This is the second in a series of excerpts from a panel discussion at the 2013 Multifamily Executive Conference. (Read the first article here.) Moderator Jerry Ascierto, editor-in-chief of Multifamily Executive, interviewed CEOs from the multifamily housing sector.
Participants on the panel included: Eric Bolton, CEO, MAA; Ed Pettinella, CEO, Home Properties; Tom Toomey, CEO, UDR; Bill Bayless, CEO, American Campus Communities; Tom Bozzuto, CEO and chairman, The Bozzuto Group; and Rick Graf, president, Pinnacle.
Green building is not always a phrase, strategy, or philosophy that is embraced in the residential construction industry because it has political connotations. Politics aside, and looking from a business perspective, what role does it really play? The CEOs were asked to share their take on the importance of green to their businesses:
Bayless is in a sector of residential construction that places a high value on green building:
“This is very relevant to our business in that so much of the work we do is on college campuses where green is valued—we’ve actually done about $1 billion of green redevelopment. We have 5 LEED Gold facilities and 8 LEED Silver. It’s good business in many cases if you’re very prudent in the initial planning. It makes good economic sense when you get into some markets. Green can mean good business.”
Outside of the student housing market, Graf, president of Pinnacle, said he is "very mixed” on the subject of green building. He agreed that there could be benefits related to operational efficiency, but eventually it all comes down to money:
“At the end of the day, it’s about green–the other type of green. Will a renter pay you a nickel more in rent? Other than in a handful of markets like Portland, Ore., Boulder, Colo., maybe Seattle, and parts of Austin, Texas, the answer is no. They won’t pay a nickel more rent. While they may want it, they aren’t willing to pay for it.
The other side of that is what’s happening in the investor community. We see that series of environmental questions on our property management RFPs with institutional investors. I think there’s certainly institutional pressure.
From a foreign capital standpoint, we do work in other parts of the world. The reality is the U.S. is way behind Europe as it comes to this issue of being really, really efficient with our energy. We all know it’s a good thing to do, but the question is does it make economic sense? I’m mixed on it to be really frank.”
Bozzuto agreed that “renters don’t and won’t in general pay for it.” But on the other hand, he said that there is growing expectation of a green standard among consumers like college students who lived in green housing and city-dwellers. His issue is more with the certification process than with the concept of building green:
“Certainly in major urban areas, I don’t think there’s a choice now (about building green). I think the choice is whether you allow yourself to be extorted by the LEED certification people, or if you just build a green building? I don’t think the customer differentiates between a building that you tell them is built to meet green building standards or a LEED certified building. I don’t think 99% of the customers know the difference or care, but I do think they expect to hear the word 'green.'”
Adding another element to the mix, Toomey, CEO of UDR, said he believes that we’re going to see a carbon tax in the next decade. Such a tax could potentially increase building costs, and as such, he warns builders that "if you're building something new, you better put the cost in now."
Graf shared similar concerns about government intervention:
“Clearly the administration has shifted its focus and attention to the multifamily space. We participated in some discussions with the Department of Energy and it's definitely looking at multifamily housing and how we can have significant reductions in our utility spending. That sounds to me like regulation.”