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RICS Study: No Premium for LEED-Certified Commercial Office Buildings

Last week, the Royal Institution of Chartered Surveyors (“RICS”) released the results of a study authored by Piet Eichholtz and Nils Kok of Maastricht University and John Quigley of Berkeley. Titled “Doing Well By Doing Good? An Analysis of the Financial Performance of Green Office Buildings in the USA,” the purpose of the study was to determine whether investors are currently willing to pay any premium for green (Energy Star- and LEED-certified) commercial office buildings and, if so, what that premium is. The authors identified 1360 buildings- 286 LEED-certified, 1045 Energy Star-certified, and 29 certified under both systems- and were able to obtain complete building characteristics and monthly rents from CoStar for 649 of them, as well as sales data for 199 buildings that swapped hands between 2004 and 2007. To create a pool of peer buildings, the authors used the CoStar database to identify all other office buildings within a quarter mile radius of the subject green building to create a “cluster” of buildings for each of the 893 subject buildings. The study concluded that “the type of label matters. We find consistent and statistically significant effects in the marketplace for the Energy Star-labeled buildings. We find no significant market effects associated with the LEED label. Energy Star concentrates on energy use, while the LEED label is much broader in scope. Our results suggest that tenants and investors are willing to pay more for an energy-efficient building, but not for a building advertised as ‘sustainable’ in a broader sense.”

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Green Building Litigation Notable Omission From CoStar’s Top 10 Green Building News Stories of 2008

Andrew Burr of the CoStar Group recently listed his top ten green building stories from 2008. I thought a glaring omission from his compilation was his failure to include any discussion of either of the green building litigations that surfaced during the course of the year. Shaw Development v. Southern Builders and AHRI et al. v. City of Albuquerque may ultimately become seminal green building law cases, so I was disappointed that Burr’s list focused on mostly cosmetic, feel-good stories like “the LEED economy” and “green building trumps recession,” the latter of which has most certainly not been true in New York City over the past couple of months as a number of green projects have stalled or been canceled outright.

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Green Building Liability Piques Interest of Residential Sector

Much of the discussion with respect to the liability issues surrounding sustainable building has focused on the commercial sector, so I was interested to see my friend Brian Anderson, a real estate partner in the Madison, Wisconsin office of Whyte Hirschboeck Dudek S.C, quoted in a brief article suggesting risk management best practices for home builders in a recent article posted by Professional Builder. The article suggests that LEED for Homes and NAHB’s National Green Building Program may soon open the doors for insurance claims and litigation arising out of green projects that do not perform as promised. In the article, Mr. Anderson actually describes a matter his office handled where a builder did not obtain the anticipated level of certification for a residential project. “We were struggling to determine the value of the certification when the claim settled,” he told PB. At least in the commercial context, a jumping off point for plaintiffs who assert these types of claims could be the studies- many of which are promulgated by the USGBC and its constituents- that tout the higher leasing and purchasing figures for LEED-certified buildings.

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