Integrating Sustainability Strategies: Green Building Solutions 

Green Tenant Leases

March 10, 2010

Louise C. Adamson LEED®-AP ID&C

Partner

San FranciscoLouise.Adamson@klgates.com

© 2010 Louise C. Adamson

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Corporate Perspectives on SustainabilityCorporate Perspectives on Sustainability A 2008 global survey of over 400 building occupiers prepared

by Jones Lang LaSalle and CoreNet shows that 90% of corporate occupiers surveyed consider sustainability a near-term critical business issue

Most major corporations have now developed public sustainability policy statements

Opportunities: lower rents; landlord concessions Sustainability has become part of the corporate vernacular

and remains a high priority 2009 CoreNet study shows 42% of real estate execs prepared to pay a

premium (up to 5%) to lease green space; 53% willing to pay premium to retrofit owned property

Global Trends in Sustainable Real Estate: An Occupier’s Perspective. Jones Lang LaSalle/CoreNet, Feb 2008;Global Trends in Sustainable Real Estate: An Occupier’s Perspective. Jones Lang LaSalle/CoreNet, Feb 2008;BOMA Kingsley Quarterly, 2007; 2009 State of the Corporate Real Estate Industry Report. CoreNet Global, Mar 2009BOMA Kingsley Quarterly, 2007; 2009 State of the Corporate Real Estate Industry Report. CoreNet Global, Mar 2009

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When will sustainability become a critical business When will sustainability become a critical business issue?issue?

Already critical 44%

Within 1-2 years35%

Within 3 years 11%

More than 5 years 5%

Within 5 years 4%

Never 1%

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How important are each of the following to your How important are each of the following to your organization?organization?

52%

62%

63%

70%

75%

77%

Carbon emissions

Water utilization

Sustainabilityrevenue

Corporate socialresponsibility

Energy utilization

Environmentalfriendly practices

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ImplementationImplementation

For many corporations, sustainability is an area far removed from primary business

Many corporations implementing a variety of environmental initiatives – energy saving, waste management, alternative transportation – in an effort to meet announced corporate sustainability goals

Green leases provide corporations that are tenants with a valuable opportunity to implement sustainability goals and to communicate that achievement to the market through LEED certification

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What does “green” mean?What does “green” mean?

Green building is . . .Green building is . . . . . . a collection of land use, . . . a collection of land use,

building design, building design, construction, operations, construction, operations, and maintenance and maintenance strategies that are strategies that are designed to reduce designed to reduce energy consumption, energy consumption, promote occupant health, promote occupant health, and protect the and protect the environmentenvironment

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What is the LEEDWhat is the LEED®® Green Building Rating System Green Building Rating System™™??

LEED is an acronym for “Leadership in Energy And Environmental Design”. The LEED Green Building Rating System is promulgated by the US Green Building Council

LEED is designed to guide the development of high performance sustainable building projects; “points” are accrued for implementation of efficiency and design measures; certification awarded basedon number of points earned

The mission of LEED is to encourage the global adoption of sustainable green building and development practices

LEED has become the established industry benchmark for the certification of sustainable building projects

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Environmental impacts of buildingsEnvironmental impacts of buildings

U.S. Building Impacts

U.S. Dept. Energy 2008

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Green BuildingsGreen Buildings

USE 24% to 50% less energy

EMIT 33% to 39% less carbon dioxide into the atmosphere

USE 40% less water

SEND 70% less solid waste to landfills and incinerators

U.S. Green Building Council

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USGBC Rating System PortfolioUSGBC Rating System Portfolio

'USGBC' and related logo is a trademark owned by the U.S. Green Building Council

LEED Rating System

Portfolio

LEED for NewConstruction &

Major Renovations

LEED for Existing BuildingsOperations & Mgmt

LEED for Interior Design &

Construction

LEED forCore & Shell

LEED forRetail: New

Construction

LEED for Neighborhood Development

LEED for Schools

LEED for Homes

LEED for Healthcare

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LEED ID&C certification is awarded at the following LEED ID&C certification is awarded at the following levels:levels:

CERTIFIEDCERTIFIED 40-49 points40-49 points SILVERSILVER 50-59 points50-59 points GOLD GOLD 60-79 points60-79 points PLATINUMPLATINUM 80 points and above80 points and above 7 “must-have” prerequisites. Balance of credits 7 “must-have” prerequisites. Balance of credits

selected on “pick and choose” basis across various selected on “pick and choose” basis across various categories categories

'USGBC' and related logo is a trademark owned by the U.S. Green Building Council

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LEED for Interior Design and ConstructionLEED for Interior Design and Construction

Certification for the tenant build-out is covered by LEED for Green Interior Design and Construction LEED-ID&C (formerly LEED-CI) which is premises-based NOT building-based

Recognizes that tenant will typically have limited ability to control or leverage landlord behavior and requires the implementation of sustainable practices within the premises ONLY

LEED-ID&C is all about the art of the do-able!

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LEED-ID&CLEED-ID&C

LEED-ID&C addresses performance in the following LEED-ID&C addresses performance in the following categories:categories:

Sustainable SitesSustainable Sites Water EfficiencyWater Efficiency Energy & AtmosphereEnergy & Atmosphere Materials & ResourcesMaterials & Resources Indoor Environmental Quality Indoor Environmental Quality Innovation in DesignInnovation in Design Regional PriorityRegional Priority

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Opportunity and incentive toOpportunity and incentive toimplement environmentally implement environmentally sustainable practicessustainable practices

Improved bottom line; Improved bottom line; increased occupant increased occupant well-being and productivity; well-being and productivity; reduced absenteeism; qualifyreduced absenteeism; qualifyfor growing array of for growing array of state/local initiativesstate/local initiatives

Why pursue LEED-ID&C certification or locate in a Why pursue LEED-ID&C certification or locate in a LEED-certified building?LEED-certified building?

Valuable opportunity to Valuable opportunity to communicate commitment communicate commitment to responsible environmental to responsible environmental stewardship to the marketplace, stewardship to the marketplace, employees, community and employees, community and shareholdersshareholders

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Client Case StudyClient Case Study

Assignment was to “green” standard multi-tenant lease form for Fortune 100 company with 22 million sq. ft portfolio (56% owned, 44% leased)

No “green” tenant leases existed Not simply a matter of plugging in a few green provisions into

the lease form (“green washing”) Requires identification and communication of sustainability

goals from very start of building selection and lease negotiation processes

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Client Case Study Client Case Study (continued)

Input received from all members of the client transaction team

Developed a unique green lease program that integrates sustainability in a holistic way starting with site selection and continuing through RFP, LOI and lease

Differentiator: Lease tracks LEED-ID&C requirements so that lease itself facilitates certification of the premises on a stand-alone basis (regardless of typically uncertified status of building)

Client has adopted new green lease forms and pursuit of LEED certification is now default assumption for new leases

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Elements of Elements of Green Leasing ProgramGreen Leasing Program

1. Development of sustainability goals

2. Communication of goals to team3. Site selection guidelines (informed by LEED reqs)

4. Request for Proposal (include LEED questionnaire)

5. Letter of Intent (include a Sustainability Standards exhibit)

6. Lease (incorporate green lease terms that track LEED-ID&C requirements

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Site SelectionSite Selection

RFPRFP

LOILOI

LeaseLease

TraditionalTraditional

Green Leasing ProgramGreen Leasing Program

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Site SelectionSite Selection

RFPRFP

LOILOI

LeaseLease

TraditionalTraditional

Green Leasing ProgramGreen Leasing Program

Site SelectionSite Selection

RFPRFP

LOILOI

LeaseWith Plug-inGreen Terms

““Green Washing”Green Washing”

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Site SelectionSite Selection

RFPRFP

LOILOI

LeaseLease

TraditionalTraditional

Site Selectionwith LEED parameters

RFP withLEED questionnaire

Letter of IntentCore green business terms

Green LeaseIncorporates green policy

tracks LEED-ID&C

Establish sustainability goals

Communicate goalsto team

Green LeaseGreen Lease

Green Leasing ProgramGreen Leasing Program

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Establish sustainability goalsEstablish sustainability goals

Sustainability objectives identified; green policy Sustainability objectives identified; green policy statement developedstatement developed

Typically includes energy and water use, waste Typically includes energy and water use, waste minimization, materials recycling, alternative minimization, materials recycling, alternative transportationtransportation

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Communication of Sustainability Goals Communication of Sustainability Goals to Teamto Team

Communication of sustainability objectives to ALL Communication of sustainability objectives to ALL parties participating in the leasing process is key – parties participating in the leasing process is key – includes brokers, landlords, architects, contractors includes brokers, landlords, architects, contractors and attorneys, many of whom may have a limited and attorneys, many of whom may have a limited understanding of green building practices understanding of green building practices

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Site Selection ChecklistSite Selection Checklist

Site selection checklist – sustainability criteria

LEED encourages selection of premises located within buildings that implement sustainability best practices (e.g. LEED certified

building or building that incorporates sustainable features) are located in areas of maximum density in established urban

communities with access to public transport

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RFP Includes LEED QuestionnaireRFP Includes LEED Questionnaire “Green” RFP sets out core sustainability requirements AND solicits

green information by including a separate LEED questionnaire

Responses to LEED questionnaire allow tenant to compare the green characteristics of buildings and assess potential for certification in a given market

Don’t want to “spook” potential landlords but important to realistically assess sustainability potential of particular building, including potential for LEED or other sustainability certification, early in process

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Letter of IntentLetter of Intent

Sustainability Standards Checklist included as an exhibit to LOI Provides a comprehensive summary of LEED and

other sustainability standards which can be tailored to each transaction

Not all standards included in checklist will be applicable to every transaction

Negotiated sustainability standards are incorporated into LOI exhibit which is then attached to Lease

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Letter of Intent Letter of Intent (continued)

If seeking LEED certification, Sustainability Standards should include LEED prerequisites together with additional optional points needed to achieve desired level of certification

Sustainability Standards Checklist annotated to show which are the “must have” LEED prerequisites and which provide optional credits

Other certification standards (EnergyStar, etc.)

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Green Lease Program Elements

Sustainable Sites checklist RFP (include sustainability questionnaire)

LOI (include Sustainability Standards checklist)

Lease (include Sustainability Standards exhibit)

Guide to Green Lease Forms – summary of forms and how they work; explanation of specific green provisions

Training/workshop

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Structure to be Flexible and Adaptable

Green lease may not be feasible for every Green lease may not be feasible for every transaction transaction

Highlight green provisions Highlight green provisions “OPTIONAL (Sustainability Initiative”)

Structure forms to work on a stand-alone basis in Structure forms to work on a stand-alone basis in both “green” and “non-green” modesboth “green” and “non-green” modes

Green provisions and exhibits can be used as a Green provisions and exhibits can be used as a drafting guide when using landlord formsdrafting guide when using landlord forms

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Green Lease is Low Hanging FruitGreen Lease is Low Hanging Fruit

Opportunity to implement sustainability goals Facilitates LEED certification for premises (tenant

build-out) by tracking and incorporating LEED-ID&C credits

Certification for the premises can be obtained regardless of the typically uncertified status of the building

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Certification is highly achievable because based on implementation of measures within premises only

Certification is inexpensive basic/silver level certification highly achievable at little

or no cost significant cost savings and other personnel

performance and well-being benefits over lease term

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Green leases provide innovative, highly achievable, and valuable opportunity to:

implement sustainable practices implement sustainable practices

meet sustainability goals meet sustainability goals

communicate achievement to the market through communicate achievement to the market through LEED certificationLEED certification

Take AwaysTake Aways

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Take Aways

Effective green lease program should be:Effective green lease program should be:

holistic and comprehensive – documents incorporate green concepts throughout the lease negotiation process

flexible – can be used in green and non-green mode

adaptable – can be used as drafting guide to revise and supplement existing forms when landlord forms must be used

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Green Lease Resources

Green Office Guide: Integrating LEED into Your Leasing Process – US Green Building Council (USGBC), 2009 (tenant oriented) Comprehensive manual designed to assist tenants green the

leasing process Addresses site selection, negotiations, lease language, build-

out, ongoing operations Lease Guide: Guide to Writing a Commercial Real Estate

Lease – Building Owners and Managers Assoc. Int. (BOMA), 2008 (landlord oriented) Form of commercial lease agreement that includes green

provisions

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Louise C. AdamsonLouise C. AdamsonLEEDLEED®®-AP ID&C-AP ID&C

PartnerPartnerSan FranciscoSan Francisco

Louise.Adamson@klgates.comLouise.Adamson@klgates.com