- Apr 18, 2013
Sustainability Expert Tom Paladino Evaluates Progress Toward the New Industry Standard
Tom Paladino founded Paladino and Co. in 1994 as a consultant on green building and sustainability. He helped develop the U.S. Green Building Council’s LEED green building rating system, directed its pilot program and has been technical editor and author of the version 4 reference guides. The company has provided both design and technical advice to a wide range of clients globally, including some of the biggest developers of green buildings, at the single-building and portfolio/enterprise levels. Paladino spoke with CPE editorial director Suzann D. Silverman about the commercial real estate industry’s progress in achieving sustainable design and what still needs to be addressed
Q. How do you see approaches among U.S. commercial real estate developers and owners changing toward sustainable design?
A. The definition of sustainable design is expanding to include planning, operations and asset management. The green building and sustainable design conversation really came out of the service providers, in many ways—first, the engineers and architects, and to some extent a few owners. But why there’s a new building, where there’s a new building, who’s going to sit in the new building, who’s going to run it afterwards and how do we know how to manage it, especially if it has new design features, is really the expanded conversation that seems to be happening among the leading commercial real estate groups. And by leading I mean those that are busy.
Some of the ones that are busy, which surprised us a little bit—but maybe not if you think about it—are the industrial facilities that might be involved in food production or food service. Everyone continues to eat, so we have a lot of industrial facilities that are getting on the green bandwagon but have really different characteristics than, say, knowledge-based, workforce office. …
And then, the service providers—architects and engineers and green building consultants—are pretty interested in this idea of net-zero, which is a building that can stand on its own from an energy or water point of view. But the commercial real estate sector, particularly in this economic climate, is pretty lukewarm toward that because it just doesn’t have a strong business case right now.
Q. Do you think that’s just a temporary situation because of the economic climate, and as the economy improves that will change again?
A.The thing we’ve observed around some of the net-zero projects—and we’ve worked on a couple—is that it requires such a fundamental translation on the basics, like a useable floor area-to-systems floor area, or area of window wall-to-floor area served. It really challenges the comparables that other buildings are budgeted and designed around in such a transformative way that until the business climate gets better, it’s too big a reach for most commercial real estate projects.
Q. What are developers focused on?
A. We are seeing a growing interest in portfolio programs … particularly in the retail environment. That’s the end result of design expanding to include planning, operations and asset management. It’s just a larger span inside commercial real estate that’s beginning to address sustainability.
What’s interesting about the portfolio programs is that there are two sub-trends. One is that we’re seeing increased executive sponsorship around those initiatives: The sustainability thrust is coming from a real estate executive, a director or VP. High in the food chain, not the grassroots uptick we saw in the previous five years, which was really about the building and how we make it and how it performs on its own. This is an executive thing: There’s some proof of concept around that idea with one building; let’s apply it to our many in a way that lines up to the second sub-trend, which is, how can it improve business results for the enterprise around real estate?
Certainly in the last six months, it’s been a noticeable change. So something is thawing out there. Either the (corporations) are realizing this is the new reality and we’ve got to keep moving with our expansion, which requires real estate activity, or they’re making a market move, which is, we’ve acquired our No. 3 (competitor), or we’ve merged with another company to gain size and now we’ve got two disparate real estate portfolios that we have to somehow put together. And sustainability is a driver for the enterprise, so how are we going to embed that in real estate, especially as we consolidate people and processes? …
If we think about the industry meeting objectives generally, it seems like commercial real estate is a little bit stalled on “what do we do next with sustainability?” … (But) there is a lot of, I think, innovation or experimentation or examination of “how does sustainability help our enterprise win? And how does real estate contribute to that?” … There was a great vocabulary established with LEED and a lot of green building professionals created through the USGBC’s continuing ed program, more than any other sector. There’s nothing like that for product design. There’s nothing like that for workforce innovation. And there’s not that much around supply chain that’s as big as green building and LEED within the commercial real estate industry. So in a way, real estate can lead (corporate America) toward “here’s what works.”
Q. Do you feel that the commercial real estate industry has the right objectives?
A. It seems like LEED’s been a great proxy, but it’s somewhat become table stakes for a lot of commercial real estate. And now the question being asked is, How beyond just certification does it create business results? An example of that would be, there have been hundreds of buildings created under the LEED program that have attempted to accomplish—or have accomplished—the daylight credit. You know, daylight the floor areas so you can turn the electric lights off. You get more productivity out of the workforce if you do that. But where is the data around it? Has it worked or not? And if it does work, shouldn’t we be hitting that out of the park? I mean, commercial real estate knows how to measure a leasable area. Everyone kind of agrees on the formula, so there’s some way to move forward on optimizing that. But there isn’t a lot of agreement around what’s the right shape and block-and-stack and floor-area ratios to create a daylit building that really responds to the productivity gain that we all think is happening but nobody’s really measuring yet.
Q. So there really hasn’t been much focus on achieving some basic standards for what works best?
A. Right. And any feedback on what is working best. I think that’s one of the crazy anomalies of the real estate industry: that it’s a huge industry that builds projects or products, if you think about it, with a revised process every time. Every building’s a custom build. I know the industry strives for standardization, but putting the parts together—the different site, the different owner needs, the different design team combinations—it’s highly customized. And there are industry standards on what’s the formula for optimization … (but) that’s about measuring what got put in place, not what happens after it’s there and how it performs. That’s less studied. When you make a car, when you design a new car—like a new hybrid, where you change the engine out and put in batteries—it’s a pretty big custom job. And then the auto industry knows how to innovate and then measure and refine and release and refine and release, whereas with commercial real estate, it’s like, “Well, that was an interesting project. We flipped it and made money. Let’s go do another one.” There’s not a lot of introspection or formal feedback.
Q. Where do you still see the biggest need for improvement? And what concerns you the most?
A. There is some missing capability in the field. There are 200,000 LEED APs out in the market right now, and they are the predominant green real estate experts because there aren’t any others, so they dominate. But they’re somewhat focused on LEED, which is an energy and environmental performance play—it’s not particularly lined up to business results, nor is it lined up to the way commercial real estate is developed, say, inside the Fortune 1000 space.
So a lot of experience around one-off buildings, but it’s not yet easily transferrable to the real estate pipeline, particularly one that’s growing year over year, one that’s dynamic. So you have a miss in terms of the professional service or the talent on commercial real estate in that we’ve got the environment and energy performance part figured out. There’s a new real estate executive on the job coming out of the C-suite, someone who’s trying to line up real estate to corporate social responsibility and global reporting and carbon. But there’s nobody who knows how to really link it all up; there is no professional that’s tasked with that.
The biggest need for improvement I see is that next generation of professionals really has to learn how to work closer than ever—design plus development, and that would include, under development, enterprise driving the program, facilities management driving the operations of the project, and construction building
it the way that is most flexible for the future.
There’s a lack of an overall strategy when sustainable real estate portfolio programs get out of the gate these days. Mostly what’s happening, or what we see, is a notion of, well, if it worked great on one or two or 10, let’s do it on all. And then the spend to do that gets significant and nobody’s really measuring, well, are we spending effectively from a business results point of view—beyond that we’re good guys and we’re building buildings in line with our core values around corporate social responsibility?
Q. Do you think that’s the next phase? Do you think people are starting to realize they need to do that?
A. What’s happening is that the enterprise and product development and market share initiatives that most Fortune 1000s have learned to do quite well around their core competency is showing up at the real estate executive team level in a way they haven’t seen before. I think that’s the significant change or the readiness question for commercial real estate execs: Can I line up to that process? Do I understand enough about sustainable design and how the building can affect enterprise and produce results well enough to put it into that business case format? …
There’s a higher hurdle for real estate to get over than in the past, when their view was, “Well, you know, we have a certain amount of dollars on our balance sheet in real estate and we’re kind of trending along and everybody’s fat and happy with business as usual.” I think that’s the change we’re seeing.
Q. And with a multi-tenant building you’d have to find ways to measure performance that can apply to all the different types of tenants, as well as the property owner.
A. We could look at that a couple of ways. One is, what is the purpose of the owner? For a real estate investment trust or a developer of build and hold, it’s probably something around, “How do I maximize my building performance with a disparate set of users that are all over the map in terms of energy use or hours of occupancy or modes of transportation to and from the building—where I have an old-school company where maybe everyone needs to drive and then I have a young upstart company where everyone wants to ride their bike.”
How do you handle cars and bikes, because parking spaces are really expensive to build and bike racks are not, but then you need showers, which are also expensive to build.
How does the product change to accommodate the dynamic and the shifting workforce would be the question that the developer would need to answer. … What if growth was not about the old world model, where growth equals more square footage? You’d have a small tenant you’d hope to move from suite A to A plus B, and then A plus B plus C. What if it was, “Well, I really need to accommodate their growth in terms of can we densify rather than get more square footage?” Is there a way to provide amenities that will have more workstations that are touchdown points that maybe are in a common area rather than the leased area? Is there a way for me to allow them to grow one per seat versus doubling up on desks until it’s completely unworkable and then they finally take some more space? Or what often happens is they change buildings.
As a developer with office space, do I need to become more versatile around IT, because if I can locate them in buildings I already own and you add expansion space through an IT connection, is that another way to grow a tenant? As a tenant, do I let people work from home but beef up the amenities at the office so I attract them to the office, where the collaboration happens, and yet not have to pay for the real estate that I typically would in the old model?
Q. Where has the commercial real estate industry made the greatest progress?
A. You can’t go to any commercial real estate conference where there isn’t either a sustainability track or it’s actually the theme of the entire conference. It seems to be very well established as a core element, not a fad or a trend. I think most people think it’s here to stay. And I think that’s true because the drivers for sustainability at the meta level, at the industry or even at the societal level, are real.
Climate change, regardless of the source, seems to be here. It’s not predictable the way it used to be. The introduction of technology in the workplace and the changing age shift in the mean worker are creating demand for a lot more mobility. Employees view themselves as self branded, and they move their talent around to where the best opportunity is. It’s not like you go and work for someone for a long time and retire out of there. That model’s gone. And energy and water demand issues are acute, and our population continues to grow, and we continue to put demand on energy use for information technology, which takes it away from other sectors. So that pressure’s not going away. That’s why we’re seeing so many renewable energy projects around the country: is the growing awareness that we need new energy sources.