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LEED Certification: Could “Going Green” Increase Your NOI?

October 24, 2016

How LEED certification can give office buildings, strip malls, condos, data centers and warehouses a competitive edge in today’s real estate market.

Leadership in Energy and Environmental Design (LEED) is the most widely used third-party verification for green buildings in the world. The U.S. Green Building Council (USGBC) estimates that approximately 1.85 million additional square feet of buildings are being certified each day. Here’s why various types of properties — such as office buildings, strip malls, condos, data centers and warehouses — at various stages of development seek LEED certification to gain a competitive edge in today’s real estate market.

What’s in a Name?

The USGBC used to review all submissions for certification. Today, however, the responsibility for reviewing submissions lies with the Green Building Certification Institute, a nonprofit organization created with support from the USGBC.

The Green Building Certification Institute rates each project using these criteria:

  • Sustainable site development,
  • Water savings,
  • Energy efficiency,
  • Materials selection, and
  • Indoor environmental quality.

Then, based on the number of points achieved, the applicant may receive one of four LEED rating levels: certified, silver, gold and platinum. Compared to previous versions of the certification, today’s version — LEED v4 — requires simplified documentation and includes user-friendly online tools, such as revised certification reference guides for builders, architects and consultants; video tutorials and presentations; and credit calculators.

How Can Going Green Earn More Greenbacks?

Even under the simplified version, completing the paperwork for LEED certification can be time consuming and costly. The USGBC charges a flat registration fee and a certification fee, which is based on a project’s size and the rating system the project was registered under. Moreover, energy-efficient upgrades can be costly. So, if you decide to go green, expect your LEED-certified project to be more costly on the front end — then you’ll reap the benefits later.

Developers and builders can leverage a LEED certification to increase a project’s net operating income (NOI) in three ways:

  1. Greater cash inflows. LEED-certified rental properties may reap a premium rental rate, because tenants value the eco-friendly benefits. Likewise, when it’s time to sell, the property may be more attractive to potential buyers.
  2. Lower vacancy rates. Some tenants may be drawn to an energy efficient property over similar properties without a LEED rating. More desirable properties typically have lower vacancy rates than nearby comparables.
  3. Reduced operating costs. Another major upside is the future savings in utility and water costs. You may even qualify for tax incentives on certain energy-efficient upgrades.

Thinking About Going Green?

Before you launch a LEED project, it’s important to understand the rating system and evaluate the project’s financial feasibility. Contact our team of real estate specialists for help putting LEED certification to work for you.

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