By Jon Pharris, co-founder and president, CapRock Partners
Electric vehicles, solar energy, locally grown food and paper straws. Signs of protecting the environment and a commitment to sustainability are everywhere we look these days, and industrial development is no exception. Gone are the days of clunky old warehouses, dark inefficient spaces offering little-to-no architectural detail, limited technology and alarming rates of water and power consumption.
The warehouses of today are environmentally sensitive, sleek and more energy efficient. Building sustainable structures is no longer just a trend. It’s now standard for successful institutional industrial developments throughout the Western U.S. In fact, sustainability efforts are becoming the prevailing practice in value-add industrial. Many municipalities and utility companies are offering various rebates to help transform older, inefficient buildings into more modern, environmentally sensitive projects that benefit the community and help attract high quality tenants.
Environmental requirements are just as prevalent outside the U.S., and with for real estate investment flooding into the country, the push for greener buildings is stronger than ever. Added pressure from shareholders and government entities are encouraging global corporations and institutional capital sources to seek new ways to reduce carbon emissions while meeting environmental, social and governance (ESG) criteria. Corporations with multiple distribution centers see utilizing green industrial warehouses as a way to achieve company-wide environmental goals.
The emergence of the Leadership in Energy and Environmental Design (LEED) rating system in 2000 set the benchmark for green building standards for commercial development. The U.S. Green Building Council assesses a building’s level of energy conservation, indoor air quality, use of recycled and recyclable materials and support for reduced-carbon commuting options before deeming it LEED Certified, Silver, Gold or Platinum.
In California, which has some of the strictest environmental building requirements in the country, new developments must comply with the California Green Building Code, also known as CalGreen, which is close to the base level of LEED Certification. Adhering to CalGreen means including features that today seem obvious such as solar panels, skylights, electric power charge stations, LED lights and water efficient landscaping, in addition to some unexpected items like dishwashers in speculative office areas.
Not only are LEED certified and CalGreen buildings resource and energy efficient, they also emit less carbon into the atmosphere, providing healthier, more enjoyable spaces for people to work in, which in turn increases productivity.
So, while building green is better for the environment and promotes a healthier work place, what does it mean for the investor? Does building to the highest degree of environmental stewardship always make sense?
The short answer is that there is no one-size-fits-all formula for green industrial buildings. Developers and investors of these properties need to carefully weigh business objectives, among many other factors, before diving in head first to a LEED-certified plan, which can be very timely and expensive. For institutional investors such as real estate investment trusts (REITs), sovereign wealth funds and global corporations who invest over the long term and are trying to meet shareholder objectives, the additional investment is usually worth the added cost. Aside from providing a more pleasant environment, LEED certified buildings operate more efficiently, reducing expenses and potentially leading to higher lease rates.
However, when it comes to securing industrial leases, most tenants don’t have a corporate mandate to only lease LEED certified spaces. Depending on a property’s location and target tenant, going through the extensive process and cost to achieve LEED certification does not always translate to a higher lease rate, quicker absorption time or better tenant credit. Unfortunately, the financial benefits of developing or retrofitting an existing asset to be LEED certified are difficult to quantify precisely.
CapRock Partners’ Colony Commerce Center, a three-million-square-foot Class A industrial development, is an example of a project where achieving LEED certification is an essential component of the development and marketing strategy. Developed in two phases, and in partnership with global real estate investor Ivanhoé Cambridge, the project is located in what is considered to be ground-zero for e-commerce and warehouse distribution in the Western U.S., Southern California’s Inland Empire. Colony Commerce Center is centrally located along major logistics transportation routes and will appeal to large-scale global commercial-caliber tenants when complete. In order to provide a competitive product among other new state-of-the-art facilities, investing to include the latest in highly efficient green technology and achieving LEED certification is necessary. The project incorporates such features as enhanced mechanical and electrical systems, ultra-low water-use fixtures and low volatile organic compounds such as paint, in addition to high-efficiency LED lighting and electric vehicle charging stations, among others.
As we progress through the e-commerce evolution and the demand for clean, technology driven, energy-efficient facilities continues to increase, green buildings will remain the standard—as long as they continue to generate preferred returns for investors. Today’s record-low vacancy and growing lease rates in most submarkets validate the expense of “going green.” CapRock Partners is currently under construction on approximately four million square feet of industrial space, with another 3.5 million square feet slated to commence in the next 12 to 24 months. Most of these buildings will either be CalGreen compliant or LEED Certified.
Electric vehicles, solar energy, locally grown food and paper straws. Signs of protecting the environment and a commitment to sustainability are everywhere we look these days, and industrial development is no exception. Gone are the days of clunky old warehouses, dark inefficient spaces offering little-to-no architectural detail, limited technology and alarming rates of water and power consumption.
The warehouses of today are environmentally sensitive, sleek and more energy efficient. Building sustainable structures is no longer just a trend. It’s now standard for successful institutional industrial developments throughout the Western U.S. In fact, sustainability efforts are becoming the prevailing practice in value-add industrial. Many municipalities and utility companies are offering various rebates to help transform older, inefficient buildings into more modern, environmentally sensitive projects that benefit the community and help attract high quality tenants.
Environmental requirements are just as prevalent outside the U.S., and with for real estate investment flooding into the country, the push for greener buildings is stronger than ever. Added pressure from shareholders and government entities are encouraging global corporations and institutional capital sources to seek new ways to reduce carbon emissions while meeting environmental, social and governance (ESG) criteria. Corporations with multiple distribution centers see utilizing green industrial warehouses as a way to achieve company-wide environmental goals.
The emergence of the Leadership in Energy and Environmental Design (LEED) rating system in 2000 set the benchmark for green building standards for commercial development. The U.S. Green Building Council assesses a building’s level of energy conservation, indoor air quality, use of recycled and recyclable materials and support for reduced-carbon commuting options before deeming it LEED Certified, Silver, Gold or Platinum.
In California, which has some of the strictest environmental building requirements in the country, new developments must comply with the California Green Building Code, also known as CalGreen, which is close to the base level of LEED Certification. Adhering to CalGreen means including features that today seem obvious such as solar panels, skylights, electric power charge stations, LED lights and water efficient landscaping, in addition to some unexpected items like dishwashers in speculative office areas.
Not only are LEED certified and CalGreen buildings resource and energy efficient, they also emit less carbon into the atmosphere, providing healthier, more enjoyable spaces for people to work in, which in turn increases productivity.
So, while building green is better for the environment and promotes a healthier work place, what does it mean for the investor? Does building to the highest degree of environmental stewardship always make sense?
The short answer is that there is no one-size-fits-all formula for green industrial buildings. Developers and investors of these properties need to carefully weigh business objectives, among many other factors, before diving in head first to a LEED-certified plan, which can be very timely and expensive. For institutional investors such as real estate investment trusts (REITs), sovereign wealth funds and global corporations who invest over the long term and are trying to meet shareholder objectives, the additional investment is usually worth the added cost. Aside from providing a more pleasant environment, LEED certified buildings operate more efficiently, reducing expenses and potentially leading to higher lease rates.
However, when it comes to securing industrial leases, most tenants don’t have a corporate mandate to only lease LEED certified spaces. Depending on a property’s location and target tenant, going through the extensive process and cost to achieve LEED certification does not always translate to a higher lease rate, quicker absorption time or better tenant credit. Unfortunately, the financial benefits of developing or retrofitting an existing asset to be LEED certified are difficult to quantify precisely.
CapRock Partners’ Colony Commerce Center, a three-million-square-foot Class A industrial development, is an example of a project where achieving LEED certification is an essential component of the development and marketing strategy. Developed in two phases, and in partnership with global real estate investor Ivanhoé Cambridge, the project is located in what is considered to be ground-zero for e-commerce and warehouse distribution in the Western U.S., Southern California’s Inland Empire. Colony Commerce Center is centrally located along major logistics transportation routes and will appeal to large-scale global commercial-caliber tenants when complete. In order to provide a competitive product among other new state-of-the-art facilities, investing to include the latest in highly efficient green technology and achieving LEED certification is necessary. The project incorporates such features as enhanced mechanical and electrical systems, ultra-low water-use fixtures and low volatile organic compounds such as paint, in addition to high-efficiency LED lighting and electric vehicle charging stations, among others.
As we progress through the e-commerce evolution and the demand for clean, technology driven, energy-efficient facilities continues to increase, green buildings will remain the standard—as long as they continue to generate preferred returns for investors. Today’s record-low vacancy and growing lease rates in most submarkets validate the expense of “going green.” CapRock Partners is currently under construction on approximately four million square feet of industrial space, with another 3.5 million square feet slated to commence in the next 12 to 24 months. Most of these buildings will either be CalGreen compliant or LEED Certified.
