experts: real estate column Friday, June 15, 2007

Environment Trend has Green Cash Potential

GREEN: The term is everywhere these days. Climate change and global warming has become the new doomsday clock, the new cold war, the new Y2K of our collective what-if nightmares. And green is a force to be reckoned with in the real estate industry too - it would be foolish to ignore the challenges and opportunities it represents.

By Ozzie Jurock

"According to a new U.N. report, the global warming outlook is much worse than originally predicted. Which is pretty bad when they originally predicted it would destroy the planet." - Jay Leno

GREEN. The term is everywhere these days. Climate change and global warming has become the new doomsday clock, the new cold war, the new Y2K of our collective what-if nightmares.

Attempts to inject rational thought into the zealous belief that human activity will cause seas to rise, crops to fail and hurricanes to whirl is drowned out in an amazingly on-script media and public chorus.

Yet, according to the Intergovernmental Panel on Climate Change, the international august body which released its definitive report just last month, if the entire world accepted the complete Kyoto protocol (which commits to reduce carbon emissions by 5% from 1990 levels by 2012) tomorrow, there would be no noticeable change in the planet's climate for 80 years - at a cost of 5 Iraq wars per year. To put it another way, if Canada immediately stopped producing any form of greenhouse gas emissions it would take only 18 months for that to be replaced by China's growth in emissions. Sorry, your new Hybrid will not make much of a difference in the big global picture.

We agree with the premise behind climate change, but we also agree with the findings of the experts that nothing we do in our lifetime in Canada will make any difference, and it is not likely it will change the weather for our children or even our grandchildren.

It reminds me again of the old adage: "Forecasting is never easy, particularly when it is about the future." In a 1999 story about "They don't know that they don't know", I wrote a story about the esteemed "Club of Rome." While I was railing against the idiocy of the 'experts' yelling and telling that we all should leave BC, it might be worth a moment to read our excerpt on The Club of Rome.

But - most importantly - the reality is that the Canadian public, especially in British Columbia and Alberta, are solidly behind the climate change philosophy and most - at least 80 per cent according to a recent poll - want to personally do something about it. With that kind of support, green is a force to be reckoned with in the real estate industry and it would be a fool who would ignore the challenges and opportunities it represents. (Certainly - he hastens to add - in my own home we recycle religiously, eat organic, use biodegradable cleaners and soaps and we look continuously for ways to be become more and more aware.)

Greening of Real Estate

The green real estate effect is already having an impact on everything from house sales to farmland, from condominiums to waterfront. We have seen some very interesting 'real estate reactions' to the green philosophy, some of which were overdue and make good economic sense.

Consider Avalon Homes of Red Deer, Alberta. Five years ago, as a newcomer to the booming Alberta new home market, Avalon was struggling to make its first sales and find a niche in the competitive market. Then it began marketing itself as the 'green builder' and building homes that are a notch above others in Alberta's popular Built Green program. Today, Avalon is among a dozen builders across Canada - and three in Alberta - chosen by the federal government this February as the top environmentally conscious in the country. Last year Avalon sold 200 new houses, making it the number one builder in Red Deer, despite charging more than its competitors. It expects to top that sales pace this year. It's prototype house has solar panels on the roof, thick insulation and other green attributes which make it a "zero net energy" house, meaning it can actually produce as much energy as it uses.

Chard Developments in Victoria is another example. In the midst of a slowing new condo market in Victoria, which saw 3,100 new condos started last year alone, Chard presented a 'green twist'. In its pre-sales for its 15-storey Juliet tower now being built on Johnson Street, Chard offered to cut $25,000 off the price if the buyers would forego an underground parking space for a bicycle locker and a deal to join in a local 'car share' program, where Chard would pay their initial membership fee. It worked. The 'lower cost' suites - in a building with an average per-square-foot price of $500 - sold first and fastest, the project received positive press as a green project and Chard could spend less on the parking space.

In Vancouver, developer Aragon Properties Ltd. is marketing a townhouse project that it built on spec on a former industrial site in one of the less-than desirable neighbourhoods of Marpole. But, by an intelligent blend of fairly low-cost green features, its Moda project has proved a hit with the upscale, yuppy clients it was aimed at. The green attributes include recycled brick for interior walls, reclaimed wood for the hardwood floors and individual gas meters allowing residents to monitor and control individual gas use, plus Energy Star washers and dryers. Not a lot of green, really, but enough to notch Moda successfully into the 'green marketing' environment.

Of course, the green marketing can stretch credulity a bit. In Ucluelet, where legendary golfer Jack Nicklaus is backing the new Wyndansea Oceanfront Golf Resort, developers have recruited the Audubon Society, a non-profit environmental organization, as overseers on the project. The entire project, that will cover hundreds of acres along the Pacific Coast, will also be built to the Leadership in Energy and Environmental Design (LEED) Gold standards. It turns out, incidentally, that the Audubon Society is overseeing 69,000 acres of "sustainable" golf courses around the world. (Only a cynic would question that if the developers are so concerned with the environment, why they didn't just leave the pristine waterfront alone.)

Nicklaus and co-developer Marine Drive Properties recognize that green sells. We share their confidence that the golf side residential lots, expected to start in the half-a-million dollar range, will sell out and probably quickly.

For there is no overestimating the green demand side.

Fully two-thirds of Canadian consumers would switch their spending to companies that have demonstrated a commitment to green policies according to a survey done last month by Environics Research Group. The poll found that 67% said they are likely to switch to green businesses. In British Columbia and Alberta, consumers are most likely to make the switch, with 83% saying they would, even it meant paying a higher price.

"We're seeing a fundamental shift in consumer behavior that reflects the increased mainstreaming of environmental consciousness," said Michael Adams, founding president of Environics, "Canadians are very deliberately rewarding those companies who are taking action on the environment."

The flip side message: consumers will punish those who don't make environmental improvements.

Green Investors

So as a real estate investor, what does this mean to you?

As with any investment opportunity, there are many in the 'green area'. When we can do our homework and find bargains and growth opportunities before the general market recognizes them it is always a good thing.

First of all, buy into green buildings. The ones built to green standards are usually built better and tend to retain tenants longer and command higher rents. Buy into green condominium projects because they attract the kind of upscale, higher-income consumers you want to be associated with. Ditto for commercial buildings.

Studies, such as 'Green Building Costs and the Financial Benefits' done for the Massachusetts Institute of Technology in 2003, show that, while incorporating basic green features to a building can add less than one per cent to the overall cost, tenants are willing to pay higher lease rates, tend to stay in place longer, and the owners enjoy lower maintenance and energy costs. Said Gregory Kats, managing principal of Capital E Group and former Director of Financing for Energy Efficiency and Renewable Energy at the U.S. Department of Energy: "It used to be risky to go green. Now, it's clear, it's more risky to design inefficient and unhealthy buildings. It's bad management and bad investment strategy to not build green buildings."

Mark Palmer, San Francisco's green building coordinator, notes, "In a study of 33 buildings nationally [in the U.S], the average added cost for building green was less than 2% and the return was 10 times the investment over a 20-year period."

Waterfront, Oh Yes

We would also advise investors to still look at waterfront real estate.

We know, we have seen the scary headlines and seen the Al Gore clip of New York and Florida disappearing beneath the waves. (Look for more Gore - Mr. "soon to announce his run for president" on page 2.) Yet, according to the best and latest information and projections from the Intergovernmental Panel on Climate Change, worldwide sea levels may rise 16 inches in 100 years. If your oceanfront property is a yard above the water, you should be OK. Of course, lakefront would likely not be affected at all.

Farmland

Buy farmland on the prairies. In Idaho and Iowa - major producers of crops used for ethanol production, considered a greener fuel additive, farmland values have shot up as much as 20% in the past year to $5,000US per acre. In Saskatchewan, where three ethanol plants are operating and a big one is about to open near the U.S. border at Belle Plaine, croplands average $350 per acre. But in a belt south of Regina considered an ethanol hot spot because of its canola crops, per-acre prices have increased to $750 an acre on average this year, a record high. (And we recently found some 485 farms in Saskatchewan for under $300,000.) The reason is not just for land to feed the ethanol plants: it is because 20% of U.S. corn production is now going to ethanol and biodiesel production, which has driven the price of other feed crops sky high. With 113 ethanol plants currently operating in the U.S. and 78 more under construction, the country's ethanol output is expected to double again in less than two years.

Something to Avoid

There are some unique green opportunities opening, but there are some green trends we would advise both investors and developers to avoid. The main one is a green roof. This is important because the City of Vancouver has mandated that such roofs, that have some form of plant life and soil on the flat roofs, will cap all development - mostly residential - on the south shore of False Creek, the last great waterfront project in the city. (Vancouver's new convention centre will have a four-acre green roof, one of the largest in Canada.)

However, all four new home warranty companies in B.C. have expressed alarm about insuring green-roofed homes and two of them have already said they will not insure such buildings, according to the B.C. Homeowners Protection Office.

They are not alone in their concerns. Peter Kalinger, the technical director of the Canadian Roofing Contractors Association, has warned members that green roofs present long-term and expensive maintenance. This is because the soil and plants have to be tended to and, if the roof starts to leak, it is very costly to remove the plant material to fix it. That is the main reason why most of the green roofs are being built by taxpayers, not the private sector.

A better and equally green roof option is "cool roofs" which are built with standard materials but coloured white to reflect sunlight. Wal-Mart and Cadillac Pacific, among others, are using this much lower-cost roofing that has been proven to reduce air conditioning costs in large malls.

Major Point

Don't get carried away - as in personal fear. This winter's windstorm - thought by many to be the result of global warming - was a natural recurring phenomena. If you look at the Vancouver Golf Club pictures of 'Stanley Park-like tree collapses' over fairways in 1934, 1952 and 1966 you realize that these things happen from time to time. However, there are other good reasons to get with the Climate Change program. You will be healthier, you will save money and, if you invest in green buildings, or the right land, you may well be richer. Just remember that there is a lot of green hype right now.

Published in The Calgary Herald, Saturday, May 19, 2007

Ozzie Jurock: Canadian journalist Peter Newman, in his book the Titans, called him a real estate guru. Donald Trump features him in his latest book, Trump: The Best Real Estate Advice I Ever Received. For the first time, Jurock will be in Calgary teaching his three-day real estate action weekend seminar personally Oct 19-21, 2007. For more information, call 1-800-691-1183 or visit www.reag.ca/about/wknd.html




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