Seeing green

New York City residents are no strangers to bold skyscraper design. But a new 2.1 million-square-foot office building in midtown Manhattan, slated for completion in 2008, is garnering attention for more than its sleek look: Its state-of-the-art "green" features will make it the city's most environmentally friendly office tower.

One Bryant Park, a $1.2 billion development for anchor tenant Bank of America, will feature an efficient, under-floor air-conditioning system, plumbing that uses runoff from the roof and lighting that automatically dims when people are not present. The costs of the environmental features account for 2 to 3 percent of the total, "but we don't do anything that doesn't have a payback," says Douglas Durst, co-president of the Durst Organization, which is developing One Bryant Park. Durst says he expects the environmental features to pay for themselves within the first two to four years of the building's operation.

Eco-friendly buildings like Durst's first took root in Europe in the mid-1990s and are now on the rise in the U.S., fueled by high energy costs and growing concerns among developers, investors and tenants about global warming. Green standards are improving too, thanks in large part to a third-party rating system launched in 2002 by the U.S. Green Building Council, an independent nonprofit organization that promotes environmentally friendly development. Known as Leadership in Energy and Environmental Design (LEED), the system rates commercial buildings in the U.S. on a scale from zero to 76 and awards platinum, gold and silver certifications. (Durst is aiming for a platinum rating for One Bryant Park.) From 2004 to 2006 the number of requests for LEED certifications tripled to 504.

U.S. institutional investors see opportunity. Dan Krivinskas, general counsel at Courtland Partners, a real estate investment consulting firm based in Cleveland, Ohio, says the groundswell of interest in environmentally friendly buildings intensified in 2006, propelled by the allure of strong risk-adjusted returns with a socially responsible imprimatur.

In September, Hines, a Houston-based real estate investment and management company, announced the formation of the Hines CalPERS Green Development Fund, a joint venture with the $195 billion-in-assets California Public Employees' Retirement System. The fund will invest up to $500 million in LEED-certified green office buildings or those that will apply for a certification. Hines fund manager Dan Rashin expects to produce internal rates of return of about 20 percent net of fees. "We believe it's the wave of the future," he says.

James Thomas, CEO of Thomas Properties Group, a developer and manager with offices in Los Angeles and Philadelphia, is raising money to launch the $1.5 billion Thomas High Performance Green Real Estate Fund, which will also target office properties. The fund will focus on upgrading the environmental features of existing buildings and developing new eco-friendly properties. The firm expects to count the $133 billion-in-assets California State Teachers' Retirement System among its investors.

"Our focus is risk-adjusted returns," says Thomas, who is aiming for internal rates of return of 15 percent net of fees.

All buildings could one day adhere to some sort of environmental standard. "In three or four years, we won't even be talking about green," says Art Gensler, a prominent booster of eco-friendly buildings and the founder and chairman of the San Francisco architecture firm that bears his name. "It will just be the way real estate construction is done."