David Zucker’s interest in green building started in a Dumpster.
“Every Friday, I’d see a container full of what I knew was usable stuff being hauled away to the landfill,” he recalls of watching (and paying for) the weekly disposal of construction waste from one of his early multifamily projects. “I just wanted to save some money on building materials by trying to be less wasteful.”
That purely proprietary goal quickly evolved into a wholesale commitment to green building, one that’s resulted in sky-high returns and retention rates, lower operating costs, higher rents, and satisfied tenants and investors—all for a premium of less than 2 percent of overall development costs.
By the end of the year, Zocalo Community Development, co-founded by Zucker and business partner Chris Achenbach, will open 2020 Lawrence, a 231-unit rental property in Denver’s downtown core that will target professional Gen Y renters with smaller units, lower rents, and a higher level of energy savings, indoor air quality, and comfort than any previous Zocalo building. “It’s the next-highest point of our sustainability arc,” says Zucker. “We’re interested in turning toward rentals that are more achievable for more people.”
That direction aligns well with the coming wave of Millennials as they start their careers and seek communities that share their environmental sensitivities. In fact, 19 percent of Gen Yers are willing to pay significantly more for green, according to a Capstrat-Public Policy Polling survey, a much higher percentage than any other generation.
Sealing the Envelope
Like Zucker, Portland-based developer Ed McNamara is keenly focused on achieving high levels of energy, water, and other resource efficiencies. Unlike his Denver counterpart, he’s obligated by HUD and other public financing partners to rent at below-market rates.
His secret to building affordable high performance begins with an understanding of basic building science. “You start by trying to reduce the demand for energy with a tight envelope,” he says, using a systematic and computer-modeled assembly of structural, insulating, air-sealing, fenestration, and cladding components that reduce both air and moisture infiltration and thermal transfer. “That’s where you need to make the smartest decisions to get the most impact for your money.”
That reasoning applies to new buildings as well as existing ones. For its adaptive-reuse projects, in which the company transforms historic and iconic industrial/commercial buildings into modern multifamily properties, developer Village Green makes sure to address and improve the envelope first to reap downstream benefits.
“By nominally increasing the thermal value of the walls, we are able to reduce the HVAC equipment size by 5 percent or more,” says Shawn Zimny, vice president of development for the Farmington Hills, Mich.–based firm. “That not only affords an up-front savings for the equipment, but also reduces our operating expenses later.”
The envelope is so important to McNamara that he doesn’t keep track of whether the system he ultimately installs carries a cost premium. “It’s just what you need to do,” he says, to achieve the 50 percent energy-use reduction he wanted for The Ramona, a 138-unit rental property his Turtle Island Development company built in downtown Portland, Ore. At The Ramona, a studio apartment rents for about 55 percent of the market’s median and tenants enjoy monthly utility bills that are half of what they paid elsewhere. “It makes more sense to reduce the demand first,” before installing energy-efficient HVAC equipment and appliances, he says.
Only after McNamara settles on the envelope and calculates the proper size and highest performance possible for a few key mechanical systems does he turn his attention to indoor fixtures and finishes—what he calls “the gadget stuff,” such as solar and recycled-content surfaces—that supplement his sustainability goals and message. “I’ll replace them in 10 years, and by then they’ll be more efficient, more available, and cheaper.”
Premium Rents for Taking the LEED
Zucker estimates that offering a LEED-certified building and all its benefits to “tree-huggers, dollar-huggers, and health-huggers” netted him a 6 percent to 9 percent premium on rental rates for Solera, a 120-unit, LEED-certified project that opened a block away from 2020 Lawrence about two years ago, in addition to another 3 percent to 5 percent for the project’s enviable location.
“The last 30 units we leased were about 15 percent above the competition,” he says, noting that such premiums helped easily surpass his pro forma projections.
He attributes that success mostly to savvy marketing and the ecumenical attraction to all that a high-performance building delivers. “It doesn’t take a long conversation to find out a tenant’s priorities,” he says, whether it be environmental, financial, or personal health. “Green building has something for everyone.”
Including investors. Zucker turned a 1.5 percent cost premium to build Solera to a LEED-Gold level into a record per-unit sale price in the state of Colorado, providing returns that beat the initial pro forma of Principal Real Estate Investors and its Green Property Fund, a money pool earmarked specifically for LEED-certified projects.
The lack of mainstream investment in green, however, baffles him. “Most of the green funds went away during the recession, which is completely incongruous with investor concerns about durability of cash flow and owning a quality asset,” he says. “That’s what green buildings are, and we’ve proven that.”
McNamara is similarly sensitive. “Forget if you believe in the ecological benefits of green building,” he says. “It just makes good business sense for affordable housing to build something that lowers and controls my operating expenses and my turnover.”
As Millennials continue to flood the market, building green will make even more business sense. “The fact that the property was built using green products and is equipped with energy-efficient appliances and fixtures is extremely appealing to a potential renter,” says Zimny. As evidenced here, properties that don’t offer those benefits are already suffering in the shadows of those that do.
Rich Binsacca is a freelance writer in Boise, Idaho.