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spring 2007 |
American Real Estate Goes Green: A Host of Laws and Incentives Encourage Sustainable Building Practices“Think Green” is no longer a catch phrase that applies only to St. Patrick’s Day festivities. Now, it also describes a growing trend in the American real estate industry. It’s an environmentally friendly approach that has an unprecedented positive impact on how we fulfill our obligation to be good stewards of the planet that sustains our lives. It manifests itself in both financial incentives and laws that apply to our built environment. One potent example is a recent announcement by the U.S. Green Building Council (USGBC), an organization that helps to make sustaining our environment an effective and beneficial reality. USGBC unveiled its plans to purchase one of the first federally sanctioned “green bonds” being sold on Wall Street. The bonds—insured by XL Capital and rated AAA—are the first of $2 billion being allocated by the United States Treasury to four large projects around the country. This bond program provides tax-exempt financing capacity for revolutionary energy-conserving and environmentally beneficial development projects. USGBC is a coalition of leaders from every sector of the building industry who work together to promote environmental responsibility. It uses the Leadership in Energy and Environmental Design (LEED) measurement process, a voluntary national standard for new construction and renovation projects that identifies, rates and certifies the effectiveness of “green” or “sustainable” buildings. Four levels of certification exist: certified, silver, gold and platinum. LEED criteria are measured before, during and after design and construction. Many state and local governmental agencies also impose LEED criteria in the project specification phase. Green, sustainable and LEED-certified projects share some or all of the following characteristics and goals: preservation of natural vegetation; use of non-toxic or recycled-content building materials; maintenance of good indoor air quality; efficient use of water and energy; conservation of natural resources; use of natural lighting; integration of recycling facilities into the structure; access to public transportation; flexible interiors; and the recycling of construction and demolition waste. In addition to professional organizations such as USGBC, local, state and federal governments provide financial incentives and have passed laws that promote green design and construction, producing tangible benefits for building owners and society in general. Local (Chicago)Green Permit Program. This incentive program provides an expedited permit process for projects that incorporate innovative building strategies based on Chicago’s pending green building code, which includes a “menu” of sustainable strategies. The greener the project, the greater the benefit. To be eligible, a project must fall into one of three tiers. Tier 1 projects must become LEED certified and feature one menu item. Tier II projects, which must become LEED silver certified and feature one menu item, receive a waiver of the consultant review fee (a $5,000 to $50,000 savings) and a building permit in 30 days. Tier III projects, which must become LEED gold certified and feature two menu items, also receive a waiver of the consultant review fee, but the permit is issued in only 15 days. Green Roof Improvement Fund. Established in June 2006, this incentive program encourages owners of existing downtown Chicago buildings to install rooftop gardens. The fund may match an owner’s “green roof” investment up to $100,000 per project. State (Illinois)Energy Efficient Affordable Housing Construction Program. This inventive program provides grants to Illinois-based nonprofit housing developers that include energy-efficient building practices in the rehabilitation or new construction of affordable housing units in the state. Maximum grant amounts vary according to the type and size of the project. For example, single and multifamily rehabilitation projects can receive $2,500 per unit, a new multifamily project with more than 80 units can receive $2.25 per square foot of living space, and a new single-family home can receive $2,000 per unit. The program results in an average energy savings of 50% to 75% per project. Energy Conservation Code for Commercial Buildings. This law applies to privately funded projects that require a municipal or county building permit, and to all projects that receive state funding. Privately funded projects must comply with the requirements of the International Energy Conservation Code, while state-funded projects must comply with the American Society of Heating, Refrigeration and Air-conditioning Engineers (ASHRAE) Standard 90.1-1999 “Energy Standard for Buildings except Low-Rise Residential Buildings.” Compliance is enforced by the local authorities that have jurisdiction over the project. FederalThe Energy Policy Act of 2005. This law provides tax credits of up to $2,000 for builders of all new manufactured and site-built energy-efficient homes. A manufactured home must be located in the United States; substantially completed after August 8, 2005; meet the energy-saving requirements outlined in the law; and be acquired from the eligible contractor after December 31, 2005, and before January 1, 2008, for use as a residence. Site-built homes qualify for a $2,000 credit if they are certified to reduce energy consumption by 50% relative to the International Energy Conservation Code standard and meet minimum efficiency standards established by the U.S. Department of Energy. At least one-fifth of the reduction in energy consumption must be attributable to an improvement in the home’s building envelope. While the law does not identify the specific efficiency measures eligible for the tax credit, the Internal Revenue Service has issued guidance about the certification process that a builder must complete in order to qualify for the credit. IRS guidance further provides for a public list of software programs that may be used in calculating energy consumption for purposes of obtaining a certification. This law also established a tax deduction for energy-efficient commercial buildings applicable to qualifying systems and buildings placed in service from January 1, 2006 through December 31, 2007. A tax deduction of $1.80 per square foot is available to owners of new or existing buildings who install energy-efficient interior lighting, heating, cooling, ventilation or hot water systems; or building envelopes that reduce total energy and power cost by at least 50% (compared to a building that meets minimum requirements set by ASHRAE Standard 90.1-2001). Deductions of $0.60 per square foot are available to owners of buildings in which individual lighting, building envelope, or heating and cooling systems meet target levels that would reasonably contribute to an overall building savings of 50% if additional systems were installed. Although the deductions are available primarily to building owners, tenants may be eligible if they make construction expenditures. In the case of systems installed on government property, tax deductions are given to the entity primarily responsible for the systems’ design and must be taken in the year when construction is completed. Energy Star Program. This government-backed program seeks to protect the environment by promoting superior energy efficiency. To qualify for Energy Star status, which certifies buildings in the top quarter of comparable buildings in terms of energy efficiency, a building must meet certain energy performance criteria and satisfy minimum standards for healthy indoor air quality. The Environmental Protection Agency and the Department of Energy created the designation in 1998 as an incentive for the real estate industry to reduce demand for electrical energy use and, thereby, help lower greenhouse gas emissions. With these and many other opportunities available on the local, state and national levels, the time to address green design and construction issues is at the very conception of a project. Your attorney, in collaboration with your design and construction team, can increase your understanding of green laws and help you maximize the benefits they provide for your building and your project’s bottom line.
Provided as a service to our clients and friends. If you have questions or would like to suggest a future topic, contact Michael C. James, Editor, 312.521.2123 or mjames@muchshelist.com.
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