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Baltimore Developers Raise Questions About Green Premiums Under New LEED-Driven Legislation

On July 1, new green building legislation applying to private development took effect in Baltimore. Council Bill 07-0602, which was signed in August of 2007, required that the city establish green building standards for new or substantially renovated commercial and multi-family residential buildings larger than 10,000 square feet. City-owned buildings were required to comply with the new legislation beginning January 1, 2008, city-subsidized buildings by January 1, 2009, and all other buildings this past July 1. While the city is developing its own Baltimore-specific green building standards that should be released by the end of 2009, in the interim, in order to obtain a building permit, all buildings applying must be “equivalent” to LEED Silver.

The legislation does not require formal LEED certification, but owners must submit a checklist for the appropriate LEED rating system as part of the plans submittal for a new building permit. Checklists must set forth specific credits the project will pursue, briefly describe how each credit will be achieved, and (interesting to note from a legal perspective) the parties responsible for each credit. The checklist must also be signed by a LEED AP who is not an employee of the building owner at the time of submittal. Again, although certification is not required, in order to obtain a building occupancy permit from the city, at the time of occupancy permit application, project teams must submit a completed checklist indicating which credits the project met successfully, signed by a non-employee LEED AP. As we’ve discussed frequently here at GRELJ, all of these requirements could raise interesting- and novel- liability issues in the event that a project fails to receive a building permit or certificate of occupancy as originally contemplated. However, the city’s development community is calling for Baltimore’s City Council to reconsider the legislation based on perceived additional green building first costs and asking it to propose an incentive-based structure in its place.

According to Don Fry, President and CEO of the Greater Baltimore Committee, the new legislation “inadvertently contradicts the state’s ‘smart growth’ policy by making the counties more economically attractive to new growth and development and by impeding the city’s own efforts to grow and expand its tax base.” Specifically, Mr. Fry pointed to legislation in surrounding Baltimore, Howard, and Carroll counties that offer tax incentives for green projects rather than mandates. “This puts the city, which already has the highest property tax rate in the region, at a further competitive disadvantage,” Fry wrote in a recent op/ed piece. You may recall a similar situation unfolding in King County, Washington and Seattle a couple of years ago.

In addition, developers, many of whom have in recent years have been renovating historical structures in Baltimore’s urban core, are worried that the legislation will make such adaptive reuse projects cost-prohibitive. According to Michael Goodwin of Baltimore-based architects Design Collaborative, Inc., “[t]he reality is that right now, there is still an unknown premium to doing something green. . . . The premium, which is 4 or 8 to 12 percent on a green project, you can justify it if it’s a build and hold type of company, and in the boom we’ve been experiencing in the last four or six years, there haven’t been a lot of those.” From an engineering perspective, developers are also worried about the feasibility of simultaneously preserving historic building walls which contain glazing that will need to be upgraded in order to address LEED’s energy and atmosphere credits.

One other thought from Mr. Fry also rings salient in the context of green building policymaking: “[f]or any new policy such as this to succeed, two key things must happen. First the policy must be well-designed to achieve its intended outcome. Second, it must be well communicated to those impacted by it. Neither appears to be the case with Baltimore city’s new ‘green building’ measure.” Here, Mr. Fry is referring to the fact that the Baltimore-specific Green Building Standards that will serve as the “equivalent” to LEED have yet to be fully developed, and will not be released until the end of this year. Moreover, I would also note that, as drafted, Council Bill 07-0602 fails to include language providing for project teams to appeal a decision of the building department not to award a certificate of occupancy or building permit based on the required LEED checklists, nor does it include any sunset provision that allows the city to review the legislation’s impact and effect after a certain period of time.

It’s been a while since we’ve heard industry voice opposition to LEED-driven legislation, and the Baltimore mandate may suggest- particularly as stimulus dollars continue to flow to state and local governments to craft similar pieces of legislation, and economic conditions improve and boost construction starts- similar concerns could be raised once again in other parts of the country as well.

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7 Responses to Baltimore Developers Raise Questions About Green Premiums Under New LEED-Driven Legislation

  1. Michael Gibbons July 31, 2009 at 2:10 am #

    Stephen,
    This is an interesing article that raises all kinds of questions. A few comments:
    1. The green building movement still has a lot of educating to do. For an Architect of all people to be estimating a ” green premium” of “8 to 12 percent” at this date (and for LEED silver) is ridiculous. There is significant published data showing the premium for LEED silver at a range from negligible to 2-3 %. For an Architect ( I presume not a LEED AP) to be quoted utilizing such high premium percentages does a great disservice to the sustainable development movement and engenders the cost bias that represents one of the greatest barriers to increased market penetration of green buildings.
    2. The Baltimore legislation indicates that uncoordinated green municipal legislation may produce unintended consequences. As touched on in the article, the effect of the legislation (especially among those believing the huge green premiums quoted in the article) will be to drive development from brownfields and the existing built enviroment to greenfields in unincorprated nearby areas. Green legislation, to yield the most benefit and reduce unintended consequences, should be coordinated and regional in nature. Cities should act in concert with counties to provide seamless and complementary legislation that does not give deveopers the easy out of choosing a site just outside municipal limits or in a green field to avoid application of the green legislation.
    3. Did anybody do a cost/benefit analysis to weigh the benefits of introducing a LEED silver requirement for a brief 5 month period against the costs (in terms of uncertainty and unpredictablilty of application) of injecting this sudden paradigm shift into the local building code?
    Thanks for posting this piece. Regards, Mike Gibbons

  2. easement litigation in st clair county July 31, 2009 at 5:31 pm #

    Stephen – great article
    Mike – Great Points.

    I am very interested seeing your response and thoughts. I have heard that there are many “green” buildings out there that are not being finished as originally projected. For example, they are being built in a hurry, and not as cost effective as originally suggested.

  3. Ujjval Vyas August 1, 2009 at 5:50 am #

    Michael,

    Please provide footnotes for your claim that there “is significant published data showing the premium for LEED silver at a range from negligible to 2-3 %.” I assume that this published data comes from a really realiable source not just vested interests and has had a fully vetted methodological examination by independent (preferably truly peer reviewed). Far too much of the information in this area is severely compromised by selection bias, tainted and produced by “green advocates.” I am a little surprised as well that you think possessing a LEED AP allows one special knowledge about many of these issues. In my experience, many truly competent architects and engineers privately express exactly what Mr. Goodwin has suggested. In additon, it is incumbent on both architects and attorneys to fulfill their professinal responsibilities by providing clients with unbiased, objective information and professinal opinons resulting from adequate due diligence. Obtaining a LEED AP status is not an indication of this level of objetivity or due diligence. The confusion that posessing a LEED AP constitutes significant knowledge regardng building performance, design skill, or basic building science is simply wrong. It constitutes a sticker for marketing purposes and professional advancement combined with its limited but primary and wholly worthwhile purpose: familiarizing one with the LEED process and documentation procedures. To be perfectly fair, it would be very useful to have Mr. Gibbon’s footnotes or basis for his percentages so we can judge there viability as well. Far too much of this field is based on “anecdotal” evidence combined with a desultory tone.

    The fact is that many in the green game are interested in advocacy and self-aggrandisement rather than providing meanignful counsel. A sad truth, but one that demands recognition if real policy to reduce resource consumption is the goal. For example, virtually all but a very few claims dealing with better indoor air quality and increased productivity stand up to any scrutiny and all claims about the health benefits are highly questionable. These types of claims should never be used as the basis of policy activity, though it is a recurring motif in the marketing puffery. Wishing it doesn’t make it so and simply causes systemic skewing of policy options.

    Green legislation as currently pursued is highly confused, a point that has been made by Stephen and others on this blog numerous times. Asking for increased application of confused legislation at the regional (and as many clamor for, the federal level) will only make things worse.

    The peformance of LEED buildings is spotty at best and even USGBC sponsored (though statistically confused) research such as the NBI study demonstrate this in spades. But I don’t want to pick only on the LEED rating system product since many of the rating systems face equally daunting problems in demonstrating real continued building performance. In my view, developers should not be forced to bear the burden of wishful thinking about green buildings (or the more powerful rhetoric that it will produce “green jobs”) or any of a number of other urban planning devices currently in vogue. In the end, much of this addtional burden is passed on to the consumer and may be regressive in its impact. Producing real risk adjusted cost/benefit analysis without recourse to ideological props is sorely needed.

    Frankly, the time for “educating” has long passed and we are now in a time when bad money is pushing out the good. Easy “green” full of wish projection and self-congratulatory satisfication is giving way to the really hard work where skepticism, science, technical competence, objective risk management, and ecomonic understanding must be the watchwords if we really are to find a way to speak with justifiable pride in addressing the pressing concerns surrounding the built environment.

  4. Michael Gibbons August 2, 2009 at 4:57 am #

    Ujjval,
    I am not aware of a peer reviewed study demonstrating that the cost premium associated with achieving LEED Silver is 0-3%. However, I am also unaware of a peer reviewed study demonstrating that the cost premium for achieving LEED Silver is 8-12% (as indicated by the Architect in the article at issue). If you are aware of any such studies supporting the “unbiased and objective” professional opinion that 8-12% is an accurate cost premium for LEED Silver, please identify them.

    The basis for my reference to a negligible to 2-3% cost premium for LEED silver is my review of the many sources available over the internet when searching under the term “LEED building costs”. Included in this review is a report published by GSA entitled “GSA LEED Cost Study”. This report was commissioned by GSA to understand the cost impact of green building. This GSA report studied LEED cost premiums on two oft used federal building models (i.e., a courthouse and office midrise modernization). The report concluded that the cost premium for LEED silver ranged from 0 to 4.4% (courthouse) and from 3.1 to 4.2% (office building modernization). While I would agree that this approach does not rise to the level of peer reviewed research, I am struck by the consistency among a variety of private and public reporting sources. What also struck a nerve when I read the reference to 8-12% for LEED Silver was (from my reading) the total lack of any support for that premium range in anything I have ever read (or discussed anecdotally with LEED conversant designers, contractors and developers)about LEED cost premiums. Far from being “objective and unbiased”, it struck me then and strikes me now as misinformed and misleading.

    Do not let my favorable reference to “LEED AP” mislead you into thinking that I am a blind apologist for the LEED building rating system. I regularly refer to the regrettable fact that LEED certifies design and not performance. LEED is a flawed and far from ideal system. To be fair and objective, however, it is important to recognize that LEED is not standing still (even if many of its critics are). Under LEED v 3, one of the new MPRs requires the certified building owner to agree to provide annual energy and water use data for years after building certification. The laudable purpose behind this requirement is to ensure that there is an ability to follow up and measure (objectivity) actual LEED building energy performance against modeled projections. Though this MPR is not without controversy, it promises to provide sufficient raw data to allow meaningful objective and unbiased assessments of LEED building performance. LEED NC needs to be more rooted in building performance and less dependent on design modeling exercises. LEED is moving in that direction.

    With reference to your statement that “the performance of LEED buildings is spotty at best”, I am curious what you make of the July 2008 white paper published by the GSA entitled “Assessing Green Building Performance: A Post Occupancy Evaluation of 12 GSA Buildings”. In this GSA authorized report (study performed by Pacific Northwest National Laboratory), the authors conclude that sustainably designed buildings actually deliver on the promises of higher building performance and occupant satisfaction. Interestingly (though the sampling number is inadequate), the GSA preliminarily concluded that LEED Gold buildings achieve the best overall performance by objective criteria. GSA attributes the successful performance of the LEED Gold buildings to the integrated design approach adopted for those buildings (which is expressly encouraged by LEED). While the sampling size is small and careful review of the data reveals substandard performance by the bottom third of sustainably designed buildings (similar to the 2008 NBI study), there is significant objective and unbiased evidence that sustainably designed buildings are actually performing sustainably.

    As loudly and as often as the USGBC discusses the lack of a significant premium for green buildings, there continues to be a firmly rooted belief in the minds of many that there is a large premium associated with building green. This perception is borne out by the Green Survey taken by Turner Construction in 2008 and posted on its website. Fully one-half of the respondents to the survey listed the high costs of sustainable construction as a major disincentive to building green. There needs to be more authoritative studies done on the premium costs associated with LEED buildings. In the meantime, those with actual experience building LEED certified buildings need to continue to speak out publicly about their actual project experience(s) with LEED cost premiums.

  5. Brian D. Anderson August 3, 2009 at 4:04 pm #

    I lived in Baltimore for 7 years and really grew to admire much of the city and its wonderful spirit. As you all probably know, Baltimore faces some very challenging problems. First, Baltimore City is its own county, meaning that it has no larger county taxpayer base from which to draw. Its city taxpayer base is concentrated in a the few small enclaves of relative wealth still remaining in the city. State law also prevents Baltimore from expanding its territory. Nearby Wash DC, Montgom County and northern VA are booming growth areas attracting corporations and investment from around the world. Baltimore is perpetually in the shodowed penumbra of that booming economy. So Baltimore struggles with a crumbling infrastructure, a dwindling tax base, no legal ability to expand its territorial jurisdiction, over 30,000 vacant homes, dysfunctional schools (one recent report says only 34.6 percent of public high school students graduate), and over half of its African American young men (age 20-30) under the criminal justice system. I worked with kids in Baltimore in the Choice program and could tell you many a harrowing tale of kids living with out running water or electricity, rats at every turn, etc. I’m impressed that Baltimore City officials have the energy to take on the task of drafting their own green building certification program. I wish them luck and hope it ultimately increases growth and provides good jobs in the city. But I have to wonder whether it’s worth the diversion of their precious energy and creativity, especially given the potential cost increase to development and the (probably) negligible impact on the environment/quality of life for Baltimore.

  6. Stephen Del Percio August 4, 2009 at 1:54 am #

    Thank you all for contributing to what has been a great string of comments thus far. The LEED cost premium debate is an important one, and I’m aware of at least two studies (in addition to those which you’ve referenced, Michael) which we haven’t presented yet here at GRELJ that may be useful in continuing this discussion. Nevertheless, the relative lack of meaningful, peer-reviewed analysis of both green building cost premiums and performance underpinning policy is what continues to make much of it so “confused” at both state and local levels.

    I’m also reminded in this thread of a recent post by Roger Pielke, Jr. at his blog. Pielke uses an op/ed piece from Thomas Friedman listing all of the problems with Waxman-Markey but stating emphatically that we need to “get it passed” and “make it law” in order to ask his readers whether “bad” legislation ever gets “good.” I don’t think there’s any question that much green building legislation- particularly at the state and local levels- is poorly drafted, not vetted with any degree of scientific rigor, and fails to provide for periodic review of how subject buildings are performing. Are there any examples of green building legislation that has improved over time? This might be something interesting to investigate in detail.

    Here’s a link to Pielke’s post:

    http://rogerpielkejr.blogspot.com/2009/07/does-bad-legislation-ever-get-better.html

  7. Ujjval Vyas, Ph.D., J.D. August 4, 2009 at 5:46 am #

    Michael,

    Let us agree that no significant data exists to indicate what the premium is for a LEED building at whatever certification level. There are many reasons for this but the continuing perception in the contracting and owner community regarding significant additional costs should certainly give one pause.

    You also might want to note more carefully what is involved in the new v.3′s data requiremetns. First, the data pool is not open. Instead it is to be owned by the USGBC and kept as a black box for “research”. Given the history of the USGBC and its standards for research in fields like, biomimicry, daylighting, productivity, health impacts, etc., one has little confidence that the research will be done by either the best in the field or even the most trustworthy. Rather the research will be done by fellow travellers and advocates. This is easily understood since from the very beginning, the USGBC and the LEED product was created out of a stridently ideological flotsam and jestam. I do not share your enthusiam of the USGBC as an entity that “learns” over time except insofar as not changing might have an impact on it marketability.

    As for the GSA study, it should have been clear by now that the GSA, and various parties at the GSA office of Science and Technology are very closely tied to the USGBC and have consistently acted as advocates of the program. Whether it is advisable for the GSA to take this position with the dollars spent from the public trust is unclear, and detailed studies of LEED buildings conducted by independent reviewers come to quite different conclusions. But of course, you and I are stuck in a difficult position. Who is to be trusted? I can only say that a very healthy skepticism and a desire to track down data and methodological problems provides me some small measure of comfort. Especially as my duty in both the role of attorney and consultant requires me to provide objective, credible and transparent counsel knowing full well that those relying on my counsel will be making economic decisions with consequences.

    The fact that many in this arena have parlayed their USGBC/green connections or advocacy into mechanisms for driving revenue and creating a new avenue for access captialism doesn’t surprise me. Nor does it surprise me that corporations, manufacturers and government entities are seeking to use green or LEED as a way to sell products, garner votes or increase funding. This type of realignment in the private sector and in public choice markets is to be expected. On the other hand, what is surprising to me is the growing number of open-minded thinkers and practitioners that are asking basic economic and ethical questions regarding rating system products.

    Sustainabilty remains an ethical issue which is not tractable to easy simplifications or convenient fictions at the service of the arbirary exercise of authority over others. Legislation, as Bismarck so memorably said, is like sausage and few would really want to see what goes into it or see how it is made. To the degree that green advocates continue to push through legislation and counsel the private and public sectors in a way that increasinly lacks any relationship with economic, technical or legal realities, the more those advocates fail in their simple ethical duties to themselves and to society as a whole irrespective of their righteous zeal.

    Stephen’s Resources section on this blog, and especially the Special Issue from the Counselors of Real Estate may prove useful in helping to wrestle with the questions of performance. In the spirit of full disclosure, I was the editor of that publication.

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