buildings label programs to
guide the U.S. in meeting aggressive energy performance targets needed to combat global warming while
boosting businesses bottom lines. These programs provide quality, free alternatives to USGBC’s LEED Green
Building Rating System. The ENERGY STAR program rates buildings by comparing them to a nationwide
industry database made up of analogous buildings (type and size) and scoring them on a scale from 1‐100.
Buildings must score a minimum of 75 points (top 25%) to qualify for the ENERGY STAR label.
Designed to Earn ENERGY STAR is a program for the design of new, energy efficient buildings which
confirms they are meeting strict energy performance standards. Although this program is only for new
buildings (defined by the EPA as ones which have not generated utility bills), these standards can be met by
existing buildings through various improvements and incorporation of products that have earned the
ENERGY STAR. Existing buildings that make the necessary changes can earn the ENERGY STAR for buildings
label. Currently, over 1 billion square feet have qualified for the ENERGY STAR.7
6 “Costing Green: A Comprehensive Cost Database and Budgeting Methodology.” Davis Langdon, 2004.
7 “Spring 2009 ENERGY STAR Snapshot.” Measuring Progress in the Commercial and Industrial Sectors. 2009: 1-2. ENERGY STAR.
8

10. ENERGY STAR for Buildings Space Types Applicable for Commercial
Real Estate:
Offices
Retail stores
Hospitals
Hotels/motels
Supermarkets/grocery stores
Banks/financial institutions
Medical office
9

11. GREEN BUILDING PERSPECTIVES & BOTTOM LINE BENEFITS
The question of whose responsibility it is to transform commercial real estate into a sustainable
industry has been eagerly debated over the past decade. While some feel it is a task for developers’, others
assert that if owners and tenants demand it, green buildings will become readily available in response.
Although all sides of the debate have valid grounds, the reality is that the responsibility of greening the
industry rests in the hands of everyone involved.
Developers
Speak with any developer and they will tell you that their goal is to deliver to their client the best
building a specified budget and a defined time frame will allow. Some claim that green buildings are virtually
impossible to build as a result of these strict limitations, especially in tough economic times when clients are
watching every extra dollar a project requires. While this justification may have been relevant in the past,
when green construction materials had a premium due to the lack of knowledge and availability in the
industry, it is no longer germane. Now that the costs of green building materials are becoming competitive
with conventional materials, developers who previously dismissed green buildings should take a second
look. Green buildings have been sustainably designed and constructed within roughly the same budgets and
time frames as conventional building projects across the country. Decreased material costs coupled with
cost sensitive, strategic choices of integrated sustainable design elements have made green buildings a
superior investment.
Although developers must make an initial investment to learn green building techniques, they can
gain a fairly complete understanding from completing a single project. It is highly recommended to seek
assistance from a green building consultant or have someone knowledgeable about green building on the
project team. After this initial obstacle is accomplished, green building practices have proven to be easily
adaptable and as straightforward as conventional approaches. The investment in education can be quickly
recovered through profits made from an increase in the number of projects acquired simply because of
green building knowledge. Studies have also shown a willingness of companies to pay more for green space.
A 2007 study conducted by the Jones Lang LaSalle firm surveyed corporate commercial buyers’ demand for
green space and found that 77% would pay more for green office space.8 Additionally, a 2008 CoStar Group
study found buildings that earned the ENERGY STAR sell on average for $61 per square foot more than
comparable non‐green buildings.9
8 This survey was preformed again in 2008 to update for changes in the economy. The results show that 40% of corporate real estate executives will pay
up to 10% more to rent or occupy a sustainable building.
9 Miller, Norm, Jay Spivey and Andy Florance. “Does Green Pay Off?” The Journal of Sustainable Real Estate (8 July 2008). 29 June 2009
10

12. Developers who have taken the time to educate themselves in green building techniques and
practices are proud of their modern approach to design and noteworthy success. Companies are
increasingly seeking out developers who are knowledgeable about green building and can offer a
comprehensive service that will ensure their building meets high environmental and energy efficiency
performance standards. Green buildings offer a degree of quality simply unattainable by non‐green,
conventional buildings and this fact is becoming more apparent as the number of green buildings grows. In a
recent interview with MHN, Marnie Abramson, principal of The Tower Companies (a real estate
development company based in Rockville, MD), said
“There are no more excuses for developers to ignore sustainable design. If they do, their
properties will be ‘dinged’ down the line. You just can’t compete anymore without a green and
sustainable strategy.”10
The Tower Companies is an example of one of many top commercial real estate development companies
that hold this view. As emphasis on corporate responsibility continues to increase and governments across
the country mandate green buildings, the flight to firms familiar with sustainable development will
undoubtedly soar.
Owners
In the slow yet necessary process of constructing and converting buildings into environmentally
conscious, sustainable operations, owners net leasing their buildings may feel as though they are incurring
the bulk of the cost while their tenants reap the evident financial benefits. Although this is true to some
extent, owners of net leased properties have the opportunity to realize key benefits which make “greening”
their buildings financially and economically sensible. Owners that make the decision to green their
properties sooner rather than later have the potential to benefit from some government incentives and a
clear competitive advantage, both of which will inevitably slowly dissolve as more buildings are greened and
exceedingly feasible government mandates are implemented.
Tenants across the nation are beginning to demand the greening of space they lease due to the
economic, environmental and human health benefits green buildings offer. A survey of tenants conducted in
2008 by CoreNet Global and Jones Lang LaSalle found that 76% consider energy/sustainability a major or ‘tie
10 Russo, Mike. “Top 10 Rules for Green Success.” Multi-Housing News Online. (5 May 2009). 20 July 2009
11

13. breaker’ factor in their location decisions.11 Forward‐thinking top U.S. companies (and excellent tenants)
which have started to operate out of USGBC LEED certified or ENERGY STAR labeled buildings include:
Walgreens Pizza Fusion Starbucks
REI PNC Bank Subway
Chipotle Mexican Grill Best Buy McDonalds
Whole Foods Office Depot Staples
Commercial real estate owners of green buildings can gain a competitive advantage by securing
and retaining high quality, desired tenants. Recent studies show that green buildings generally have higher
occupancy rates and rents. For example, a 2008 CoStar Group study (see table 3)12 found that LEED certified
buildings have a 4.1% higher occupancy rate and rent for $11.33 per square foot more than conventional
buildings.13
Green Office Buildings v. Non-Green Office Buildings
Building Type Occupancy Rate Rental Rate ($/ft²)
ENERGY STAR Labeled 91.50% $30.55
Non-ENERGY STAR 87.90% $28.15
LEED Certified 92% $42.38
Non-LEED 87.90% $31.05
Table 3
Although tenant demand serves as the pivotal reason for owners to green their properties,
increased asset value and risk aversion are other distinct advantages of green buildings. Using the income
approach to asset valuation, asset value=NOI/capitalization rate, the NOI earned by tenants is an important
factor in calculating the value of a building. Net lease tenants occupying energy efficient buildings have
higher NOIs due to a variety of factors such as increases in productivity and significant savings on energy
costs. Buildings upgraded with efficient systems typically save between 10 and 2o percent on operating
expenses.14 This savings is directly reflected in NOI since NOI=revenue–costs. For example, a limited service
restaurant operating out of a building that achieves a 10% reduction in energy costs can increase net profit
11 “The Green Phoenix: A Flight to Quality in Challenging Times.” Perspectives on Sustainability. April 2009. Jones Lang LaSalle. 22 July 2009
<http://www.us.am.joneslanglasalle.com/ResearchLevel1/JLL_Global_Trends_Sustainable_Real_Estate.pdf>.
12 This study compared all USA based ENERGY STAR rated office buildings (many of which are LEED certified) to a large sample of non-ENERGY
STAR rated office buildings.
13 Miller, Norm, Jay Spivey and Andy Florance. “Does Green Pay Off?” The Journal of Sustainable Real Estate (8 July 2008). 29 June 2009
14 “Commercial Real Estate: Looking For Energy Solutions.” U.S. Environmental Protection Agency. 24 July 2009
<http://www.energystar.gov/ia/partners/spp_res/LFES_Commercial_Real_Estate.pdf>.
12

14. margins by as much as 4%.15 Therefore, owners of green net leased buildings can benefit from increased
asset value through tenants attaining higher NOIs via energy efficiency.
Owners of net leased properties are essentially looking for a low risk, fixed return similar to that of
a certificate of deposit or government bond. Fundamentally, green buildings are more secure investments
than conventional buildings because they are less susceptible to market volatility, a central component of
risk in investing. This can be distinguished from studies which have confirmed their higher rental,
occupancy, and retention rates. They are also recognized for excellence in quality, which mitigates several
health risks associated with conventional buildings held to lower standards of indoor environmental air
quality. For example, Sick Building Syndrome has been the source of a number of lawsuits against
unsuspecting building owners over the past several years.16 Sick Building Syndrome can be avoided in green
buildings because they adhere to strict indoor air quality standards.
Commercial real estate investors debating whether buying green buildings or retrofitting their
current properties will pay off should regard the undertaking as a way to ensure competitive assets in the
future. As more buildings constructed and retrofitted to standards such as LEED and ENERGY STAR proffer
competitive rents, tenants will certainly choose to occupy them over non‐green peer buildings. All things
considered, green buildings optimize life‐cycle economic performance,17 establishing them as high‐quality
real estate investments.
Tenants
Green buildings offer an ideal space for all tenants to occupy. Occupants of green buildings are able
to enjoy many advantages unattainable in non‐green buildings such as:
Reduced operating costs
Improved working conditions and indoor air quality (IAQ)
o Reduce absenteeism
o Boost productivity
o Increase worker satisfaction
o Higher employee retention
Enhanced public image
Government financial incentives
15 “ENERGY STAR for Retail.” Environmental Protection Agency. 24 July 2009 <http://www.energystar.gov/index.cfm?c=retail.bus_retail>.
16 Hochman, Bonnie Y. and Laurence S. Kirsch. “Protecting Occupants and Owners From Indoor Air Problems.” Building Operating Management. Oct.
1990: 42.
17 U.S. Green Building Council – http://www.usgbc.org
13

15. These advantages have been confirmed by occupants of green buildings across the country. Green buildings
achieve these benefits through sustainable design and efficient systems which save energy and create a
healthier space to occupy.
Studies have shown that IAQ directly relates to employee productivity, which affects businesses
bottom lines. According to the EPA, building‐related illnesses account for $60 billion in lost productivity in
the U.S. annually.18 A ground breaking study conducted by the Rocky Mountain Institute quantified indoor
air quality benefits of green buildings and demonstrated that the benefits of green buildings are far more
than just energy cost savings. In the eight green buildings (retrofitted or new) examined in the study,
improved air quality fostered improvements in productivity of up to 20% and reduced absenteeism by up to
25%.19 These numbers could potentially contribute to reductions in other indirect costs such as health
insurance premiums, offering tenants several compelling reasons to occupy green buildings.
Research has shown a strong positive correlation between time and money spent by consumers in
stores with increased levels of natural light, a key design element in almost all green buildings. A study
conducted by the California Energy Commission on an anonymous retailer confirmed this correlation. The
retailer experienced increases in sales of up to 40% in stores that had natural lighting.20 This is just one
example of strong positive consumer response to green buildings. Consumers generally expect companies
to uphold high environmental standards as part of their social responsibility. One survey found that 75% of
consumers think it is important for companies to provide information on environmental impact and 73%
think it is important for companies to have a good environmental track record.21 In view of this, companies
that choose to operate out of green buildings enhance their public image in a manner exceptionally
appealing to consumers, demonstrating yet another advantage enjoyed by green building tenants.
Different lease structures further enhance tenant benefits garnered through occupancy of green
buildings. Whether tenants are responsible for taxes, maintenance, and/or insurance costs of their buildings
will largely affect their ability to acquire key quantifiable financial benefits. For instance, NNN lease tenants
occupying green buildings acquire a significant advantage over competitors through decreased utility costs;
a savings which directly increases their profits and provides protection from unstable energy prices. With
energy costs increasing at a rate of 6‐8% per year,22 tenants need to seriously evaluate differences in energy
efficiency among buildings they occupy. The New Buildings Institute conducted a study on energy
performance of green buildings and found that average energy use of LEED certified buildings is 25‐30%
better than the national average.23 Furthermore, tenants of green buildings who are responsible for paying
real estate taxes are eligible for financial incentives offered by some municipal governments.
18 Fisk, William J. “Health and Productivity Gains from Better Indoor Environments,” The Role of Emerging Energy-Efficient Technology in Promoting
Workplace Productivity and Health. Lawrence Berkeley National Laboratory, Feb. 2002.
19 Browning, William D. and Joseph J. Romm. “Greening the Building and the Bottom Line.” Rocky Mountain Institute, Dec. 1994.
20 “Daylight and Retail Sales.” California Energy Commission, Oct. 2003.
21 Boston Consulting Group Global Green Consumer Survey, 2008; BCG Analysis.
22 “Conserve Solutions for Sustainability.” National Restaurant Association. 2009. 28 July 2009 <http://conserve.restaurant.org>.
23 Turner, Cathy and Mark Frankel. Energy Performance of LEED® for New Construction Buildings. New Buildings Institute. 4 March 2008.
14

16. GREEN LEASES
Acquisitions of triple net leased buildings have become extremely popular as passive investors
looking for bond‐like returns in commercial real estate continue to enter the market. In a NNN lease, several
of the identifiable benefits of green buildings such as lower utility costs and improved occupant productivity
flow directly to the tenant’s bottom line. Many owners of NNN leased buildings, content with their existing
non‐green investments and unconvinced by other benefits, consequently find little incentive to incur
greening costs from which they do not directly profit. ‘Green leases’ have been suggested as a remedy for
the valid apprehension of owners regarding the disproportionate financial burden in greening their
buildings.
Although green lease is a fairly new term in commercial real estate, it is somewhat comparable to
the concept of tenant improvement,1 a recognized notion in the industry. Green leases are structured to
create incentives and flexibility for both owners and tenants in greening commercial buildings.2 They allow
owners to pass on some or all of the costs incurred in retrofitting their properties to achieve green building
standards such as LEED to tenants, which overcomes the aforementioned owner predicament. Tenants have
readily accepted green leases as a means to greening buildings they occupy because of their considerable
savings in operating costs and other advantageous benefits. As for owners, green leases enable them to
increase the value of their investment through sustainable upgrades partially or fully paid for by their
tenants. In addition, green leases address several specific green measures of which traditional leases
commonly present barriers. For example, most traditional leases require tenants to use only new materials
in tenant improvements or initial fit outs.3 This would possibly exclude the use of recycled materials,
presenting a needless barrier to tenant integration of sustainable materials.
Passive investors in NNN leased buildings should recognize green leases as a savvy approach to
greening their portfolios. They eliminate the need for extensive owner capital outlay and ensure tenant
satisfaction. Given that leases often represent long‐term agreements, owners and tenants who opt for
green leases will benefit from resiliency during the development of anticipated green building government
mandates in the future.
A resource that could be extremely helpful to owners and tenants looking to make green upgrades
to existing buildings is the ENERGY STAR Building Upgrade Value Calculator. This free tool provided by the
EPA allows users to analyze the financial value of capital investments in energy efficiency measures in
commercial real estate. Even though it was originally developed for office properties, the majority of the
1 Changes made to a commercial or industrial property by its owner to accommodate the needs of a tenant. Who bears what portion of TI costs is
negotiated between the lesser and the lessee and is usually documented in the lease agreement.
2 Brooks, Michael. Green Leases and Green Buildings. 1 May 2008.
3 Brooks, Michael. Green Leases and Green Buildings. 1 May 2008.
15

17. functionality is applicable to all building types. Below is an example of using the tool to evaluate energy
efficient upgrades in a hypothetical casual dining restaurant:4
Property Information
Property Name Casual Dining Restaurant
Square Footage 6,500 +/-
Annual Utility Bill $63,600
Energy Project Information
Energy Efficiency Measure Cost Annual Savings
Demand Defrost Controller $500 $150
Tankless Water Heater $1,500 $1,700
Commercial Kitchens Ventilation System $3,000 $4,000
Replace Pre-Rinse Spray Valve with Energy Efficient Low $50 $500
Flow Pre-Rinse Spray Valve
Replace Incandescent Blubs with CFL’s $50 $400
Sub Total $5,100 $6,750
Additional Annual Savings for Labor and Supplies
Rebates (if any)
Financial Information
Analysis Term (years) 10 years
Discount Rate 8%
Capitalization Rate 8%
Financial Summary
Net Investment Cost $5,100
Net Investment Cost per SF $0.78
Simple Payback Period (SPP) .84 years
Return on Investment (ROI) 118%
Net Present Value (NPV) $35,425
Internal Rate of Return (IRR) 118%
Potential Impact on Net Operating Income (NOI)* $6,039
Potential Impact on Asset Value* $75,493
*Specific to office properties and therefore may not be relevant to this example
4 Everything the tool is capable of calculating (such as loan financing) is not shown in the example. The tool can be accessed at:
http://www.energystar.gov/index.cfm?c=comm_real_estate.building_upgrade_value_calculator
16

18. GOVERNMENT INCENTIVES AND MANDATES FOR PRIVATE
COMMERCIAL BUILDINGS
Ultimately, government mandates will end the ongoing debate over the option to develop, own,
and/or occupy green buildings. Although the federal government does not currently have green building
mandates for private commercial buildings, several local governments across the U.S do, including:
Albuquerque City, NM Alexandria City, VA
Annapolis City, MD Babylon City, NY
Baltimore City, MD Battery Park Village/ Town, NY
Boston City, MA Brisbane Village/ Town, CA
Calabasas Village/ Town, CA Chamblee City, GA
Cutler Bay Village/ Town, FL Dallas City, TX
Doraville City, GA Fayetteville City, AR
Gaithersburg City, MD Healdsburg City, CA
Lakewood City, OH Long Beach City, CA
Los Angeles City, CA Monterey City, CA
Montgomery Co, MD Mountain Village/ Town, CO
Napa City, CA Normal City, IL
Palo Alto City, CA Pasadena City, CA
Pleasanton City, CA Rohnert Park Village/ Town, CA
San Antonio City, TX San Francisco City, CA
San Jose City, CA San Rafael City, CA
Santa Cruz City, CA Santa Rosa City, CA
Sonoma City, CA Stockton City, CA
Taos Village/ Town, NM Washington City, DC
West Hollywood Cit y, CA Windsor Village/ Town, CA
All of the above city, town and county governments require private commercial buildings to meet
specified green building guidelines or achieve green building certification, either through USGBC or another
approved standard.5 Many states, cities and local governments that do not yet have green building
mandates for private commercial buildings offer incentives which can only be received through green
building certification. These incentives include tax abatement/credits, bonus density, expedited permitting,
grants, technical assistance, permit/zone fee reduction/waiver, and rebates.
5 The requirements for private commercial buildings differ based on square footage and whether it is new construction. For example, the Taos
Village/Town, NM ordinance requires all new private commercial buildings greater than 6,000 sq. ft. to achieve LEED certification, whereas the green
building mandate in Baltimore, MD requires private commercial buildings of 10,000 sq. ft. or greater to a achieve a minimum of LEED Silver.
17

19. Virginia Incentive Programs:
State
HB 239 (July 1st, 2008)
o Declared energy efficient buildings (defined as meeting the performance standards of
LEED, Energy Star, Green Globes or EarthCraft) to be a separate class of taxation from
other real property; Provides for localities to levy equal or lesser taxes on energy efficient
buildings
Arlington County
Green Building Density Initiative Policy (March 14th, 2009)
o Allows commercial projects and private developments to develop sites at higher density
levels
.05 FAR for LEED Certified, .15 FAR for LEED Silver, .35 FAR for LEED Gold, and .45
FAR for LEED Platinum
There is also a height bonus density of up to 3 stories
o All projects must contribute to a green building fund6
The contribution ($0.045 per sq. ft. GFA) is refunded to projects that earn LEED
Alexandria City
Green Building Policy (April 18th,2009)
o Requires all new commercial buildings to achieve a minimum of LEED Silver certification
6 The money collected goes toward county-wide education and outreach activities.
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20. Florida Incentive Programs:
Hillsborough County
Update to “Development Review Procedures Manual” (January 1st, 2008)
o Expedites plan reviews for projects with a completed scorecard from either USGBC or
FGBC
Jacksonville City
Jacksonville Sustainable Building Program
o Offers incentives to new commercial buildings that achieve LEED certification or other
recognized green building classification system
Fast track development review
Designation
Refund of certification expenses
Miami Beach City
Green Building Ordinance (April 22, 2009)
o Established incentives for private commercial green building projects
Expedited plan review and building inspections
Developers can receive a refund of the application and review fees for
certification
Designation and acknowledgement of achievement on city website
Miami Lakes Village/Town
Town of Miami Lakes Green Building Program (July 10th, 2008)
o Permit fee reduction for commercial applicants that prove minimum compliance with
LEED standards
Sarasota County
Resolution #2006‐174
o Fast track building permit incentive and 50% reduction in the cost of building permit fees
for private contractors using LEED
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21. Tampa City
City of Tampa Sustainability Ordinance (June 26th, 2008)
o Offers developers of commercial buildings a 20‐80% rebate on building permit fees,
depending upon the level of LEED certification earned by the building
Incentives and mandates for private commercial buildings in other parts of the county have thus far
been more aggressive than those in Virginia and Florida. Municipalities in California currently have the most
mandates for private commercial green buildings. These municipalities fostered the growth of green
buildings by introducing and encouraging development with incentives. The incentives were subsequently
replaced with mandates, a pattern that will undeniably materialize in other states. Mandates have also
continued to become more progressive. For example, the San Francisco Building Code, established in August
2008, currently requires new commercial buildings over 5,000 sq. ft. to achieve green building certification
or documentation of compliance with green building standards. It also outlines future mandates,
designating LEED Gold or equivalent as the minimum certification level achieved by 2012.
Green building law may soon break new ground in Portland, Oregon with a proposed green
building program. The proposed program, dubbed the ‘feebate program’, would allow the city to assess a
fee against developers who construct buildings that only meet state building code. The fee would be waived
for developers who construct buildings that meet a minimum of LEED Silver. Furthermore, developers of
buildings that meet LEED Gold or Platinum standards receive rebates.
Federal Incentive Programs:
The Energy Policy Act of 2005
Commercial Building Tax Deduction
o Established a tax deduction for expenses related to the design and installation of energy
efficient building systems
Building owners or tenants are eligible for a tax deduction of up to $1.80 per sq.
ft. for the installation of systems that reduce total building energy costs by 50%
or more compared to a reference building
Partial deductions of $0.60 per sq. ft. are available for improvements to one of
three building systems that reduce total heating, cooling, ventilation, water
heating and interior lighting energy use by specified percentages
The deductions are only available to buildings covered by the scope of the
ASHRAE Standard 90. 1‐2001 and buildings or systems placed in service from
January 1st, 2006 through December 31st, 2013
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22. Proposed Federal Legislation:
The American Clean Energy and Security Act of 2009 (H.R. 2454)
Section 201
o Requires new construction and renovation projects to meet stringent national energy
efficiency standards which exceed the existing energy code (ASHRAE 90.1) by 30%
immediately and 50% by 2015
o The proposed act provides for 5% increases every 3 years through 2030, resulting in an
eventual 75% reduction over current standards
Department of Energy can increase or decrease reduction targets based on
feasibility
State and local government codes must meet or exceed targets established by
the act
The bill passed in the U.S. House of Representatives on June 26th, 2009 and is expected to reach
the senate by mid‐September
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23. GREEN BUILDING IN A DOWN ECONOMY
Despite the current down economy, the overall green building movement continues to experience
growth. One can draw this conclusion by simply looking at the numbers. For example, Greenbuild, the
world’s largest conference and expo dedicated to green building, had more than 28,000 attendees in 2008,
which is an increase of 25% from Greenbuild 2007. Moreover, in April of 2003, a mere 84 buildings had
received LEED certification. The most recent number of certified projects released by the USGBC was 2,878
in May of 2009. This number will only continue to grow, evidenced by the 21,252 projects currently
registered seeking LEED certification. The sustained growth in this sector may be baffling to those who
believe in sticking to what they know during hard economic times; however, departure from conventional
buildings may be exactly what is needed.
Green buildings pave the way for businesses to prosper through a triple bottom line encompassing
financial, social and environmental goals, which has proven an endearing strategy during hard economic
times. Some industry professionals have recognized this economic climate as the perfect opportunity to
“green” business and use triple bottom line benefits to save money and gain a competitive advantage as
other options are less obvious. A recent study released by A.T Kearney found that companies focused on
sustainability outperformed industry averages by 15% during the current financial crisis.7 The green building
movement will continue to grow as more companies recognize that a small upfront investment in “green”
can assist in retaining value and provide protection from a volatile market.
7 “Green Winners: The Performance of Sustainability-focused Companies in the Financial Crisis.” A.T. Kearney, 2009.
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24. SUCCESSFUL COMMERCIAL GREEN BUILDING PROJECTS
PNC Bank – LEED Certified
Currently, PNC Financial Services Group, Inc. has more certified green buildings than any other
company on earth.8 As of June 2009, the company had achieved USGBC LEED certification for 66 buildings.
Ways LEED certification has benefited PNC’s bottom line:
According to Gary Saulson, PNC’s corporate real
estate director, PNC has been able to build green
branches for $2.6 million, which is approximately
$100,000 less than some competitors are
spending on comparable non‐green branches.9
o More than 50% of each branch is made Photos by PNC Green Branch
from recycled materials, including flooring,
wall coverings, and carpet. Many of these recycled materials cost less than non‐recycled
products.
Energy usage in PNC’s green branches is reduced by 50% or more compared to non‐green branches
due to high‐efficiency systems and insulation and maximum use of natural
light (which has also been associated with positive consumer response).
Water usage in green branches is reduced by 6,200 gallons a year.
Enhanced public image
o “Consumers want to do business with socially responsible
companies and PNC is leading the way in the banking
industry.”
–Neil Hall, PNC’s head of retail distribution
“Our commitment to significantly reduce our impact on the environment has enabled us to lower
costs, increase efficiency and productivity as well as enhance the communities where our customer
and employees live, work and play”
-Gary Saulson
8 Patrick McMahon, PNC News Release
9 Roth, Mark. “The Thinkers: PNC’s Saulson finds it’s easy being green.” Pittsburgh Post-Gazette. 8/25/08.
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25. Walgreens – LEED Registered
Walgreens, the largest drugstore chain in the U.S., opened their first (and the first) environmentally
friendly drugstore on June 24th, 2009 in Mira Mesa, California. It has registered with the USGBC and expects
to receive LEED certification within 4 to 6 months. The company has plans to open three more LEED certified
locations by the end of 2009,
one of which is located in
Chicago. In 2007, Walgreens
began taking a sustainable
approach to reduce their
carbon footprint and save
money by installing solar panel
systems at select locations.10
The perusal of green building Photo by Walgreens LEED-registered Walgreens in Mira Mesa, CA
certification further solidifies
the company’s serious commitment to people, the environment, and achieving economic advancement
through efficient measures.
As the green Mira Mesa Walgreens location just opened a few weeks ago, specific quantitative financial
benefits achieved have yet to be revealed. The company has stated that the store managed to reduce
lighting related energy use by 50% through the use of skylights, solar tubes, LED lights and highly efficient
coolers and freezers. The building’s ‘white roof’,11 another green feature, will significantly reduce cooling
related energy use. Furthermore, all landscaping was done with native plants, which will require no
watering whatsoever. The environmentally friendly building has already generated a great deal of free
publicity for the company, yet another reason Walgreens made an excellent decision to build to LEED
standards.
In the company’s 2008 social responsibility report, financial savings realized through already in place
environmentally friendly measures were discussed. For example, the company saved $5.7 million in energy
costs by using high‐efficiency fluorescent lighting in over 6,000 stores. The company’s green building plans
were also briefly touched upon and will hopefully be evaluated from both a financial and environmental
stand point in the 2009 report.
10 63 locations have solar panel systems
11 Studies show that white roofs can reduce air conditioning costs by 20% or more
24

26. 1101 Madison Tower – Energy Star Labeled
1101 Madison Tower is a 265,525 sq. ft. ENERY STAR labeled medical office building located in
Seattle, WA. The building, constructed in 1994, underwent a major
efficiency retrofit in 2005‐2006 which resulted in a 30% reduction in energy
use and recognition by the EPA with the ENERGY STAR label for Buildings.12
Both the building’s owner and tenants have benefited from the retrofit. For
example, the building received the 2005‐2006 TOBY (The Office Building of
the Year) award. Also, physicians with offices in the building have been
consistently listed in Seattle magazine as top peer‐recommended in the
city. This may be coincidence; however, it may indicate that the retrofits
Source: Energystar.gov
attracted high quality medical professionals as tenants.
A few of the highly efficient upgrades completed on 1101 Madison Tower include:
Energy efficient fluorescent light fixtures in the parking garage
A combination of programmable time‐clocks on lighting circuits and photo sensor controls were
installed on common area lighting controls. This was a low cost system that enabled significant
energy savings.
New water treatment system – Nalco TRASAR controls
Replacement and recalibrating of all damper motors
New preventative maintenance system
HVAC retrocommissioning
Rebate incentives were provided by Seattle City Light and Saving Water Partnership.
These upgrades, in addition to others, enabled 1101 Madison Tower to achieve an average energy cost per
square foot of $1.89. According to BOMA, the closest MOB market comparison’s average energy cost is
$2.14 per square foot.13
12 The building was first labeled in 2006 and received a rating of 75. It was then relabeled in 2007 and its rating increased to 84.
13 These values may have changed due to increases in energy prices.
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27. Pizza Hut − Energy Star Labeled
Eight Pizza Hut locations in Gainesville, Florida have earned the ENERGY STAR label for
Buildings through the installation of economical and efficient systems.
Property Information
Size +/- 16,000 sf
Annual Savings from Upgrades $2,820
Payback Period 0 Months
Together, the eight locations are saving more than $20,000 annually.
Some upgrades to the stores include:
T‐10 lamps replaced T‐12 fluorescent lamps
LED exit signs
o Service life is 100,000 hours; incandescent exit signs service life is 1,000‐3,000 hours. LED
exit signs also require far less maintenance compared to incandescent ones.
Some low cost/no‐cost building tune‐ups
calibrated thermostat
replaced coils and filters
reduced hot water settings
scheduled a maintenance program
All of the lighting retrofits were financed interest‐free on monthly utility bill payments through collaboration
with Gainesville Regional Utilities (GRU). The retrofits were essentially free of cost, since the energy savings
were greater than the payments.
“This ENERGY STAR partnership promotes a market-based approach to energy conservation and
environmental protection that allows businesses to be more competitive and more apt to change
the way industry views environmental awareness – from a burden to a competitive point of
difference.”
-Bill Stasiewicz, Pizza Hut of Gainesville Managing Partner
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