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How Developers and Builders Are Paving the Way for a Greener Future

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Sustainability Leaders Podcasts December 18, 2024
Sustainability Leaders Podcasts December 18, 2024
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As part of our series on sustainability in the built environment, Caroline Donlin, Managing Director and Head, Engineering & Construction, moderated a discussion on the adoption of sustainable practices. Leaders in commercial real estate, engineering and construction, sustainability, and the federal government discussed how these practices not only contribute to environmental preservation, but they also offer significant economic benefits. Our panelists were:

  • James Burrow, Director, BMO Sustainable Finance  

  • Julia Gisewite, Chief Sustainability Officer, Turner Construction, the largest domestic building company in the U.S.  

  • Barry Howard, Founder and Chief Sustainability Officer, Core Spaces, a leading developer of multifamily and student housing  

  • Nick Ryan, Technology Commercialization Manager, Department of Energy’s Building Technologies Office  


Sustainability Leaders podcast is live on all major channels, including Apple and Spotify.  


Following is a summary of the conversation.

Low-carbon new construction: Is there a valuation premium?

We’re seeing more building methods put in place to minimize the carbon footprint of construction projects. How does this translate into a tangible uplift in financial valuation?

According to Burrow, there is anecdotal evidence supporting higher valuations for low-carbon construction. “They’re typically lower cost to operate, so their net operating income is better,” Burrow said. “They’re compliant with current and future regulations. And as you move from gas to electricity to heat buildings, the cost of that electricity is often less volatile, so you're hedging the risk quite effectively.”

What complicates matters, Burrow said, is that the appraisal industry tends to be backward-looking in its valuation process. “If we're taking a forward-looking view, then yes, we believe there’s a valuation premium. But it's not universally accepted that a low- or zero-carbon building should be worth more than its built-to-code counterpart today. I think that's coming, but I don't know that we're quite there yet.”

Gisewite pointed to studies that indicate a small premium for low-carbon buildings, but she cautioned that it varies by market. What’s important to focus on are the potential costs of not adopting sustainable practices.

“Tenants want healthy spaces, they want spaces with wellness, they want low-carbon spaces,” she said. “That baseline is shifting. We have to get over this concept of sustainability as an add-on. It has to be the new reference point. Resetting the mindset has to be part of the underlying effort.”

Howard echoed that sentiment, noting that the current generation of college students has grown up with the realities of climate change, and that awareness will only grow stronger. “We're long-term holders of assets, so in 2024, I’m thinking I’m going to hold this in 2034,” he said. “If you're not thinking of that exit strategy and you're not doing something now, you're going to have a building in the future that's valued way less. Maybe it’s 2% to 4% now, but that could be 10% or higher in the future if you're falling behind in making your building sustainable.”

Reducing embodied carbon

Retrofitting, the process of upgrading existing buildings with new features and technologies to reduce utility costs and carbon emissions, has been a valuable tactic in the industry. The operational emissions from buildings, such as those from the gas and electricity consumed, is one part of the challenge that building retrofits address. From a new construction perspective, however, embodied carbon—emissions generated from manufacturing steel, concrete and other building materials—is equally consequential. How much progress has been made on reducing embodied carbon?

Howard noted that embodied carbon could account for up to 50% of the building’s carbon footprint over the course of it’s life. While it’s not currently top of mind within the industry, he said reducing embodied carbon is starting to become a proxy for good management. “The subcontractors that are starting to figure this out are the ones who know how to manage their businesses well now, but also with an eye on the future” Howard said. “It's a way for us to get comfortable with trades that are thinking this way.”

Gisewite said that while Turner is committed to initiating dialogue on embodied carbon during the design phase, the opportunities for pursuing it vary by region and supply chain readiness. “It can be a very tedious process, which is complicated by the fact that low embodied carbon solutions can sometimes be at odds with operational carbon solutions,” she said.

Emerging technologies to reduce operational and embodied carbon   

Reducing the carbon footprint of building materials requires technological advancements. All of the panelists were excited about the potential for heat pumps to significantly reduce greenhouse gas emissions.

“That has the biggest potential to move the needle on operational emissions in the short term” Burrow said.

“We see it moving from the traditional spots we use it in the Southeast and coming north like the armadillos,” Howard said. “As we see [the effects of] climate change coming north and the technology improving, we're finding a better geographic footprint.”

Beyond heat pumps, Gisewite said Turner is exploring materials like green cement. “Cement production is 8% of global greenhouse gas emissions,” she said. "Buildings and highways are really the only places that concrete goes, so it’s our sector that needs to solve this. The innovations happening are pretty incredible. You have blended cements that use alternatives for core cement in the mix, you have carbon-sequestering materials, you have bio-cements, you have alternate clinkers, and they range from 2% to 5% carbon reduction all the way up to 100% carbon reduction.”

Both Gisewite and Ryan pointed out that the biggest obstacle currently facing green cement is the ability to produce such materials at scale. “It's going to take significant capital and market demand to move the needle,” Gisewite said. “These are capital-intensive plants that need to be built or retrofitted, so much more supply is needed to tip the scales. Right now, the demand is outweighing the production of these transformational materials.”

“It comes down to the idiosyncrasies of the supply chain,” Ryan said. “Where are you going to get your materials? Who’s going to mix it? There are all sorts of implications when you start moving these materials within certain cities—union versus non-union labor. Those are where the biggest improvements and conversations need to happen.”

Roadblocks to building green: perceived and actual   

The path to sustainable development won’t be simple, as obstacles both real and presumed present their own sets of challenges. Gisewite said the perception that the construction industry is slow to innovate persists, and with good reason. "We are very risk averse,” she said. “We have proven methods that we really like. There's a third-mover mindset here—no one wants to be first, no one wants to be second.”

But there are also real challenges that come with decarbonization projects. For one, Gisewite said, the process tends to be more iterative in nature. “You've got initial concepts that get vetted, they get batted down for one reason or another, and you go back to the drawing board,” she said.

Gisewite also pointed out that the lead times associated with decarbonization projects makes guaranteeing availability of supplies a challenge. Then there’s the matter of cost. “The green premiums are still very real,” she said. “They're a barrier for a lot of our clients. We have clients say, please give me all the low-carbon options, but give them to me at cost and schedule parity. It has to pencil, but pencil doesn't always mean free. Pencil can mean there might be community benefits. There might be other opportunities that we need to make sure we're messaging.”

It was gratifying to hear how the real estate and construction industries are increasingly committed to decarbonization and green practices. Building a sustainable future will require dedication across the value chain. We’re proud to be part of those efforts, and we’ll continue to bring industry insights like these to our clients.   

Read more
Caroline Donlin

Managing Director and Head, Engineering & Construction

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Mark Frankel

Managing Director, Co-Head of Core Commercial Real Estate

VIEW FULL PROFILE

PART 1

Building for Tomorrow: Real Estate, Construction, and Sustainability

Angela Adduci, James Burrow October 25, 2024

  Decarbonizing the built environment, which represents about 40% of global greenhouse gas emissions, is a key component to achieving a net-z…



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