We’re back here at GRELJ after a break for the July 4 holiday. I hope you enjoyed yours as much as I did; my wife and I spent a very relaxing long weekend down in southwestern Virginia with her family.
The night before we left town last week, I sat on a green leasing panel here in Midtown that was sponsored by the Greater New York Chapter of the International Facility Management Association’s Sustainability Committee. In addition to discussing some general issues – legal and otherwise – arising out of the green leasing process, there was significant input from the brokers in attendance about the state of the local green leasing market. More particularly, the discussion focused on how smaller tenants (in the 10,000 to 20,000 square foot range), who do not have the leverage of some of the larger companies (like Deutsche Bank, represented on the panel ) which have successfully demanded green concessions from potential landlords, might nevertheless be able to insist on similar provisions in their leases. Although the panel stressed both landlord and tenant education as what will ultimately drive green practices into these smaller leases, we did not reach any real practical consensus on how green leases might gain more traction in this context.
I point this out in light of a recent report from Portland, Oregon that two small commercial tenants have signed green leases with Unico Properties at the historic 13-story Commonwealth Building, located downtown at 421 SW 6th Street between Washington and Stark Streets. The Northwest Energy Efficiency Alliance (“NEEA”) and Green Building Services (“GBS”) took 20,000 and 10,000 square feet, respectively. According to a Unico press release, “[b]oth NEEA and GBS required green lease provisions which contractually bind both tenant and landlord to choose green products and practices. Green leases are relatively new in the Portland market and they include . . . following strict sustainability LEED-CI guidelines for tenant improvement projects.” In the release, Unico’s general manager for its Portland portfolio, Brian Pearce, said that “[a]lthough Unico does many of these things voluntarily, we want our tenants to know that sustainability is not an option for us- we are fully committed to it.”
I had the opportunity to speak with Mr. Pearce about the green obligations in each of the two leases. Interestingly, NEEA actually approached Unico about inserting certain green provisions into its lease, including dedicated recycling space, access to bicycle storage, changing rooms, and showers, and a definition of building operating expenses that allows Unico to recover the costs of any capital improvements to the building which increase the tenant space’s energy efficiency. “The $65,000 question is whether any other tenants come along like NEEA,” Mr. Pearce said. Unico has also set LEED-CI certification as a “green benchmark” for all of its tenant improvements. “LEED-CI certification is important to these types of tenants, so baiting them with Certified spaces made sense for us,” he noted, “but if tenants want to go beyond Certified, that’s on their nickel.” Mr. Pearce also explained that although Unico has – in other deals – provided allowances to certain tenants for various levels of LEED certification or other green improvements, the two leases in the Commonwealth Building were turn-key. During our conversation, I was particularly interested to hear that both NEEA and GBS also asked Unico to commit in their leases to pursuing a LEED-EB rating for the property, but for many of the legal reasons which we have stressed here at GRELJ previously, Unico refused to make that representation. “Certification is handed down by a third-party entity over which we have no control,” Mr. Pearce said.
The property itself is now 75 percent leased; other tenants include the National Fish and Wildlife Foundation, IMAGINiT Technologies, RAND Worldwide Company, and Element Power which recently earned LEED-CI Gold for its interiors space. Notwithstanding Unico’s concerns about third-party certification, the Commonwealth Building should earn a 2010 Energy Star label and is pursuing formal LEED-EB certification. Unico recently upgraded its HVAC system, installed submeters in individual tenant spaces (including NEEA’s and GBS’s), and the tower is located adjacent to the Portland light rail line. Colliers International represented NEEA in the transaction, Cushman & Wakefield represented GBS, and Pacific Real Estate Partners represented Unico.
Just as a brief aside, the Commonwealth Building was designed by Pietro Belluschi and constructed between 1944 and 1948, debuting as the Equitable Building and headquarters of the Equitable Savings and Loan Association. It was added to the National Register of Historic Places in 1976 for its place in architectural history as one of the first glass box towers ever built; it actually predates Gordon Bunshaft’s seminal Lever House here in Manhattan and was the first building in the country to feature double-glazed windows and be fully sealed and air-conditioned.