Why You Should Green-Certify Your Apartments

Almost everyone involved in building or rehabilitating apartment buildings is aware, at some level, of the various green building certification programs available. But many may not be aware of just how important certification is and the value it can add to a multifamily property.

Understanding Certification and Its Benefits

Although green certification programs define green building in slightly different ways, all include the following as either requirements or recommendations: energy efficiency, durability, indoor environmental quality, water efficiency, efficient use of materials and resources, waste reduction, sustainable site development, and walkable communities.

Energy Star, LEED, the National Green Building Standard, and other local and regional programs offer apartment owners many good reasons to certify their properties. For one, green certification provides very tangible benefits for both owners and residents. Owners can save money on construction costs and utilities, as well as maintenance and repairs over the life of the building, while tenants benefit from lower energy and water bills, quieter units, improved comfort, cleaner air, and a healthier indoor environment. Lower utility costs, in turn, can lead to easier tenant acquisition and better retention.

Durability measures included in green building programs can reduce long-term maintenance and repair costs through improved moisture management, which also serves to improve indoor air quality. A combination of installation techniques and materials selection results in less dust, dirt, mold, and mildew within units as well as lower transmission of odors and sound between units.

Careful design and construction also avoids excessive material use and waste. Designing buildings to standard material modules reduces the number of cutoffs needed, for example, while efficient construction techniques provide structural integrity while eliminating nonessential materials, thereby reducing costs and providing more room for insulation.

The process of green certification also assures owners and residents their building meets green standards as verified by a third party. For the owner, third-party verification can serve as an additional quality-assurance measure to confirm that the insulation, water management, HVAC, plumbing, and lighting systems are installed as specified, and that the materials used meet both project and program requirements.

Of course, energy and resource efficiency are another, chief benefit of seeking green certification. Water, for instance, is becoming an increasingly scarce and expensive resource. Water-efficient designs found in green buildings lower owner costs for common and outdoor areas as well as tenant in-unit costs. Similarly, sustainable site-development practices lessen the impact on waterways, limit storm runoff, and lower landscape maintenance and irrigation costs through the use of native and drought-tolerant plants. Avoiding environmentally sensitive environments and creating conservation easements, too, can simplify the permit and entitlement process and allow for higher-density development.

Lastly, green neighborhoods close to public transportation, stores, and other popular venues that residents can walk and bike to can command higher rents and better tenant retention as well as potentially higher resale value. Vibrant, pedestrian- and transit-oriented communities are also safer and can maintain their value even in declining markets.

Why You Should Have Your Buildings Certified

Kelly Vickers, national director of sustainability for Phoenix-based Alliance Residential Co., believes there’s market demand for green buildings from both renters and investors.

“Millennials, a key cohort of the rental market, see value in green apartments and sustainability-focused companies, and green-certified buildingscanhelp attract this key demographic,” Vickers says. “Also important is maintaining a well-educated leasing staff that can effectively communicate the green features and benefits of your community; marketing your certifications; and offering ongoing resident education and awareness events that inform prospective and current renters about your community’s sustainability.”

Vickers has also found that investors and partners increasingly want green-certified buildings in their portfolios. “Having green certifications can enhance your attractiveness [to] investors in terms of both new development and selling existing properties.”

Certifying can also help simplify the code and compliance processes. Regions where green building certification is required or strongly incentivized, for example, make it easier for developers to comply with green requirements and take advantage of utility rebates and tax credits. Energy codes are becoming increasingly more stringent, in some cases even exceeding some green building program requirements. Those companies experienced in constructing green buildings will find it easier to meet these new energy code requirements, with less effort and expense.

Simplifying the Certification Process

Companies that encourage or require certification of their properties have many opportunities to simplify and streamline the process, achieving certification more easily, resulting in better-performing buildings with less effort and cost. One challenge in the effort is failing to consider green concepts, program requirements, and options early on in the design process. When designs are completed without the input of the green building consultant who will be certifying the building, opportunities are missed, often needlessly increasing cost and complexity.

Most green certification programs encourage integrative design, providing credit for holding a full-day design review, or charrette, with the project team and green building consultant. Charrettes provide an opportunity to consider all options and their implications for cost, maintenance, and operational expenses, with the entire team providing recommendations. Along with engineers, architects, designers, and financial consultants, a green building consultant should be involved as early as possible, helping the team make better decisions that save money, improve performance, and streamline the certification process.

Building design analysis and energy modeling can help developers make cost-effective decisions early on. These techniques can reduce construction costs by replacing expensive features that don’t improve building performance with simpler, less expensive measures. These may include adding high-quality insulation; sealing ducts and air leaks; allowing for smaller equipment installations; and carefully locating and shading windows to manage heat gain optimally.

Once a project begins construction, training of installers and managers, and careful management of the entire process, is key to successful certification. Green building techniques, while often as simple as meeting energy codes and manufacturers’ instructions, are frequently not commonly followed on the jobsite. The construction team should review installation techniques for insulation, air sealants, HVAC and moisture management systems, and other work items as early as possible. Using a sample unit to inspect workmanship and make necessary corrections can save time and changes for the remainder of the project. Managers should be trained to inspect workmanship to confirm that it meets program requirements at every step to ensure that third-party inspections proceed smoothly with minimal rework required.

In many cases, the third-party inspections required for green certificationcan substitute for municipal inspections or other required code compliance testing or inspections. In regions where code testing of air leakage and duct leakage and code compliance documentation is required, these services are included in the green certification process, further reducing the cost to achieve a certified building.

Finally, collecting the necessary documentation for certification is a challenge for many project teams. To ensure that the necessary papers are included, developers should include delivery of all submissions for green certification in all contracts and subcontracts. These documents include materials content and origin, mechanical designs, equipment specifications, waste and recycling reports, and commissioning reports. Owners should manage the collection of this information closely and confirm receipt of all required forms before releasing final payments.

In the end, green certification, in many cases, entails little more than following building codes, energy codes, and recommended installation instructions, combined with good design and careful management.

Apartment market grows tighter, but rent increases slow

It's getting increasingly difficult to find an apartment in and around Portland, but new construction may soon bring some relief.

The apartment vacancy rate across the Portland area has fallen to 3.55 percent, according to a twice-annual survey of apartment owners and managers by the trade group Multifamily NW.

That means fewer units actively on the market and short turnover periods for those that are. Across the Portland area, apartments are rented out again in an average of 39 days. But in inner Southeast Portland, for example, the average vacated apartment is rented out again in just nine days.

That's good news for landlords, who don't want to see units out of commission for long. But it means fierce competition between potential tenants.

That's resulted in rising monthly rents for several years. The most recent figures do suggest, however, that the growth seems to be slowing.

Rents reached an average of $1.04 a square foot across the metro area, an increase of 4 percent compared with a year ago. But over the past six months, rents have increased by less than 1 percent.

An average one-bedroom apartment -- the most common apartment configuration in the survey -- now rents for $784 a month, the survey found.

The slowdown might be explained, at least in part, by growing competition from new construction, as well as rental houses and for-sale homes.

High rents and low vacancy have prompted a surge in construction. Apartment appraisers Patrick Barry and Mark Barry say more than 2,600 new apartments reached the market in 2012 in the Portland area and 5,300 are under construction and scheduled for completion in 2013 or 2014.

"Many developers have been champing at the bit to get back in the game," said Mark Barry, speaking Wednesday to members of Multifamily NW.

And construction is only accelerating, he said. Twice as many units are currently under construction as have been recently completed.

Despite all the new construction, Barry said, Portland isn't in danger of overbuilding -- yet. But the new units will slow rent increases and ease the rental shortage over the next 18 to 24 months.

"In 2013, we're in a sweet spot," said Barry. "When we get into 2014 and 2015, the apartment market will be more in balance. It will no longer be a landlord's market."

Meanwhile, investors are buying up single-family homes -- many from foreclosure -- to rent out. And real estate agents and homebuilders are making appeals to renters to become buyers by taking advantage of low interest rates and post-bubble home prices.

Regardless, investors remain bullish on rental housing, particularly as the homeownership rate falls and surveys suggest younger generations look more favorably on renting than did their elders.

"For capital looking to invest, apartments -- and especially the Portland apartment market -- offer a favorable opportunity," said Greg Frick, a partner with HFO Investment Real Estate in Portland.

Vacancy rates spiked in Hillsboro and north of U.S. 26, hitting 5.7 percent as newly constructed apartment projects reached the market.

But those developments target new hires as major employers in the area expand. As those expansions attract new residents, that rate is expected to fall.

Lake Oswego, West Linn and Clackamas also have vacancy rates over 5 percent.

At the other end of the spectrum, areas with vacancy rates below 3 percent include: Southwest Portland; the Tigard, Tualatin and Sherwood area; inner and central Southeast Portland; and North Portland. The Bend-Redmond area reported a vacancy rate of 2.1 percent.

-- Elliot Njus

U.S. Real Estate Market Is Back

After five long years of bad news, the prognosis for the health of the U.S. real estate market in 2013 is surprisingly strong. The largest real estate social network in the world, ActiveRain, recently surveyed 2,430 real estate professionals and found that there is great optimism regarding the future of the U.S. real estate market and economy. Since U.S. economic recoveries often come on the back of the real estate market, a rebound in real estate is a great sign for the economy as well...

The results of the aforementioned ActiveRain survey shows that agents predict robust growth in the U.S. real estate market and the U.S. economy as a whole in the upcoming year:

• 84 percent of agents believe that real estate values and the number of real estate transactions will increase in 2013.

• 77 percent believe that new construction starts will continue to increase.

• 74 percent believe that their local economy will improve in 2013 compared to 2012.

• No market is expected to see a decline in home values or real estate transactions in 2013.

... The survey found top investment opportunities for 2013 to be single-family homes as primary residences, rental properties, and multifamily rentals, in that order. read more »

Industrial Goes Green

Lance Ryan CCIM |CCIM Institute Magazine

In the last few years, building green has evolved from an idealistic concept shared by a niche group of developers to a mainstream phenomenon in the commercial real estate industry. Most tenants demand energy efficient, sustainable facilities while property owners are focused on improving building standards to keep up with the ever-changing environmental innovation curve. As a result, the U.S. Green Building Council’s Leadership in Energy and Environmental Design designation has emerged as the benchmark for environmental development. And industrial developers now are seeking out this certification for their properties.

Including Industrial
Historically, the perception has been that only build-to-suit office projects were eligible for LEED certification because industrial projects, many of which are speculative, were unable to fit into the narrow certification criteria. However, with USGBC’s multitiered approach to evaluation, industrial developers now have a valuable tool kit for obtaining this sought-after status.

The LEED program has four distinct certification levels based on a 69-point rating system. The system evaluates sustainable sites, water efficiency, energy and atmosphere, materials and resources, indoor environmental quality, and LEED innovation credits. The certification levels for LEED construction include LEED Certified (26-32 points), LEED Certified Silver (33-38 points), LEED Certified Gold (39-51 points), and LEED Certified Platinum (52-69 points).

The rating system is significant to industrial developers because its emphasis on mechanical systems -- such as heating, ventilating, and air conditioning -- typically is confined to large indoor environments with a higher density of employees. While industrial developers initially dismissed the option of earning certification points, attaining a LEED-Certified or LEED-Certified Silver designation for a spec industrial building is possible through the introduction of other sustainable building features and construction methods.

Employing these classifications as a template for constructing a green industrial facility allows for an a la carte approach to development, based on managing the design and construction process with the ultimate goal of achieving a specific certification level. As with any development project, experience and planning are paramount to this strategy’s proper implementation, as installing individual sustainable features in a cost-effective and efficient manner requires an understanding of the different product types.

For example, waterless urinals typically are not installed in spec construction, and on-site water retention often requires a higher level of advanced planning to accommodate for unique site conditions. As a result, pursing LEED certification begins even before project plans are drawn.

Green Industrial Features
As various green projects come on line, a new generation of industrial buildings is being constructed. Standard landscaping elements such as grass berms now are giving way to sustainable features such as bioswales, which are drainage systems that retain water onsite. French drains, which reduce water discharged into sewer systems also are a new sustainable feature for buildings. Meanwhile, interior elements such as clerestory glass, which provides ambient lighting and requires less energy; daylighting, which uses strategically placed windows and skylights to provide natural light; recycled carpet; non-volatile organic chemical-emitting paints and finishes; and energy efficient mechanical systems can reduce operational expenses and help earn valuable points for LEED certification.

Financing the Projects
While no disputes surround the benefits of these sustainable features, the common source of contention for green facilities is the perceived prohibitive cost. However, the continued mainstreaming of green building, complemented by financial incentives offered by some local utility companies, has helped to bridge the pricing gap.

Typically, the additional cost of building green industrial properties varies depending on the features included in the speculative construction. However, unbeknownst to many developers, some buildings possess inherent sustainable features in their initial design concepts.

This was the case in the Legacy Building Series, a brand of spec industrial buildings Watson Land Co. developed in the late 1990s. These buildings incorporated design flexibility, natural light, and interior lighting systems that adjust to external conditions. While the preeminent goal of this project was not predicated upon gaining LEED certification, the company found the spec buildings already included a number of features required for certification. These features included 3 percent skylight ratio, abundant use of clerestory glass in the warehouse area, and power-saving features such as warehouse lighting connected to photocells with automatic shutdown once ambient light is achieved. The existence of these features gave Watson a head start in gaining a LEED certification based on the existing spec building requirements. These energy-saving features also helped Watson’s Legacy Buildings attain a “Savings by Design” designation from Southern California Edison.

Though designing and building green facilities remains more expensive at the onset, there remains an opportunity to recover these costs once the facility is constructed. In the long run, LEED-certified products are expected to experience higher renewal rates and lower turnover and absorption time on the market. In addition to tenants making a push to become stewards of the environment, they also will benefit from a number of practical issues.

The increased energy efficiency of LEED-certified industrial facilities results in lower operating costs while also creating a healthier work environment. Once exposed to these sustainable environments, tenants may place a premium on remaining in the space for both the health of their business and their workforce.

Industrial real estate developers currently find themselves at the threshold of a new era in real estate. With LEED certification now a reachable benchmark for most new industrial facilities, both small and large businesses are making a push for green, finding that building sustainable product is finally financially justifiable.

Why Now Might Be A Good Time To Invest In Self-Storage REITs

What do you think is the hottest commodity on the real estate market right now? Buying a home, commercial real estate? Surprisingly neither. In fact, it may surprise you to know that thanks to a number of contributing factors, low capitalization rates being the largest, self-storage facilities are currently the biggest-ticket properties in commercial real estate.

Less than a year ago, cap rates on this type of space was around 7%, which was even lower than the 9% experienced during the financial downturn of 2009. However, a recent deal between Acadia Realty Trust and Storage Post signaled the beginning of even lower cap rates on these properties, ones usually found in deals with much more luxurious buildings.

For clarity, capitalization rates are determined by dividing the annual net income of a property by its price, which essentially tells an investor what the building yields on an annual basis. As the amount that an investor is willing to pay for a building rises, the cap rate falls. In other words, falling cap rates means rising values.

Other deals like the one mentioned above have become more common in recent months and have caused some investors to start taking notice of this growing sector.

According to Wall Street Journal real estate analyst A.D. Pruitt, “Self-storage facilities are now the biggest ticket properties in commercial real estate.”

Before that, self-storage had long been a sleepy market, one that consists of about 55,000 properties nationwide. Self-storage owes its growing appeal to a perception among investors that the industry is a countercyclical property type, based on peoples growing need for storage. Also since the debut of the popular reality show “Storage Wars” in 2010, the industry as a whole has been thrown into the limelight.

Rental and occupancy rates are also contributing to the growing interest of this sector. The industry now enjoys record-high occupancy rates of around 90%. In the El Paso and San Antonio markets for example, occupancies are holding strong in the high-80s and mid-90s respectively. Landlords also have been raising rents 5% or higher over the past couple of years on existing tenants, which as a result increases cash flow.

There are four publicly-traded REITs that make up the $34 billion self-storage REIT sector. These include Public Storage, CubeSmart, Extra Space, and Sovran Self Storage, all of which are beginning to expand as well by buying up these smaller facilities and pursuing far-reaching dominance in this real estate sector.

Operators are also benefiting from low competition because there is very little supply. Right now there are about 200 self-storage facilities currently under construction nationwide, compared with the 2,500+ facilities that were developed between 2003 and 2007. Until there is another wave of development that saturates the market, high valuations for self-storage properties are likely to stick for a while.

Over the last five years, there has been an average of $1.5 billion worth of self-storage investment sales each year. There was $2.1 billion worth of self-storage investment sales in 2012 alone–the most since 2007.

All things considered, it is easy to see that the self-storage industry is a prime market for investment and one that shouldn’t be slowing down anytime soon.