Is Green Commercial Real Estate a Smart Investment?

One lesson I have learned over the years is that for-profit commercial real estate investors are bottom-line oriented.       If an investment meets one’s financial goals, the investor considers it;   if it does not pencil-out the investor strikes it from the list.     So what about investing in Green?   Does it make financial sense to invest in green commercial real estate, such as buildings which generate renewable energy from the sun?     And if you already own a property should you consider ‘greening’ it with through the addition of renewable energy features?

While the answers to these questions are unique to each property and to each investor, there are clear benefits to commercial green buildings:

These conclusions are backed up by academic research into Responsible Property Investments, RPI for short.     Gary Pivo, Ph.D,  Professor of Natural Resources and Senior Fellow in the Office of Economic Development at the University of Arizona, along with two of his colleagues, recently published a working paper on this topic  entitled,  Investment Returns from Responsible Property Investments:    Energy Efficient, Transit-oriented and Urban Regeneration Office Properties in the U.S. from 1998 to 2007.

In this study, Pivo and his colleagues compared returns on RPI buildings to Non-RPI buildings.   They concluded that investors in RPI buildings earn the appropriate risk-adjusted return for the class and location of the property.     In other words, they make bottom-line financial sense to the private, for-profit investor.   The paper concludes with:

“At least for U.S. office buildings, the record shows there is no penalty for investing in energy efficient, transit-oriented and urban regeneration properties;  and in the case of energy efficiency, returns are generated at lower risk.”   

There is growing momentum behind developing energy-efficient buildings as the cornerstone to the emerging green economy.   Here in 2004 Colorado voters passed Amendment 37 requiring electrical utilities to create renewable energy which led to Xcel’s rebate program.    Federal tax credits are in place to incentivize installation of renewable energy building systems.    Xcel Energy has chosen hometown of Boulder to be its first “Smart Grid” city which enhances the capabilities of buildings to place electrical energy back into the grid.   Now academic research, such as Pivo’s study, supports the conclusion that green commercial buildings make financial sense in addition to their social and environmental benefits.