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GREEN GOALS

LANDLORDS ARE DRAMATICALLY EXPANDING THEIR COMMITMENT TO SUSTAINABILITY

By Steve McLinden

So what's happening these days in sustainability development? Perhaps what isn't happening would yield the shorter list. “Green” practices, which were practically a nonissue in much of the shopping center world as late as 2006, have moved to the front burner for REITs and retailers and the cities in which they do business.

In the past year or so, most of the major retail REITs have created executive posts and launched green initiatives to facilitate their sustainability development efforts. Adding to the push: the need to be more cost-efficient, pressure from Wall Street for environmentally conscious business practices, enhanced networking in the industry and, of course, those ever-high energy prices.

“The industry has accelerated from 20 miles an hour to 85 miles an hour, and it isn't letting up,” said Jeffrey Grossberg, principal of Chicago-based GreenWorld/Skysite Property, who coordinates the Green Zone trade expo at ICSC's annual spring convention. This year the Green Zone will be four times larger than it was at its debut last year. It will also be the second-largest green-trade presentation in the U.S., next to the annual Greenbuild show in Chicago, he says.

Meanwhile, retail REITs are greening at a rapid pace. Regency Centers says it plans to invest $100 million in environmentally certified shopping centers this year, $200 million in 2009 and $300 million in 2010. “That will be important, but we also feel we have to do more than just build green, so we've decided to embrace sustainability as a corporate culture,” said Scott Wilson, Regency's vice president of construction. “That includes our centers, headquarters and 21 offices around the country.” In February Regency hired Mark Peternell, formerly of Forest City Enterprises, as vice president of sustainability.

Regency will seek LEED (Leadership in Energy and Environmental Design) certification from the U.S. Green Building Council on several projects, including the under-construction Shops on Main center, in Schererville, Ind., and the planned Jefferson Square, in La Quinta, Calif. Daylighting, reflective roofs and high-efficiency energy and ventilation systems will be among the LEED elements at these projects. Also on Regency's LEED drawing board is the Shops of Santa Barbara (Calif.), on which the firm is working with the USGBC to develop step-by-step sustainable construction and benchmarking standards. “From our perspective [the green elements] will make our properties more desirable for cities and tenants,” Wilson said. “They may carry a little extra cost, but tenants seem to be willing to trade a little higher rent for long-term energy savings.”

Macerich, too, is planning a number of LEED projects. The firm will seek LEED certification on its planned Estrella Falls regional center, which is slated to open in Goodyear, Ariz., in 2010, and also on redevelopments of The Mall at Northgate, San Rafael, Calif., and Santa Monica (Calif.) Place, among others. “We're finding that it's much more cost-effective to be sustainable than it used to be,” said Jeff Bedell, vice president of operations at Macerich. “We're thoroughly reviewing operational protocols and themes to put together a corporate sustainability plan and really commit to this.”

Macerich is integrating new lighting, energy management and sustainable materials, Bedell says. “We're taking a very aggressive approach at both the corporate and field levels and are setting qualitative and quantitative goals we can monitor and report over the next 10 years,” Bedell said. The investment community “has made it clear that it wants the industry to spend more time and resources on sustainability.”

Simon Property Group, NAREIT's Leader in the Light Gold winner in 2006 for “superior sustainable energy-use practices,” is committed to staying ahead of the curve, says George Caraghiaur, Simon's vice president of energy services.

Simon says it has cut energy consumption by nearly 10 percent since 2003 in portions of its centers not under the contractual control of tenants. Energy expenses constitute about 30 percent of Simon's controllable operating costs, but the firm says it has saved about $18 million a year in such costs.

Though new centers are more energy efficient, older buildings still dominate the national retail landscape. This is why conscientious property management is more significant than ever, says Caraghiaur. “The EPA has done energy-use studies with new and old buildings and come to the conclusion that building management is more significant than building age, or the equipment in it,” he said. Simon property managers monitor energy usage at their shopping centers, and later this year the firm will start issuing progress reports for the common areas and other sections of a shopping center under its direct control, as part of a program in conjunction with the EPA.

Developers Diversified Realty Corp. has introduced green strategies at some of its lifestyle centers, including cardboard recycling, use of hybrid security vehicles, sponsorship with local power companies of tenant seminars and the elimination of unnecessary after-hours lighting. Ideas under consideration include urging restaurant tenants to avoid use of Styrofoam cups and retail tenants to eliminate plastic shopping bags.

Last year conservation measures helped save General Growth Properties enough electricity to power up about 5,000 U.S. households, says Lisa Loweth, who was named GGP's vice president of sustainability early last year. These measures included using white reflective roofs and high-efficiency HVAC systems and shifting the schedules of the cleaning crew to daytime. Further, the firm estimates that it recycled some 56 million pounds of cardboard last year. GGP bought 600 waterless urinals for its centers last year and says it plans to start using green cleaning products, among other measures. “This is just a start,” Loweth said. “I can't image centers running out of sustainable opportunities. This will be an ongoing responsibility for the industry.”

Forest City, which in 2006 built the Shops at Northfield Stapleton, in Denver, one of the first LEED centers in the U.S., is preparing for LEED certification in several other centers, including the mixed-use Ridge Hill, in Yonkers, N.Y., and The Uptown, in Oakland, Calif. “All stakeholders in the industry continue to move the needle on sustainability,” said Jonathan Ratner, Forest City's director of sustainability initiatives. “Retailers are starting to put more explicit demands on landlords for [green] core-and-shell buildings, plus we're seeing more and more companies throughout the industry get on board as they recognize the financial benefits of sustainability.”

Ratner says dozens of retailers have expressed interest in the USGBC's portfolio certification program, which allows them to build LEED prototypes without duplicating the paperwork and evaluations on each new project. “They are very enthusiastic about this,” he said.

Ratner says he expects several retail-centric USGBC programs will be finalized in the coming months. Besides the portfolio certification program, which could be completed by December, these include LEED for New Construction and LEED for Commercial Interiors, which could be available by late summer and November, respectively. Drafts of these programs are accessible at www.usgbc.org.

Justin Doak, USGBC's manager of LEED retail, says operational savings, competitive concerns and opportunities to connect with customers are driving sustainability among retailers. “Almost every major retailer is either advocating or moving to green,” Doak said. “Many see it as an extension of brand equity. And as they change their prototypes and make renovations, they are finding that green doesn't have to cost more.” Developers are also working much harder to bridge gaps with their tenants to create synergies, he says. “The ones that build and operate, not build and flip, are the ones that will be able to take these measures a step further.”

And though Europe remains ahead of the curve with regard to sustainability benchmarks, new refinements are in the works there, observers say. The European development model takes sustainability into account in the early planning stages, unlike in the U.S., because European Union countries play a greater role in construction and building regulation than American firms do. Since the mid-1990s, most new construction in Europe has had to meet certain energy-consumption requirements, prompting European architects to view sustainability as both a theme and a moral responsibility, says Grossberg.

Jaap Gillis, COO of Netherlands-based Redevco Europe Services and chairman of ICSC Europe, is helping to create a European shopping center sustainability charter. Gillis' newly created sustainability workshop will be a focal point for industry leaders, consultants and service firms at the ICSC Europe Conference, in Amsterdam in April, says Stephen Pragnell, group director for international relations at Apsys Polska, Warsaw-based subsidiary of French commercial retail developer-operator Apsys Groupe. Additionally, ICSC Europe has encouraged pan-European acceptance of the established, U.K. environmental assessment called BREEAM: BRE Environmental Assessment Method. Several retail developers plan to implement a series of pilot projects across Europe using this standard later this year. Redevco has 11 green projects on the drawing board for Belgium, France, Germany, the Netherlands, Turkey and the U.K.

In the U.S. the willingness of Wal-Mart and Target to share their green technology with other merchants helps drive best practices and reduced green costs, says Kent Jeffreys, ICSC's legislative counsel for global public policy. “Still, it can cost a company as much as $1.80 per square foot [extra] to jump over the highest LEED hurdles,” Jeffreys said. Even if centers and retailers are not building for LEED certification, their spaces are still routinely constructed to far higher performance standards than a few years ago, Jeffreys says.

There are still numerous challenges ahead for sustainable retail, says Grossberg. Vegetative green roofs in some locations have created pigeon problems, while pervious pavement, designed to allow storm water to drain into a water table below, has torn up the bottoms of shopping carts when improperly installed, he says. Moreover, long-term lease agreements, anchor-owned spaces and a broad array of different cost-sharing lease agreements in existing centers can complicate things when owners try to pencil in sustainable retrofits.

Still, retail has “taken an enormous leap from where it was to where it is,” Grossberg said. “And there's a movement to centralization that will give these folks an even higher level of efficiency.”

Regency's Wilson said, “From our perspective these efforts will make our properties more desirable for cities, which will invite us in because we're doing sustainable development, and for tenants, because they want to do the right thing and save on energy costs in the process.”