Looking back over the past 15 years, one of the keys to success of brownfields cleanup and reuse efforts nationwide has been the use of collaborative models for policy development and implementation. Brownfields advocates brought together expertise from a wide range of disciplines to work together to develop comprehensive solutions to issues such as liability, voluntary cleanup programs, financing structures, and investment in disadvantaged communities. The cumulative effect of these efforts has resulted in a sea change in the cleanup and real estate development markets.

More recently, the focus of many brownfields efforts has broadened to include green buildings and sustainable redevelopment (for this article, we will use the term “green development”), which can lead to lasting benefits to the environment, society and the economy.

In Chicago, we have concluded that the tools necessary to promote cleanup and redevelopment of brownfields are the same tools that would enable the broader real estate market to appropriately value green development. For example, incentives for green buildings at brownfields are equally applicable to sites that do not have a history of contamination.

So, when faced with the challenge of how to encourage widespread adoption of green development practices, we looked back to our experiences with the 1994-1995 Chicago Brownfields Forum. For this process, we assembled a diverse group of experts knowledgeable about many aspects of the development field to help us identify the barriers and generate ideas and solutions to begin making green development the norm rather than the exception.

Getting the Green Light
According to the June 2006 McGraw Hill Construction Report, green buildings made up 2% of new construction at that time, but will increase to about 10% of market share by 2010. While this growth is impressive, we should consider why a much greater proportion of construction and renovation is not being conducted in a green manner. This concern is especially relevant in light of some of the most urgent issues we are facing including energy prices, climate change, and depletion of natural resources.

Buildings, of course, are where we live and work; in fact, a 2004 U.S. EPA study found that we spend over 90% of our time indoors. Green development strategies have historically reflected this fact and focused on site-focused strategies such as energy usage, materials, waste, water conservation, and indoor air quality. However, buildings do not exist in a vacuum, but are a part of the community where they are located. Development patterns in communities dictate how we get around, whether there is access for all citizens, traffic patterns, and the environmental impacts to our air, land and water. Consequently, reusing existing properties and infrastructure through the redevelopment of brownfields is a key component of sustainable redevelopment.

In late 2006, U.S. EPA Region 5 partnered with the Delta Institute and the Northeast-Midwest Institute to initiate a process for examining market barriers to green development practices. While higher cost is frequently cited as a major barrier to investment in green development practices, we believed that the already complex building development process is made even more difficult when green building issues are thrown in. So we set an objective to examine which current market dynamics inhibit mass adoption of these practices, and what can and should be done to make green buildings the convention—rather than exception—across the U.S.

The Removing Market Barriers to Green Development initiative engaged diverse professionals who are directly involved in or support the development field to help us identify barriers and the changes that are required to begin making green development practices the norm. These professionals participated in two workshops, where they identified major green development barriers and outlined strategies to overcome these barriers.

Following the workshops, several working groups, graduate research students, and subject matter experts helped us dig deeper into the issues to further develop ideas, recommendations, and specific projects that can help change the market for green development practices. A summary of these results from the first workshop (Identifying Market Barriers to Green Development) and our set of Green Development Principles is presented below.

Five Areas of Resistance
The goal for the first workshop was to identify and describe the most significant market barriers to green development practices. In order to achieve this goal, we brought together a select group of approximately 50 experts who are familiar with both conventional and green development projects. The participants included architects, attorneys, appraisers, bankers, brokers, developers, equity providers, owner/operators, and others who are directly involved in the real estate development process.

Many of the barriers identified during the first workshop, whether actual or perceived, can be attributed to multiple failings within the market to recognize the value of green development. However, we found that the overriding reasons for most barriers fell into one of five major categories.

Knowledge gaps in green development quantification
One of the major barriers that participants cited is the need for reliable performance, cost and benefit information of green features. Without this information, it is difficult for the market to justify the occasionally higher upfront costs for a green development project. Quantification of energy savings, lower utility bills, building longevity, lower environmental impacts, and the public health benefits of green developments over those that are conventionally built, including information on a regional level, is required if green development is to move from a being a niche market to the norm for construction projects in the U.S.

Communication shortfall
Participants from the first workshop offered a range of thoughts that point to misconceptions and uncertainty about green development and failures in the communication chain regarding the benefits associated with such projects. Developers cite a lack of demand from consumers for such features. Consumers, especially those in the residential sector, typically place higher value on amenities such as added space or finishes over less visible features such as energy efficiency, and may do so because they lack an awareness of existing alternatives or the range of benefits that could be realized from green properties. Those who oversee or facilitate the exchange of property from developer to occupants—brokers, appraisers and property search specialists—rarely possess the data, tools, or knowledge necessary to convey the value of green features to buyers or tenants.

Ownership structure and operating cost responsibility
Ownership and standard lease structures determine who captures the benefits from green features, primarily in terms of associated cost savings. Unfortunately, the beneficiaries of cost savings are often not the decision makers in charge of design, improvement and development decisions. Under typical short-term lease or ownership structures, there is little motivation for the developer to build or install energy efficient, transit friendly, or storm water management features that have significant benefits over the longer-term.

Funding issues
When evaluating projects, equity and secondary markets often use criteria that are geared more toward conventional developments rather than green developments. For example, time horizons are usually not long enough to capture the performance benefits that accrue over time from upfront investments in green features. Also, it may be difficult to “package” or sell mortgages for non-conventional projects for the secondary markets. These market conditions often make green development projects more challenging from a risk and return point of view.

Industry and government standards used in project evaluation, especially as they relate to factors such as cost escalation assumptions, can determine whether projects are financially feasible. Many of these accepted assumptions need to be revisited to ensure that they are not unintentionally impeding green development.

Risks and process issues
The lack of expertise and resources for green building in many communities often creates an environment that lengthens development timeframes. In the public sector, approvals and permitting processes, many of which are not equipped to handle green construction, may cause delays. Building codes that were written for conventional developments often do not allow for alternative technologies and more environmentally friendly systems. Additionally, when people have fears about legal liability, they often default to rules that are in place and well-tested rather than adjusting them to meet the different requirements of green systems.

In the private sector, the difficulty in identifying appropriate architects, construction firms, attorneys, construction materials and other sources can also lengthen the project schedule. Such delays often lead to greater risks and higher costs, which many developers would rather avoid given tight budgets and timeframes. Experienced developers told us some of these risk and process complications can be minimized upfront through greater collaboration between the architect, developer, contractor and the owner/tenant.

Throughout the Removing Market Barriers to Green Development process, we have encountered many communities, organizations and individuals who have managed to overcome market and other barriers to successfully promote and build green buildings. We have aggregated and augmented some of these ideas and put forth some of our own findings to help bridge the access, knowledge and process gaps that are preventing widespread adoption of green building practices today. The following is an outline of some of these ideas. A detailed summary of these approaches can be found in our full report.

1) Applying the integrated design approach is essential to building a superior green development
Integrated design is a key component of successful green building projects. Using this approach, developers are able to improve the end result by ensuring all building systems work cooperatively in the most cost-effective manner. For example, by bringing together the HVAC engineers into the room along with the architects and others, we may find that the costs of additional insulation and envelope-sealing expenses can be offset by reducing the size of the HVAC system. The process can be further improved by involving other project stakeholders, especially those that are involved in appraising, financing and insuring the property, and by developing a common vocabulary to improve communication among all stakeholders.

2) Green building and infrastructure cost less than conventionally built structures over their lifetime
The lack of access to green development knowledge and materials, especially in parts of the country where green building is lagging, imposes initial costs that can discourage developers. This is why temporary incentives may be needed in order to jump-start the market in some areas of the country. However, more recent studies indicate that a green building which follows integrative design practices may be equivalent in cost to a standard building due to the efficiencies that can be gained through integrative design.

Over the longer term, the operation and maintenance costs of a green building can be lower. A 2003 Kats study found that “the total financial benefits of green buildings are over 10 times the average initial investment required to design and construct a green building.” As with any long-term purchase or investment that has an ongoing cost component, a more reasonable comparison of value will include the maintenance and operating costs, as well as a consideration of the financial risks of not building green, such as rapid building obsolescence. With uncertain but presumably-rising future energy costs, a standard, energy-inefficient building may easily become a liability.

3) Incentives can stimulate the adoption of green development practices
Many communities have used incentives to promote green building practices. Incentives are not limited to monetary types—in fact, process-type incentives have been embraced and used successfully throughout the U.S. In designing incentives, it is important to put together a program that motivates the type of behavior that would not have happened if not for the incentive.

4) Regulatory processes and codes can help to promote green development projects
Public and government policies can heavily influence whether green developments get built. Existing codes and standards in many municipalities do not account for or even allow green features. In this sense, these regulations are a barrier to more widespread adoption of green buildings. Codes and ordinances can also be used as a regulatory tool to encourage green development by setting clear performance criteria that developers need to meet.

Codes and processes can be used as incentives to encourage green practices. For example, the City of Chicago offers expedited building permitting to green building projects. Since time is money in any development project, this has proven to be a very effective approach.

5) Building transactions and leasing agreements can be designed to accommodate green building
The current relationship among developers, owners and tenants disconnects green investment costs from benefits received. However, the building transaction and bidding processes can be adjusted to encourage green building development. Current financing structures which typically fund hard costs but expect the developer to pay for the soft costs may not accommodate a green development scenario in which upfront “soft” costs may be higher. However, the likelihood of change orders may be lower during construction due to the additional communication and refinement which will have taken place during the integrative design. On the lease side, agreements can be structured to motivate tenant behavior as well as provide opportunities for owners to invest in green features. A few organizations in the U.S. and Canada have developed model language that can serve as templates for creating these leases.

6) The cost, benefits and performance of green buildings must be documented and communicated to meet the needs of the market
The benefits of green building are commonly evident over the longer period with lower operating costs and a healthier indoor environment. Educating consumers and adjusting the standard channels of communication within the market so that the long-term financial benefits of a green building are reflected in its sale price need to be a part of a strategy to increase adoption of green buildings. However, there should also be tools that help those who are directly involved in marketing these properties to be able to easily communicate the benefits to their clients. Additionally, knowledge of green building techniques and features cannot stop with architects. To support green building, all professionals who are involved in the building trade, whether they are equity or loan providers, brokers, appraisers, construction companies, permit approvers or operations and maintenance personnel, will need to be educated on the specific features, performance or care that set green buildings apart from conventionally built ones. More important, the sources of information that these professions use to determine the value of a property need to be modified so that they properly convey the costs and performance of existing green buildings. Although a few organizations have started this process, more education and training programs need to quickly ramp up to meet this growing need.

Christopher Choi and James Van der Kloot are officials with the U.S. EPA Region 5 office in Chicago

The Overcoming Market Barriers to Green Development Initiative was generously funded by the Northeast-Midwest Institute through a U.S. EPA Brownfields Training, Research and Technical Assistance Grant.