The commercial landlord-tenant relationship can be adversarial, with split incentives and other hurdles to implementing energy efficiency upgrades. Two real-estate pros share their experiences from the front lines of sustainability and offer their advice for fostering collaboration.
THERE’S A gap in perceptions about what is the most important activity for creating a greener workplace. In an instant poll at a conference session on green real estate, audience members ranked energy efficiency and indoor air quality at the top of the list. Tenants don’t share that perception.
“Occupants tend to focus on visible, tangible measures, like recycling and water use,” says Robert Best, EVP with commercial property manager Jones Lang LaSalle. Tenants give low rankings to energy efficiency and IAQ because they can’t see the waste happening.
It is also considerably more complicated and costly to save energy or improve air quality. Occupants do of course value fresh air and natural daylight — but they can more readily see a clear path to recycling water bottles.
“Make it simple,” advises Michael Tobin, sustainability director for Cresa, a real estate advisor that represents tenants. “Tenants only change spaces once every several years, so landlords need to educate us about green options.” But don’t overdo it.
He points to the multi-volume fit out guides provided by landlords to new tenants. They include information about how to make the workplace greener, like recyclable carpets and energy-efficient lighting. The amount of information can be overwhelming.
“Sustainability pros want every detail in there, but prioritizing it will improve uptake,” Tobin says. “Condense those three giant binders down to one.” When tenants actually read their fit out guide they sometimes find green ideas they had not previously considered.
ASIDE FROM the leased square footage, a building’s overall green features also matter to new tenants. Existing occupants might not be willing to pony up for capital improvements, but new tenants have demonstrated that they will pay more to be in a green building.
How much more? The audience overwhelmingly answered, in another instant poll, that they would pay between one and five percent more.
“That’s consistent with a recent McGraw-Hill Construction survey,” Best says. “Fourteen percent of tenants said they would pay between two and three percent more.”
“I’ll pay more if you can demonstrate the benefits to me,” adds Tobin. “If I’m going to pay more, show me the money. If I can see how the building’s aggressive green programs align with my business philosophy, then the benefit can even be qualitative, like IAQ.”
“Capital projects need to be in the lease,” Tobin says. He recommends getting prospective tenants engaged to think about green features before the lease negotiation begins.
In-place tenants with grandfathered leases still can be a roadblock when it comes to capital improvements. Even progressive tenants don’t want to be the only ones paying for energy efficiency upgrades when other tenants get a free ride.
Tenants will be more willing to pay for green retrofits if the financial benefits can be shared. Tobin suggests finding ways to pass rebates through to tenants, or giving credit on common-area maintenance and operations bills when certain efficiency targets are achieved.
Even in the case of existing leases, landlords can get cooperation. Best notes the example of a building where tenants were asked to join a sustainability board of directors. It was an effective forum for communication, he says, and it got tenants to cooperate.
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Resources:
- BetterBricks’ free 9-page PDF “Leasing & Energy: Allocations” guide
- Energy aligned lease language from NRDC and NYC
- Green Leases Toolkit from California Sustainability Alliance
- BOMA International’s “Green Lease Guide“
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Tobin and Best staged a point-counterpoint discussion titled “Bridging the Gap: Owners & Tenants Drive Efficiency Together” at the 2012 Greenbuild International Conference and Expo in San Francisco last week. Bob Best is responsible for client sustainability programs at JLL. Mike Tobin helped to write the USGBC guidelines for LEED Commercial Interiors. Moderator Cara Carmichael launched RMI’s RetroFit Depot.
Energy Priorities 