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Green makes green


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  • | 11:31 a.m. May 28, 2010
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  • Commercial Real Estate
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REVIEW SUMMARY
Industry. Office development
Issue. LEED certification for existing buildings
Key. The value of going green while competing with new space amid 20% vacancy

At 42 stories and 579 feet tall, 100 North Tampa is undoubtedly the tallest office building along Florida's Gulf Coast. The 552,080-square-foot structure is also the largest in the region to be certified under the U.S. Green Building Council's Leadership in Energy and Environmental Design program.

This wouldn't be unusual but for the fact that it was built in 1992, eight years before LEED certification itself was established. It's also notable that Tampa's youngest office tower would be old enough to vote in this year's elections.

Even though 100 North Tampa and other existing multi-tenant buildings up and down the coast aren't being held up to new construction essentially requiring LEED standards — if any new floors were actually being built right now — they still need to compete against each other for new tenants and, perhaps more importantly, lease renewals.

As prospective tenants adhere to government or corporate mandates for “green” offices, landlords now find themselves balancing between overspending on retrofits and appearing conscious of their properties' environmental impact.

Peer pressure
Those prospects are made a bit tougher given the current 20% occupancy rate throughout the Tampa Bay office market, with overall asking rents averaging just above $21 per square foot, plus the fact that all U.S. commercial real estate has virtually lost value in recent years.

But then no leasing representative wants to be in a position of marketing a building that is considered inefficient or, worse yet, obsolete. That puts pressure on building owners to upgrade now, rather than waiting until the economy recovers.

“Tenants are smarter now,” observes Phil Dinkins, vice president with CLW Real Estate Services Group in Tampa, which handles leasing and management at 100 North Tampa. “They know that LEED equals green equals cost savings.”

Yet while tenants press landlords to get green, the building owners themselves may have their own initiatives. Prudential Financial Inc., which has held title to 100 North Tampa since 2007, has its own environmental commitment program dubbed “Rock Solid Eco Smart” focusing on energy efficiency and renewable sources in its operations and investments.

Prudential gave the green light for LEED certification at 100 North Tampa in the fall of 2008, and just over a year later the Green Building Council put its medallion in the building's lobby.

The council awards various degrees of certification, from basic to platinum, though most owners of existing buildings aim for somewhere in the middle.

“With a building this age, we felt comfortable that silver was an attainable goal,” says Calvin Buikema, the building's senior property manager with CLW Real Estate. He adds that 100 North Tampa was only three points shy of attaining LEED gold certification.

Currently 97% occupied with major tenants including Regions Financial Corp. and law powerhouse Holland & Knight, it wasn't imperative for 100 North Tampa to seek LEED certification for the sake of attracting more tenants. The impact on the building's marketability remains to be seen, Buikema says, though “we have been short-listed a few times thanks to LEED.”

Seeing the savings
For the time being, owners of LEED buildings are able to demonstrate cost savings that result from certification-related changes, particularly on power bills. Just as expenses are customarily passed through to tenants, Buikema says they benefit similarly from price breaks.

Immediate benefits noted at 100 North Tampa include an estimated cost savings of nearly $24,000 annually by converting parking garage light fixtures to bulbs with electronic rather than magnetic ballast; a 75% reduction in the amount of office waste, now being recycled rather than sent to the landfill; and a substantial reduction in water usage by eliminating irrigation for landscaping, which relies on rainwater instead.

Buikema, who worked closely with LEED-accredited CLW broker Bryan Lauer on 100 North Tampa's certification, points out that some steps counting toward certification required only small operational changes.

For example, by providing air conditioning to offices on Saturday mornings only by special request, rather than automatically, the building saves an estimated $62,000 per year in utility costs.

As for the price of getting LEED certified, Buikema notes that only $5,800 of the $85,000 budget went toward hard costs, such as installing new low-flow restroom fixtures. The rest was used mostly to pay for personnel time spent specifically on the certification effort, an estimated 800 hours, as well as application fees.

Payback on LEED-related changes is anticipated in two to seven years, which Buikema says may eliminate the need for rent hikes at what is already considered a “premier” office address. Asking rents at 100 North Tampa are currently posted at $27 to $29 per square foot annually, while the average for Class A space in downtown Tampa is $23, according to Cushman & Wakefield of Florida.

The LEED competition
While 100 North Tampa has been able to promote its status lately as the city's only downtown office tower with LEED certification, and only the sixth in Florida, it won't be alone for long in its surrounding blocks. The 38-story Tampa City Center building, which has 735,000 square feet and is 85% occupied, has been pre-approved for LEED silver certification but is appealing for a few more points to reach gold, says Sandy Ballestra, the building's manager with Mainstreet Capital Partners.

Other large multi-tenant buildings in the Tampa Bay area that are seeking LEED status are M&I Bank Plaza, also in downtown Tampa; 4200 Cypress and One Urban Centre, both in Tampa's Westshore business district; and the City Center building in downtown St. Petersburg.

“There is a significant increase in interest by owners of existing buildings seeking LEED certification,” says Josh Bomstein, president of the Green Building Council's Tampa Bay chapter and vice president of business development at Clearwater-based Creative Contractors Inc. Better marketability of their properties is a factor, as is demonstrated savings on operating costs, he says.

A 2008 study by CoStar Group may provide more motivation for pursuing LEED certification by a private third party, instead of just going for the Environmental Protection Agency's popular Energy Star rating.

The study showed that LEED buildings commanded rent premiums of $11.33 per square foot and 4.1% higher occupancy than those without certification, versus a $2.40 premium and 3.6% higher occupancy in Energy Star buildings. Also, LEED buildings sold for $171 more per square foot, compared to $61 more for Energy Star buildings.

Of course, LEED buildings are on average going to be new buildings, which could account for some of the increase.

Gateway Bank goes green

Numerous smaller buildings along the Gulf Coast, particularly single-tenant office and retail structures, have sought and achieved LEED certification.

Sarasota-based Gateway Bank of Southwest Florida recently got the green stamp on its 4,500-square-foot Lockwood Ridge Road location, a former Regions Bank branch that opened in 1996.

Shaun Merriman, Gateway Bank president and CEO, says the decision to seek LEED certification was made while the building was being retrofitted for compliance with new state building codes designed to withstand hurricanes. He says the bank worked with Willis A. Smith Construction Inc., whose president, David Sessions, is on its board, as well as local architect Michael Carlson, a strong advocate of LEED design.

Changes to the building range from improved insulation to a new roof that absorbs less heat, with total payback estimated over four years. “It's saving us roughly $4,000 a year on our power bills,” says Merriman, who has also calculated that the LEED branch uses at least 40% less energy than its comparable Manatee Avenue office.

An added benefit, he says, comes from being able to maintain a comfortable office setting with the thermostat set at 77 degrees — a seemingly magic number for air conditioning.

“We're not as focused on the economic return as we are on environmental impact,” Merriman says. “It makes a huge difference. Not only that, but our employees like it.”

Gateway Bank, which launched its own green commitment nearly two years ago, decided to pursue basic LEED certification instead of metal-named levels because gold or platinum is more difficult to achieve with existing buildings, Merriman says. Its next attempt at certifying another branch may be another two years away, he says.

In the meantime, he adds that bank customers are being offered various incentives for making changes that consume less paper, such as converting to e-statements and performing other banking functions online: “This business sure kills a lot of trees.”

 

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