Union Square’s Silver Linings

240 Stockton San Francisco The Registry real estate

San Francisco’s Bently Holdings, landlord of historic office properties, requires tenants to be certifiably green.

THIS ARTICLE WAS PUBLISHED IN THE ‘Q’ – THE REGISTRY’S PRINT PUBLICATION – IN OCTOBER 2013

By Brett Goetschius

[dropcap]S[/dropcap]an Francisco commercial property owner Bently Holdings wants to burnish its brand as landlord of historic, architecturally significant office buildings by requiring all new tenants at 240 Stockton St. to attain Silver level certification for their offices under the Leadership in Energy and Environmental Design program.

Bently is setting the pace by attaining LEED for Existing Buildings’ Gold certification for the 1908 art deco period structure and by fitting out its own 7,000-square-foot headquarters office to achieve LEED Platinum.

[quote]Evidence mounts that green buildings—those that are LEED or Energy-Star certified—carry a detectable market premium that is expressed in better rents and sales prices.[/quote]

It is the second Bently office building in San Francisco—the first was Bently Reserve at 301 Battery St.—where the landlord has set environmental standards for tenants. The 10-story Stockton Street structure on the east side of Union Square has a Gucci store on the ground floor and a mezzanine level with about 40,000 square feet of commercial office space above. To win over doubters, Bently is offering $20 a square foot for tenant improvements to pay for LEED-related expenses, said Bently property manager Anne Hill.

“This is a first for us, and one of the few buildings we are aware of across the country where tenant build-outs are required to be LEED certified,” said Jake Arlein, sustainability consultant and partner at San Francisco’s Environmental Building Strategies. Arlein’s firm led the LEED certification program at 240 Stockton.

How enticing the all-LEED requirements prove to occupiers is being revealed now. “It’s a slow process for tenants to see the value in choosing a green building and doing a LEED build-out, but that’s changing,” Hill said. “The number of tenants who seek green buildings is still small but growing. We see it becoming the norm over time.”

Evidence mounts that green buildings—those that are LEED or Energy-Star certified—carry a detectable market premium that is expressed in better rents and sales prices. Buildings lost value overall in the downdraft of the recession—San Francisco’s commercial rents dropped 30 percent and New York City’s went from $65 a foot to $42. But green buildings’ values dropped less, according to a study published in March in The Review of Economics and Statistics, a publication of Harvard College and the Massachusetts Institute of Technology.

Scientists from the University of California, Berkeley, and the Netherlands’ Maastricht University, including Berkeley’s John M. Quigley, looked at the U.S. office building stock in the country’s 15 largest markets from 2007 to 2009.

Rents in properties with LEED or Energy Star ratings averaged 3 percent higher than comparable unrated properties, and properties with LEED scores of 60 (the minimum threshold for a Gold certification) or better achieved rent premiums of 20 percent more. Upon sale, LEED and Energy Star-rated buildings garnered 13 percent higher prices, on average, than similar unrated properties, the study found.

The stock of green buildings in the 15 largest U.S. metros by office square footage also skyrocketed in the two years. In 2007, only one office metro market nationwide—Houston—showed more than 20 percent of its office building square footage as green; two years later, 10 of the 15 U.S. metros had more than 20 percent of their office stock labeled as green. Nearly 40 percent of the buildings in the Denver metro were considered green in 2009. A third of the office buildings in the San Francisco, Houston and Minneapolis-St. Paul metros were green by 2009; not quite a third were in Seattle.

The market also is clearly alive to the nuances in value associated with a building’s lesser or greater “greenness:” “Among green buildings, increased energy efficiency is fully capitalized into rents and asset values,” the study found. “… [T]he size of the Energy Star premium is affected by both the vintage of the label and the contractual arrangements for payment of the utility bill made by tenants and building owners,” it says. A building with both ratings fares the best.

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Photography by Laura Kudritzki

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