Sunday, March 20, 2011

Has the Price of Going Green Really Dropped? Some Hoteliers See Red

According to Denise Kalette, writing for the National Real Estate Investor

The sticker shock for going green is becoming easier to bear, according to some panelists at the Hunter Hotel Conference held last week in Atlanta. But not everyone agrees.
At the same time, the reasons for meeting the standards are becoming more urgent: properties that don’t meet sustainable levels are likely to suffer lower occupancy rates and resale prices.

“I think the premium on the cost side is shrinking or completely disappearing,” said Marty Collins, president and CEO of Gatehouse Capital Corp., a real estate investment and development firm based in Dallas. Gatehouse has developed hotels primarily in California and Texas, such as the W Hotel & Residences in Hollywood, with 300 rooms, apartments and retail space.

“We thought there would be maybe $1 million of additional cost to build this thing LEED. It cost $250,000 to $500,000 more to build a $680 million project,” to LEED standards, said Collins. His company just finished another project, he said, and the cost for sustainable development wasn’t a factor. “I don’t think we paid a dime.”

However, even if green materials and construction costs have dropped, the price of hiring a consultant to meet certification standards remains high, some hoteliers complain.

Gene Singleton, president of Summit Associates LLC of Raleigh. N.C., a hotel developer, said that when his company built a $24 million project, it spent $240,000 on green measures before deciding to go with a LEED program.
Although green buildings may attract higher occupancy, a sustainable standard may not necessarily command higher rents. “I think you get absolutely no rate premium for it,” says Collins. “I think you may get some occupancy premium.
Energy saving design and practices can bring financial rewards, some panelists pointed out. “We’ve seen operating savings up to 30% in properties that have achieved LEED certification,” said Faith Taylor, vice president of sustainability and innovation at Wyndham Worldwide, based in Parsippany, N.J.

Research has shown a correlation between green programs and higher guest satisfaction, says Taylor. Sustainability features can factor into deals, she adds, because many investors now track the carbon footprint and emissions data of properties that interest them, and weigh the data in their property valuations.

However, hotel guests are not willing to pay more for a room with green features, says Taylor. Still, given a choice between two hotels, including one with a sustainable design, they will choose the one with environmental elements, she notes.

And the costs are moderating. An initial investment can now be recouped in a shorter amount of time than in the past, says Singleton. “We’ve got it down to a three-year payback instead of five-year.”
Despite the cost issues, green design and standards may be inevitable.
Design engineers and architects will shortly need to be LEED-qualified “or they’re just not going to be in that business,” says Collins. “We will not be having this discussion in three years. You’re going to be in this LEED business regardless.”

By Denise Kalette, NREI Managing Editor
National Real Estate Investor
March 14, 2011

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