Shopping Centers Today -> February 2007
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MAKING SUSTAINABLE DEVELOPMENT PROFITABLE

DEVELOPERS PROVE THAT GREEN BUILDINGS CAN PAY FOR THEMSELVES

By Steve McLinden

A Green Age is dawning in the world of retail, in both the environmental and economic senses of the word. Sustainability, asserting itself in construction and basic business practice, is becoming more than just a feel-good initiative in the shopping center industry. It has begun to yield concrete, bankable results, particularly against the bottom-line impact of spiraling energy costs.

Just ask Wal-Mart, whose environmental enterprises are paying off much like the rest of its business model — in economies of scale, long-term profits and industry influence. Wal-Mart has been tinkering with environmental initiatives at a handful of sites since the mid-1990s, but its newer green-test stores in McKinney, Texas; and Aurora, Colo., are laying the groundwork for prototypes that will consume as much as 30 percent less energy, generate 30 percent fewer greenhouse gas emissions and reduce solid wastes by 25 percent, according to the company.

More stories ...
European retail properties set the green pace, blazing trail for U.S. peers

Stapleton development persuades tenants to go green

PNC a pioneer on sustainable building techniques

Charles Zimmerman, Wal-Mart’s vice president of prototype and new-format development, traveled the country last year speaking to business groups about the retailer’s green leanings. “I called it my shock-and-awe tour,” Zimmerman said. “People are shocked at the fact that Wal-Mart is doing all these things, and they’re awed at the payback.”

Those “things” Zimmerman speaks of include refrigerators that generate 50 percent less heat and no mercury; low-heat lighting sources; and bathrooms with low-flow fixtures and waterless urinals that cut water bills in half. Wal-Mart discovered nearly a decade ago that daylighting — a skylight-based system that dims store lights when daylight increases — pays for itself in two years. “Everything we do has a nominal payback,” said Zimmerman. “We don’t have a single initiative greater than a three-year [payback].”

Last year Wal-Mart invited Costco, Food Lion, Publix, Target and other major retailers to an environmental-products demonstration, and all attended. In fact, Wal-Mart has since encouraged its vendors to share its green-product specs with those retailers. “We hope to change the industry,” Zimmerman said, “not just by the volume we buy in, but by the information we’re sharing.”

The list of developers and retailers going green is growing longer. Last year Forest City Enterprises created the post of director of sustainability initiatives, two years after making sustainability a core company value. The firm gave the job to Jonathan Ratner, nephew of CEO James Ratner. Mainstreet at Northfield Stapleton, Forest City’s 1.2 million-square-foot, town center development in Denver, has since won the Silver LEED (Leadership in Energy and Environmental Design) certification from the U.S. Green Building Council, in part because of the environmental incentives it offers tenants. Mainstreet Northfield is the first such center to earn the distinction, according to the Green Building Council. “What we’ve found is that a lot of opportunities to achieve LEED objectives are inexpensive,” said Jonathan Ratner.

A 2007 report by Pricewaterhouse-Coopers and the Urban Land Institute, titled Emerging Trends in Real Estate, concurs. Though green projects can cost up to 10 percent more to build, the energy savings can approach 35 percent, the report says.

The success of Mainstreet Northfield has led Forest City to prepare highly detailed environmental manuals for the future, says Jonathan Ratner. Not that the firm will necessarily use these to earn LEED points everywhere it builds, he says, but “we’re stating that our projects and tenants should at least consider these standards.”

Topping Mainstreet Northfield in scope would be the proposed, “ultragreen” Destiny USA project, which would feature the expansion of the existing Carousel Center, in Syracuse, N.Y., into the country’s largest mall and resort. Destiny USA developer Robert Congel’s group, Pyramid Cos., says over 75 percent of the 13 million-square-foot development will be LEED-certified. The project will generate 13 tons fewer sulfur-dioxide emissions per day than ordinary facilities of comparable size, the developers say, and use bio-diesel-fired power and other renewable-energy sources, all in part to become eligible for $1 billion in tax-free bond financing. “In addition to becoming a visitor destination and the next natural extension of the lifestyle center, it will also be a high-profile demonstration project,” said David Aitken, a spokesman.

Even shopping center REITs are turning green. At General Growth Properties, green initiatives vary by location, but the use of reflective roofs, energy-management and environmentally friendly HVAC systems, and recycling programs are common practice, says CEO John L. Bucksbaum, SCSM.

Among General Growth’s next objectives will be the use of solar and wind power in new centers, says Bucksbaum. “I think people are ready to take action and make some of the sacrifices that are necessary,” he said. “We as an industry can’t continue on the same path we’ve been on.”

Meanwhile, dozens of retailers are adopting environmental strategies, among them Whole Foods, which has long embraced green practices beyond its sale of organic food. Last year the retailer agreed to buy renewable energy credits from wind farms to offset 100 percent of the power used in all its stores, offices and warehouses. These credits are like vouchers that ensure a company’s energy will come from wind-turbine-powered grids.

Whole Foods’ Sarasota, Fla., store received a silver LEED award, and four years ago its Berkeley, Calif., store became the first major food store to use solar energy for primary lighting. The company is also gradually converting its trucks to bio-diesel fuel and fitting them with aerodynamic aprons to cut wind resistance.

Giant Eagle’s three-year-old Brunswick, Ohio, store, which uses straw and wheat board in lieu of wood for cabinetry, cases and panels, was the first U.S. supermarket to achieve LEED certification.

Several dozen branches of Pittsburgh-based PNC Financial Services are now Green Building Council-certified, and the chain is seeking the LEED stamp for new branches. These branches use 45 percent less energy than comparable structures, the company says. PNC even helped spur the creation of a “portfolio” certification, which lets companies build the same green prototype repeatedly while enduring the rigorous LEED evaluation process only for the first building (see story, PNC a pioneer on sustainable building techniques).

Last year Starbucks bumped up its purchase of green power from 5 percent to 20 percent of energy consumption. Grocer Safeway became the biggest buyer of renewable energy last year in its home state of California. Roughly 10 percent of Staples’ U.S. power requirements come from renewable power sources now, while about 3,000 of its products incorporate recycled materials. The office-supply retailer’s warehouses use solar power, and about 140 stores are candidates for future solar installation, the company says. “We’re always looking for new ways to leverage alternative energy,” said Mike Black, a Staples spokesman.

Ben & Jerry’s boasts some long-standing environmental initiatives. These, which include the use of composting and the conversion of ice-cream byproducts into chemical-free fertilizer, are being trumpeted through the ice-cream maker’s Climate Change College, a noncredit program for green-minded young people that involves Web-based studies, lectures, conferences and field studies.

Even with these efforts, the U.S. has been slower to embrace green initiatives than many countries. This is partly because developer profits are rolled into the front end of projects and owners can charge energy costs back to tenants, says Sandy Cameron, executive director of environmental and technical services at Chicago-based Urban Retail Properties, a management firm with 40 million square feet of space in 20 states. “But now that people are starting to think green to make centers more efficient, [landlords] aren’t going to be highly thought of if they don’t offer a better product,” he said. “The retail industry can’t wait much longer. We’re running out of resources.”

Bucksbaum agrees. “Even if the payback period may not be as attractive, we have to look past today in these decisions,” he said.

Retailers, for their part, want to project a progressive image and will face increased pressure to select energy-efficient spaces, says Vuc Vujovic, director of sustainable design at Chicago-based Legat Architects. Alan Bombick, a Legat principal, has a similar take. “Because shoppers can get most of what they want on the Internet,” Bombick said, “they have to be given reasons for going to a store, and that’s where the quality of the environment becomes so important.”

Moreover, it is likely that the appraisal industry will start devaluing energy-deficient retail properties in the near future, says Kerry Mitchell, a spokeswoman for Tampa Bay-based Florida Green Consultants, which advises building owners on energy use and management of natural resources. Sustainable retail buildings “also seem to promote higher worker productivity, lower absenteeism and, in general, a better bottom line,” she said.

Within five years sustainable construction will become the norm, in part because of falling product costs, says Brenna Walraven, chairman-elect of the national Building Owners and Managers Association and national property management director at San Antonio-based USAA Realty Co.

“All the stuff you would have paid a double premium for a half decade ago is now getting price competitive, and the green learning curve is no longer such a steep one,” said Walraven. Retail developers whose architects or contractors tell them that sustainable building is prohibitively expensive “simply have the wrong providers,” Walraven said. “Companies can deliver on sustainability without significant additional costs by using the best resource-efficient designs from the very beginning.”

Some of the biggest potential energy savings lie in retrofitting older centers, which constitute about 95 percent of a market’s retail inventory, says Jeffrey Grossberg, a spokesman for Chicago-based Skysite Properties, which assembles teams of sustainability contractors to work on green projects. “Since the [developer’s] motivation is saving capital, the payoff is going to come to them in reduced operating costs.”

Wal-Mart’s Zimmerman says the industry has run out of excuses to avoid building energy-efficient, sustainable retail buildings. “For us as a developer, it is a no-brainer.” Wal-Mart will never stand pat on sustainable research, he says. Currently, the retailer is testing the use of building-foundation slabs composed of concrete aggregate with fly ash. It is also testing shopper-activated motion sensors for “spot” aisle lighting during nonpeak hours. All proven environmental initiatives will be rolled out to new Wal-Mart units and, when possible, get retrofitted into the older ones, says Zimmerman.

“Retail and the rest of commercial real estate needs to continue to push harder for green,” Walraven said. “It keeps expenses down, it’s good business, and, more importantly, it’s the right thing to do.”



European retail properties set the green pace, blazing trail for U.S. peers

Despite heightened efforts to color the U.S. retail world a brighter hue of “green,” a deep divide remains between U.S. and European shopping center developers and their environmental practices. For every green gadget and gauge introduced at a U.S. center, there are seemingly a dozen already in place at comparable buildings in Europe, where conservation has been de rigueur for decades.

An American strolling down the retail avenues of London or Paris is likely to notice a few conspicuous differences immediately. “In the U.S. it’s not unusual to walk down a busy retail street in the summer and feel the cool rush of air coming through the open doors of a store trying to entice customers inside,” said Jeff Erikson, U.S. director at SustainAbility, a London-based environmental consulting and research firm. But in Europe, where global-climate concerns have a greater influence on energy policy, “that would be seen as highly irresponsible,” he said.

This visitor to Europe also may detect the presence of light meters that gauge and adjust the brightness of rooms. Light-emitting diode (LED) bulbs, which have ultra-long life and put out less heat, make coat-wearing shoppers more comfortable and reduce cooling needs. Behind the scenes, other green components are at work. Rainwater recuperation tanks or solar panels may be present. In restaurant prep areas, refrigerators with smart controls temper nonpeak energy use. Just down the hall of a U.K. center, in the “loo,” waterless urinals (rejected by city codes and plumbers’ unions in the U.S.) conserve resources, as do commodes that use re-processed “grey water.”

Some center creators are taking things a step further. BeauGrenelle, a Paris shopping center that Warsaw, Poland-based Apsys Polska is building in a densely populated area near the Eiffel Tower, is voluntarily conforming to a rigorous, 14-point environmental checklist to become one of the first European shopping centers to get an HQE (High Quality Environmental) rating from the Building Scientific and Technical Centre. The HQE list includes the use of “planted” roofs; energy-efficient, double-glazed facades; noise-pollution abatement methods; organic paints; traceable recycling of construction waste; and the assimilation of the center into its natural environment.

Europeans seem to be less resistant to urban in-fill retail in their neighborhoods when holistic environmental construction packages are going to be used, says Stephen Pragnell, Apsys Polska’s managing director. Without such sensitivities, he says, inner-city projects will only become tougher sells “as more developers look to second- and third-generation properties, with [vacant] land at such a premium.” Green and sustainable measures also create residual cost savings and other long-term premiums for tenants, he says. “If your building product is not up to par as far as sustainability, then you will face the problem of less value in the future. [Retailers] won’t want to be in your center.”

Other new centers, such as Mediterranean Cosmos, in Thessaloníki, Greece; and Plaza Mayor, in Málaga, Spain; employ environmental-management systems that closely monitor energy use, air and water quality, and waste disposal, says Alvaro Portela, CEO of Lisbon, Portugal-based Sonae Sierra, co-developer of both projects. Regular energy audits assure optimal HVAC and lighting performance in these centers. Sophisticated timers moderate water consumption, and regular lab analyses monitor its quality, he says. Liquid effluents and other wastes go through specially installed pretreatment systems before they get discharged into municipal sewers. “We believe that economic and environmental success can coexist,” Portela said. “We also believe that to be a business leader in today’s world, it is necessary to also be a leader on environmental issues and create development that’s sensitive to the needs of current and future generations.”

This is not to say that such green components are unavailable in the U.S., but that real estate decision makers there pencil them in less frequently, because U.S. development and financing models place more importance on initial construction costs than lifetime operating costs, says Erikson. “It requires a high-level directive to change those priorities.”

There are cultural factors at work as well, Erikson says. “Europe has a history of collective action and responsibility to the community, while the U.S. was built more on ‘rugged individualism,’ ” he said. And these factors, he says, influence the way each culture views societal obligations. Further, European Union countries fall under the Kyoto Protocol, meaning their governments are obligated to reduce carbon dioxide emissions. “And they will speak out about it often,” he said. “In the U.S. you see no support from the federal government. In fact, [you see] open skepticism.”

Often U.S. corporate environmental responsibility is driven only by the desire to avoid litigation and cleanup costs, says Portela. “This has led to less best practices than in Europe,” Portela said.

Many owners of sustainable buildings in Europe use signage to help tenants and visitors understand the various green components, says Thomas Jaggers, chief technology officer of Los Angeles-based Jerde International, an international urban-planning firm with offices in Amsterdam, Hong Kong and Shanghai. Jaggers likens this approach to a U.S. citizen buying an environmentally friendly Prius hybrid as a green badge of honor. “Pride goes a long way in bridging some environmental and sustainable issues,” Jaggers said.

Green roofs with sustainable vegetation, largely anomalous in the U.S., are prevalent in Europe, says Jaggers. Studies suggest that roofs with living membranes last two to three times longer, he says, are less prone to wear and leakage, and diminish the “heat-island” effect — the spike in temperature around rooftops and paved areas with heat-radiating dark-colored and nonreflective surfaces. “The plants and soil absorb things that destroy roofs — the heat that makes them expand and the cooldown at night that makes them contract.” Vegetation also helps insulate the roof while providing more oxygen, he says.

Energy-efficiency and sustainability have long been considered value assets in Europe, says Jaggers. “But now that U.S. energy costs are coming in line with European energy costs, American management is starting to take a look at sustainability and the consciousness is rising,” he said. “As we see energy prices going up, we also have China, India and other developing nations competing for limited resources.”

Buildings currently represent 40 percent of the world’s energy demands, according to the World Business Council for Sustainable Development, which projects that such energy consumption will grow by 45 percent by 2025. “We know we are on the verge of seeing the end of petroleum, perhaps not in our lifetime but in the not-so-distant future, and we all have to think in terms of alternative means,” said Pragnell.

This is one reason continuing education on the subject is a must for Sonae Sierra and other European developers, says Portela. He has aligned his firm with the European Energy Efficiency in Buildings project, which is designed to reduce energy use through environmental efficiencies, and the Property Environment Group, a consortium of predominantly U.K.-based companies that share sustainability experiences and challenges.

Because the green culture is a comparatively recent phenomenon in the U.S. retail world, case studies and success stories here are still relatively few. This has kept American developers “from doing things that Europe has been doing for 15 to 20 years,” according to Jaggers. In Europe such studies have already made it clear that energy-saving measures in large developments “can and will add up to millions of dollars over a 30-year period.”

Energy-supply constrictions throughout Europe’s history have long forced merchants and builders to tighten energy budgets. “And that has resulted in far more prudent energy policies,” said Sandy Cameron, director of environmental and technical services at Urban Retail Properties, a Chicago-based management firm. “There’s no doubt Europe is ahead of the U.S. in that regard. Because energy has been so cheap and readily available here, we haven’t been pushed into that corner — until now.”

The prices of environmental building products may have seemed inordinately high in the recent past, but they are dropping quickly as production and demand increase, says Jaggers.

Portela says sustainability is not a regional issue. “It is our belief that no economic activity can take place in a vacuum, somehow unconnected from either people or the planet,” he said. “Doing business involves a constant evaluation of the interaction between economic, social and environmental objectives, and success requires a balance of all three. We [must] recognize that our business, like all human activities, has an impact on the environment.”

— SM



Stapleton development persuades tenants to go green

Brian Levitt stayed up nights devising ways to make Mainstreet at Northfield Stapleton one of the greenest shopping venues on the planet.

By day, Levitt, project developer of Forest City Enterprises’ 1.2 million-square-foot town center, oversaw development as the project rose on a runway at Denver’s closed Stapleton Airport. By night, he toiled into the wee hours on his own time and dime, poring through the LEED (Leadership in Energy and Environmental Design) standards set by the U.S. Green Building Council and creating easy-to-follow environmental manuals for the tenants.

But there was a potential snag. Though Forest City could construct shell buildings to LEED criteria, no U.S. developer had ever tried to persuade tenants to comply with the environmental standards, at least not on such a grand scale. But Levitt and Jonathan Ratner, Forest City’s director of sustainability initiatives and nephew of CEO James Ratner, were determined to make Mainstreet thoroughly sustainable. So Levitt took a chance. He created a 51-point environmental checklist and told retailers they had to comply with at least 17 of them. Those points included temperature-control efficiencies and the use of low-heat lighting and low-volatile-organic-compound paints.

“There was reluctance and resistance at first, almost across the board,” said Levitt. “But I had taken a lot of the pain out of the equation with the manuals. I knew that getting them to take time out of their busy schedule to do these things would be a challenge.” Levitt also dangled a carrot in the form of the Northfield Sustainability Tenant Incentive Program, which offered rent and advertising credits, on-site recognition and cash incentives through locally based Xcel Energy’s Design Assistance Program.

Tenants slowly jumped on board, and Mainstreet, which opened in October, became the largest environmentally certified open-air shopping center in the country, earning the Silver LEED award. Rick Fedrizzi, president of the Green Building Council, says Mainstreet not only inspired retailers to build sustainable stores, the project went well beyond LEED requirements “by creating a tenant handbook detailing how to build green, along with incentives to do so.” Among the 35 tenants that now boast sustainability symbols on their display windows are Aveda, Bath & Body Works, Brookstone, The Children’s Place, Pacific Sunwear and La Sandia.

Matthew Barnes, the Colorado Springs, Colo.-based architect for Aveda’s Denver stores, said the retailer “was super-excited about it because its products are environmentally friendly.” But there was practical gain as well, he says. The store’s high-efficiency lighting boosted energy performance by 15 percent. Visitors also get a sense of the big green picture at the center by reading the liberally placed, oversize signage created from salvaged runway signs at the old Stapleton airport. The signs point out the center’s sustainability elements — solar-heating panels, evaporative cold-water cooling systems, high-performance insulated windows, a computerized irrigation program to monitor soil moisture, and more.

Other energy-saving components include high-efficiency plumbing fixtures, sensor faucets and commodes that reduce water usage to the tune of 645,000 gallons per year. The center’s storm drainage flows into a detention pond where pollutants are filtered out before the water is emptied into a nearby creek. The project also takes full advantage of daylight harvesting, wind power, reflective roofs and low-water local foliage. Not only will tenants benefit from energy savings, says Jonathan Ratner, they will have a healthier environment for workers. And Forest City has a handbook for future green development. “I hope this town center was the first of many such projects, and it sets an example of what is achievable,” he said.

That is already happening. The project was studied in depth at the Green Building Council’s Greenbuild Conference, in Denver, in November. Levitt, who at age 35 is Forest City’s youngest development manager, says new generations of shoppers will come to expect sustainability in shopping centers. “I see a very green future,” he said, “in what we’re doing.”

— SM



PNC a pioneer on sustainable building techniques

Retail chains ranging from petite boutiques to big-box behemoths can now get their stores “green-stamped” — sans much of the old red tape, now that one of the biggest barriers to multilocation environmental certification has fallen. And they have branch-bank developers at Pittsburgh-based PNC Financial Services Group to thank, at least in part, for clearing the path.

For two years fast-growing PNC Bank pressed the U.S. Green Building Council to ease LEED (Leadership in Energy and Environmental Design) certification rules for en masse construction. Until late last year PNC and other LEED-conscious retailers were forced to submit reams of paperwork and endure exhaustive evaluations for each new location they built, even if they were duplicates of LEED-certified structures they had erected elsewhere.

But in November the Green Building Council created a bulk-certification program that kicks in once a company builds its first LEED-certified prototype. This, the Green Building Council and developers say, could result in a spate of eco-friendly construction in the near future. In fact, the Green Building Council is in talks with some major retailers, grocers and fast-food chains about multiunit certification, says Kimberly Hosken, the organization’s director of LEED for new construction.

PNC decided to begin building environmentally friendly branches in 2000, despite a LEED-compliance paperwork backlog, figuring that most branches would eventually merit either LEED Gold or LEED Silver ratings when the regulatory dust settled. And they have, says Gary Saulson, PNC’s director of corporate real estate. PNC soon honed its green model to a standard 3,600 square feet and began pressing the Green Building Council for a blanket-certification process. Realizing the potential impact, the Green Building Council moved surprisingly fast to green-light the program, Saulson says.

“From our perspective, it provides us with some degree of certainty and consistency,” Saulson said. “And it gives the Green Building Council a lot more velocity.” As part of the arrangement, the Green Building Council retains the right to spot-check new stores and audit their environmental-performance data. “That’s not a problem for us. We are totally an open book,” said Saulson. The initiative will help push many more multilocation retailers and service sellers to higher levels of environmental responsibility, Hosken says.

PNC, which operates 800 branches nationwide, now has 43 green branches completed or under construction and plans to build at least 80 more as it expands throughout its service areas of the mid-South and the East Coast. All the green branches are freestanding, and many are on shopping center pad sites.

Using LEED standards, PNC is enjoying energy savings of 25 to 30 percent per branch. “Multiply that by a 100 branches and you’re looking at an impact of millions of dollars in future energy costs,” said Brad Pease a project manager at Seattle-based Paladino & Co., PNC’s green consultant firm. “That alone is enough to make investors wake up.”

Part of the LEED-qualifying process involves demonstrating to customers and clients how green construction works. Because most elements of environmentally friendly construction are not obvious, the bank’s patrons sometimes ask tellers in what ways the branches are green. “There certainly aren’t dirt floors and people walking around in Birkenstocks singing Kumbaya there,” quipped Saulson.

What the questioners do not realize is that they are leaning on teller counters made of pressed paper or standing on floor tiles containing crushed glass recycled from landfills, he says. The windows repel heat in the summer and retain it in the winter, the carpeting and ceiling tiles are recycled, the insulation is more energy-efficient and the lighting systems maximize the daylight. Five-gallon water heaters replace the standard, roughly 70-gallon ones. “Who uses hot water at a bank branch, other than for hand-washing or for cleaning and maintenance? I mean, we’re not taking hot showers there,” said Saulson.

Under Saulson, PNC built the 650,000-square-foot Firstside Center headquarters in Pittsburgh, one of the world’s largest green-certified buildings, as well as the 441,000-square-foot PNC Eastwick Operations Center in Philadelphia.

Because PNC uses mostly premanufactured green components, the branches are built about six weeks sooner than usual and generate minimal construction waste, Saulson says. As a result, these branches cost about $100,000 less than similar-size competitors. “So much for green costing more,” said Saulson.

The process of applying energy-efficient and sustainable construction methods “really causes you to examine and challenge everything that you used to do and then find ways to do it better,” Saulson said. The cost of environmental products is dropping quickly, says Thomas Hicks, vice president of the Green Building Council. “In the past there was a premium paid for them when the market wasn’t fully mature,” said Hicks. “But the scale these kind of companies and organizations are working at is bringing economic benefits on both hard and soft costs.”

Green awareness in the U.S. retail industry is higher than it has ever been, says Hicks. In fact, attendance at the Green Building Council’s Greenbuild Conference in Denver in November was about 14,000. At the first conference, in 2002 in Austin, Texas, attendance was only a few hundred. Representatives from all walks of the retail world were present in droves at this year’s meeting. “It is obvious,” says Hicks, “that green has become a part of the retail industry’s DNA.”

— SM

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