It’s 2012, and if nothing else that means business dealings heretofore unimaginable in commercial real estate may now be more commonplace than you think.
Consider, for example, a lease negotiation between a prospective tenant and a landlord going something like the following:
“I want you to agree to replace that aging HVAC system with one that’s energy efficient, the build-out should be done with all recycled materials and, please, retrofit our bathrooms with low-flow toilets. Oh yeah, and I want you to hire a cleaning company that uses only environmentally-friendly, non-toxic cleaning supplies. And if any of those terms are broken, I reserve the right to break my lease.”
This is neither a transcription of a landlord’s worst nightmare, nor is it a tree-hugging tenant’s wet dream. Instead, it’s something that’s slowly becoming more commonplace with tenants large and small. It’s called green leasing.
Give & Take
As one might expect, there are numerous environmental and financial benefits for landlords and tenants alike that choose to buy into the idea, according to Carolyn Kaplan, chief sustainability officer for Boston-based law firm Nixon Peabody – the first local firm to have such a position. The financial benefits include potential tsavings in operating costs, government incentives, tax credits and potential carbon emissions credits.
Green leases can be comprehensive, addressing energy and water resources, air quality, natural light, purchasing practices, waste management and a broad range of other issues, Kaplan told Banker & Tradesman in an email.
But it’s not only landlords responsible for maintaining a sustainable property. Regarding a green cleaning regimen, the lease could specify that the tenant is responsible for doing its own cleaning, in accordance with some specified green standards.
“Both options are equally workable, but it’s important that both parties have a clear understanding of what is meant by ‘green cleaning supplies and practices,’” Kaplan wrote. “A green lease must clearly state whether the landlord or tenant is responsible for the various environmental requirements.”
While the sustainable goals of green leasing are all well and good, some type of tracking and accountability method needs to be agreed upon to ensure both parties are holding up their ends of the bargain. If the lease mandates the tenant must upgrade its space to a green building standard, the lease could give the landlord right of entry and inspection to ensure compliance. If so, the tenant may opt for those inspections to be done by an unbiased third party auditor, Kaplan offered.
“It’s more than just having an efficient building,” said Jonathan Keefe, senior vice president with investor and tenant-focused commercial real estate firm Cassidy Turley in Boston. “There are a lot of subtleties that transcend the building’s standards. Not only do I want my landlord to operate in a green fashion, but I also want to ensure that my co-tenants are operating in a green fashion.”
Finding a landlord that is environmentally-conscious in the first place is a pretty good start. New York-based Brookfield Office Properties, which owns Boston’s 75 State Street, has adapted its standard, nationwide lease to be more sustainable from the start. The company doesn’t force green onto prospective tenants, but it is encouraged.
‘Obvious Incentives’
But that encouragement is sometimes unnecessary with major tenants, since so many of those large users have already made the jump to sustainability on their own, according to David Cheikin, vice president of leasing for Brookfield’s New York and Boston regions. Brookfield finds the culture of many major commercial users matches Brookfield’s – including the use of green cleaning products and making energy-efficient lighting mandatory.
“The real discussion comes down to who’s going to pay for a retrofit if it’s required,” Cheikin told Banker & Tradesman. “There are obvious incentives to the tenants financially to be more energy efficient because the tenant is the largest consumer of electricity in the building. The more we can reduce expenses and the less energy they can use … translates to a direct savings for their bottom line. But we leave it up to the tenant when it comes to what they install in their premises. But it’s good for the world. Often it’s good for the building financially. And it’s always good for the image of the property and the occupier.”
One local real estate tenant benefiting from a green-conscious landlord is also in the business of analyzing the business. Gregory Vasil, CEO of the Boston-based Real Estate Finance Association, said his group got lucky when they moved into their One Center Plaza digs about two years ago. One thing that was important to his group was energy efficient lighting.
So all the new lighting in their space was put on motion sensors that turn off lights when no one is in the room, as well as low-flow toilets. But their landlord, Equity Office Properties, goes even further by providing monthly updates on how much waste is being recycled in the building, floor by floor.
“Some people that work in the building actually dig into the trash if they see plastic utensils in there and toss them into the recycling bin,” Vasil said. “The owners really make it easy to do.”
