Is The Green-Certified Apartment Development Slowdown Temporary Or A Sign Of Something More Permanent?

The number of new LEED-certified multifamily rental units nationwide dropped for the second year in a row, with 42,900 units delivered last year, according to a new report by RentCafé, citing Yardi Matrix data. That is 6% fewer than 2017.

According to RentCafé Research Analyst Alexandra Ciuntu, who worked on the green residential buildings report, that decrease doesn't necessarily reflect declining interest in green building.

"While green construction has staying power, certification can be seen as just a stringent formality, so some buildings are going for green features without pursuing certification," Ciuntu said.

Though developers have the means and will, the main reason for going certificate-free might be the paperwork involved. 

"The time and effort it takes to acquire a green certificate are valuable resources that can be put towards concrete sustainable efforts for building development, like solar panels or more efficient building envelopes," Ciuntu said.

There is no data on informal green development in the multifamily sector.

The decision to certify is a complex one, taken case-by-case for each development, according to Hines Managing Director Robert Trujillo, who oversees multifamily development for the company in Arizona and New Mexico.

"We partner with manufacturers, universities and engineers to take approaches that elevate the efficiency and value of every building," Trujillo said. "Sustainable design elements have long been important to Hines."

Depending on the geographical area, that might involve something as simple as orienting a building relative to heat from the sun, or it could be in windows, heating and cooling systems, thermostats and plumbing fixtures, Trujillo said.

Last year's total of LEED multifamily completions is still a vast increase compared with 10 years ago — 283% more units than in 2008, according to RentCafé. Also, a decade ago, only 5% of new apartments were LEED-certified, while in 2018, 15% were, though that is down from 16% in 2017.

The report didn't track the more narrowly focused Energy Star certification, which about 17,000 apartment units earned in 2017, according to the Environmental Protection Agency, bringing the total units that are certified to about 170,000.

A number of factors continue to buoy sustainable multifamily development, LEED or otherwise.

The value that green features add to a property is one consideration, according to Avis Devine, associate professor at the Brookfield Centre in Real Estate & Infrastructure at York University in Toronto. 

But the added value isn't quite the same as it used to be, she said.

"We have 10-plus years of research supporting the value premium for environmentally sensitive real estate, and work on the financial benefits to environmentally sustainable real estate has moved past this question," Devine said.  

Rather, the next wave of research will examine the financial impact to the industry laggards, determining the impact of a “brown discount” rather than a “green premium,” Devine said.

Another reason that developers will continue to pursue sustainable apartment development, formally or informally, is its importance in affordable housing, Urban Land Conservancy Director of Real Estate Mark Marshall said. The ULC is a Denver-based nonprofit that acquires and develops sites for community benefit.

"Including sustainable design features, such as high-efficiency appliances, solar or low-flow water fixtures, in new affordable developments provides significant cost savings for the residents," Marshall said. "With rising real estate prices, both rental and for-sale, and flat wages, these savings make a difference in the lives of residents."

Property itself benefits from sustainable design features by reducing maintenance costs, operating costs and wear and tear on building components, he said.

"These cost reductions are reflected in the bottom-line expenses of the property, which allow the building [to] pass the savings on to the residents [and] continue to operate affordably," Marshall said.

Chicago topped the nation with 20,600 existing green apartment units last year, followed by Seattle with 19,800, which also boasts the largest number of LEED-certified buildings in the nation at 94, the RentCafé report says. No. 3 Washington, D.C., has 13,200 units.

There are many other cities making significant progress in sustainable design and construction in multifamily, the report says. 

McLean, Virginia, enjoys the largest share of green apartments in the United States — 47% of its apartments are certified sustainable. Next in line are Evanston, Illinois, and Cambridge, Massachusetts, with 30% and 29%, respectively.

Local energy-saving efforts are an integral part of why certain U.S. cities seem to one-up others in sustainable certification, Ciuntu said. Larger cities build most apartment buildings overall, but city council support or administrative green initiatives at a city level determines sustainable construction rates regardless of the city's size. 

"For example, Chicago has enjoyed a comprehensive sustainable operations plan since 2015," Ciuntu said. 

Different residential markets are adopting green technology at different rates, but it is fairly clear at this point in the adoption cycle that green building is a sure thing, Devine said. 

"Researchers are now focused on questions of the impact on risk and resilience, and the role of user engagement with environmentally sustainable space to decrease consumption, improve health and elevate productivity," Devine said.