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Finding the Green to Go Green: Is This Green Leasing’s Moment?

It’s hardly controversial, given what the “g” in gbNYC stands for, to advocate the idea that green retrofits are a good idea for buildings in New York and elsewhere. But as the consensus grows that this is, in fact, what’s going to happen — at least in the sense that a greener built environment is so clearly wise, responsible and cost-effective that it kind of has to happen — let’s take a break from popping Cristal over the coming retrofit boom and fretting over the imperfections of our current capacities. During that break, we’d encourage you to take a walk (but bring mittens, it’s cold) and maybe give some thought to just how we’re going to pay for all those awesome retrofits that are surely coming down the pike. While we all broadly agree on what should happen when it comes to retrofits, it will be easier to believe that all those good things will happen when we have some idea how they will happen. Which brings us to… green leasing?

I’m afraid so, dear reader. I’m admittedly somewhat out of my depth on this one — luckily, there’s a certified lawyer/publisher who can chime in as needed in the comments section. But while some very extensive and probably quite costly green retrofits are likely in the offing for a lot of commercial real estate in New York City (even if said retrofits are no longer mandated as part of NYC’s Greener Greater Buildings), landlords aren’t going to be footing those particular bills out of the goodness of their green hearts, and commercial tenants don’t want to pick up the tab, either. Which means that green leases appear to be the best and probably only way to ensure that the costs of these retrofits are not passed on to the renters. The usual rules of leases — landlords pay for the boilers, renters pay for the heat, and so on — get thrown into flux by the price tags of a green retrofit. If our economy wasn’t embarking its 18th month of drain-circling, the city or state might help to defray these costs, but it’s not, and so they can’t. Which, even without that city mandate, leaves landlords facing the prospect of a brown-skewing result on the energy audits mandated by Greener Greater Buildings feeling kind of nervous. In an interesting piece for the New York Times, Alec Appelbaum details the work Sean Neill (not pictured) and his green leasing company Cycle 7 are doing to make green leases that work for both landlords and tenants into a reality.

In a piece for The Faster Times back in December, Appelbaum neatly laid out the goals behind green leases. “The green lease, as the Natural Resources Defense Council and local players are hashing it out in New York and elsewhere, would replace talk of green-tinged amenities or mandatory efficiency improvements with a rational economic contract,” Appelbaum wrote. “Landlords would pay for improvements that affect an entire building, tenants would pay for controlling their own utility costs, and capital would flow to each party in legible ways.” In his NYT piece, Appelbaum expands upon what that looks like in the real world, as Neill and Cycle-7 work on revising existing leases to reflect the new realities (and new costs) brought about by green retrofits. Of course, for all the talk of the market eventually providing its own incentive in this sort of thing, the most likely sounding of Neill’s suggestions on defraying that cost centers around the city giving commercial tenants a break on commercial occupancy taxes in exchange for helping to pay for the building’s new EnergyStar boiler or whatever. As usual, a lot of this comes back to government. But in a broader sense, the current surfeit of enticing incentives in leasing is an area where we might actually see the market do its thing — there is money to be made in green leasing just as surely as there is in green retrofits, and Mr. Neill and others will do themselves and everyone else a favor by figuring out how to do that. Especially because, macro-scale trends aside, it will probably be difficult to get those awesome green retrofits without equally awesome green leases — ones that make sense for landlords and tenants alike.

A personal note, too: I don’t know the most about this stuff, but I’m eager to learn. You are always welcome to share your thoughts on how you think this green lease thing should work/isn’t currently working in the comments, but in this case, consider yourself especially welcome.

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