CREJ - Multifamily Properties Quarterly - October 2015
Sustainability is now a buzzword in the world of multifamily development. In Colorado, more than 4,800 residential units are registered to receive LEED certification, according to the U.S. Green Building Council, which developed the certification program. The council estimates that Colorado is among the top 15 states for green residential building. Pursuing LEED certification might be a popular practice now, but there was a time when it wasn’t so easy being green. When we embarked on our first LEED-certified multifamily project in 2007, sustainable apartments and condominiums were few and far between. The development, River Clay Condominiums, was the first LEED-certified multifamily project in the Rocky Mountain Region. Even nationally, residential green building was in its infancy, with only 36 multiunit projects achieving LEED certification by January 2008, and that number included college dormitories and group homes. As early local adapters in this emerging realm of LEED multifamily development, often we were asked why we spent the time and money to seek such a high standard of sustainability. What was the “value” in chasing LEED certification? Though we couldn’t quantify the potential return on our investment, LEED appealed to us because it required so much rigor and would set a standard to separate us from developers who weren’t as committed to true sustainable business practices. Nearly a decade later, we’re proud to report that our decision to build to LEED specifications has served as an important differentiator in attracting residents and investors. RiverClay, which received LEED Silver certification, sold out months after it was completed – in the worst economic downturn in recent history – and delivered a 29 percent internal rate of return for our investors. Solera, an 11-story apartment community in Denver’s Ballpark neighborhood completed in 2010, was the only apartment project our equity partner, Principal Real Estate Investors, supported that year (in the midst of the recession), using its Green Property Fund to finance the project. The building sold in October 2011 for $37 million, which was a record price per unit at the time. Investors also flocked to Cadence, the first high-rise, LEED-certified apartment project built in the Union Station neighborhood. Zocalo sold Cadence to Invesco Advisers Inc. last year for $70 million, again setting a Colorado sales record in terms of price per unit and per square foot at the time it was purchased. There’s no question that the LEED certifications were factors for receiving substantial prices for those properties. Even for a rental market in which developers are struggling to keep pace with demand, we’re finding that LEED certification is a key attribute in helping lure the upscale renters we target. After location, residents indicate sustainability as one of the most important reasons for leasing in our properties. A 2013 study conducted by CoStar’s Property and Portfolio Research unit found that renters are willing to pay a 24 percent premium to lease in a LEED-certified property. Of course, marketing LEED effectively involves more than placing a reference to LEED on a property’s brochure or website. We train on-site employees about how the building they’re marketing achieved LEED status and what features demonstrate how the property garnered Gold status. That way they are well versed to show those features to potential tenants and explain how they relate to the LEED process. Also, we take a practical approach to implementing LEED. There is an approximate 2 percent incremental cost increase involved in building LEED versus non-LEED, so those figures factor into our budgeting process. The costs have declined as we’ve gotten more experienced with LEED and more efficient at meeting the requirements. LEED has a different management process, so we’re careful about educating our subcontractors about the right procedures and monitoring those efforts throughout the entire construction process. While being a pioneer provided a competitive advantage in the market, at the end of the day, it’s simply one tactic toward building a larger community of sustainability. The goal with any development is to create a positive impact within the community in which we are developing. Providing healthier communities through energy-efficient buildings and creating communities that are connected, by bike and foot, to their neighborhoods is not only the right thing to do, but also creates stickier residents who have an investment in their neighborhoods. LEED can and should be so much more than seeing a plaque as you walk into a building; it should make us feel as if belonging to this particular community means something.