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Do Green Buildings Cost More?

By Desiree Hanford
June 2008

For many facility executives, the first question that comes to mind in discussions of green buildings has to do with a different kind of green. These facility executives want to know how much money it costs to build green.

The reality is that there’s no single answer to that question. Costs can vary significantly from one project to the next depending on a range of factors. But experts agree that, while green isn’t free, it doesn’t have to break the budget when compared with conventional buildings on a first-cost basis.

“I tend to think the costs for green buildings are different, not more,” says Gary Christensen, owner of the commercial development firm Christensen Corp. His firm developed the 195,000-square-foot Banner Bank Building in Boise, Idaho, for $128 a square foot and earned a LEED Platinum rating. One example of a cost tradeoff in the construction of the building: The cost for a raised floor was offset by a lower price tag for smaller HVAC units.

Whether it costs more to construct a green building depends on what it’s being compared to, says David Callan, a senior vice president and director of sustainable design and high performance building technology at the Syska Hennessy Group. An environmentally responsible building can be constructed for the same price as a Class A “jewel,” he says. It’s a matter of how the money is spent: on granite or a sculpture for the lobby, or on improved indoor air quality. Both offer ways to differentiate the building, but improved IAQ not only provides a functional benefit and adds market value, but also may be a more effective way of making the building stand out.

Developers who want a green building but don’t want it to cost more than a conventional building need to have cost, schedule and environmental awareness in their minds, Callan says. “That’s because building a building is thousands and thousands of small decisions and not one big decision,” he says.

A good design can minimize the size of a building’s mechanical systems, which saves money in the short and long terms, says Alan Bright, a senior vice president in the San Francisco office of architectural firm HOK. “If people take the time, they’ll find they can have costs that are the same as conventional buildings and that do a good job being green,” he says.

Balancing Act

The first cost impact depends on the specific green measure being considered, says Don King, executive director, facilities and clinical technology, Kaiser Permanente. But items with additional costs can be offset over the long term by installing building systems with lower life-cycle costs. ”Try to establish the financial and non-financial metrics and rank them in the order of what the company’s priorities might be,” says King.

The Providence Newberg Medical Center in Newberg, Ore., the first hospital to obtain LEED Gold certification, is an example of a project that was able to incorporate green building strategies without breaking the bank. Located on a brownfield site, Providence and other members of the design and construction team paid close attention to the categories outlined in the LEED program. More than 25 percent of the building material content was manufactured with recycled material, and 75 percent of the project’s construction waste was recycled, says Richard Beam, director of energy management services for Providence Health & Services.

The medical center has a range of environmentally responsible measures. The stormwater runoff doesn’t flow into the municipality’s storm drain system but instead into bioswales that filter pollutants before the water is used in a garden where patients, visitors and employees can visit. The center consumes 50 percent less irrigation water than the old facility because the landscape contains native, drought-resistant plants. Beam says total water use has dropped by 20 percent thanks to low-flow plumbing fixtures in bathrooms, the kitchen and patient rooms. The use of 100 percent outside air instead of re-circulated air means fresh air is constantly flowing through the medical center.

“Why put harmful products in your building when there are many products that are available and good?” Beam says. “It’s almost like taking a Hippocratic oath for buildings.”

The additional cost to obtain LEED Gold certification — including both the sustainable design measures and the cost of going through the certification process — was about 1.4 percent of the total $49.3 million construction costs, Beam says. The center, which opened in 2006 to replace an existing facility, cost about $274 per square foot to build. Providence found state tax credits and utility rebates to help defray the higher first costs. The incremental cost for the medical center’s energy and sustainability elements was $556,000. The project received $393,000 in tax credits and grants. Beam says the center recouped the remaining $163,000 in 14 months.

Beam recommends that building owners and developers who are considering whether to build a LEED-certified structure start by adding an additional 2 percent to 2.5 percent of the construction budget to the total project budget to cover the costs of green design measures and of the certification process, then work to whittle down the additional costs as construction progresses.

Long-term Impact Outweighs First Costs

But first costs are far from the whole story. Facility executives who intend to own a structure for any length of time and those who plan to market a property to a more sophisticated tenant need to consider the life-cycle impact of investments in green building elements because they will, in many instances, justify higher first costs, experts say. For example, when energy and water costs are considered over the life a building, they can help justify green purchasing decisions, Bright says.

To put first costs in perspective, Callan suggests that facility executives owners consider the 2/20/200 rule. On average, the cost of energy for a building per square foot is $2; the cost to construct a building and amortize it over 25 years is $20 per square foot; and the annual cost of salaries and staff of people who work in the office is $200 per square foot.

“So if you’re the owner of a business, you want one that will increase productivity — thermal, visual, acoustical comfort — and that can have an impact of 1 percent to 10 percent on worker productivity,” he says. “The money isn’t in the construction or energy. The dollars are in the people.”

Of course, there’s no need to choose between design strategies that save energy and those that aim to boost productivity. Green design measures like daylighting can reduce energy costs while improving occupant satisfaction, he says. That can be especially important for cities, counties and states that are grappling with sky-high energy costs at a time when tax revenue is slowing, says Bright.

There are also other not-so-obvious long-term financial benefits to going green. Gregory Kats, a co-founder of New Resource Bank in San Francisco, says the financial firm recently offered lower interest rates for green buildings compared to the rates offered for conventional buildings, saving owners and developers money over the life of a loan and improving their financial returns.

“Once people decide to build green, they tend to view it as a competitive advantage personally and for their organization,” he says.

Christensen says the cost of getting a building LEED certified should be considered a marketing cost and not a construction cost because the certification raises awareness about a building, leading to publicity and tenants who move in because the building is green. Owners and developers who choose not to have green buildings or ignore certification will find that potential tenants aren’t interested in their buildings in a matter of a few years, he says.

Some of the decisions that are made early in the construction process affect not only the cost to the facility but also to the municipality where the building is located, says Kats, who is also managing director at Good Energies, a venture capital firm in the renewable energy and energy efficiency industry. Costs associated with water and wastewater, for example, are paid for by the facility but also the community through infrastructure work, he noted. A combination of porous pavements and sidewalks and the reuse of water can reduce the costs for all parties, Kats says.

Green Products

There are more green products available today than even a few years ago. Facility executives can specify everything from carpets with backings don’t contain PVC to paints that are low in volatile organic compounds to energy-efficient elevators.

Christensen argues that green buildings cost less today than they have in the past because there’s more competition among manufacturers. Increased competition has, for example, driven down the cost for carpets made with recycled materials and linear fluorescent pendant lighting fixtures, he notes.

Pushing Down Costs

Gary Saulson, director of corporate real estate for PNC Financial Services, agrees. There was a “green premium” for products a few years ago, he says, but that’s no longer the case because the industry has pushed back against companies that tack on additional costs. One company that makes interior fixtures told PNC, which opened its first green bank branch in 2000 and now has more than 40 LEED-certified branches, that it would be charged more money for environmentally responsible products. The company changed its tune after PNC said it wouldn’t pay the added costs, Saulson says. “And there’s not a major carpet manufacturer that doesn’t make green carpeting with hundreds of patterns for the same price as non-green carpeting.”

Experts recommend that all the parties involved in building a structure — architects, engineers, contractors, developers, owners — get together early in the planning process so that everyone is aware that having a green building is a focus right from the start. Not doing so means a project may fail to take advantage of “some of the most powerful aspects of green design, which are the passive components,” says Elizabeth Heider, senior vice president of construction for Skanska USA Building. Those passive components include site selection, such as locating a new building on a brownfield site and near public transportation, as well as orienting the building east-west for solar shading and insulation.

“Once you start putting green lipstick on a building that has already been designed,” Heider says, “that building will cost more.”

Desiree Hanford is a freelance writer who spent 10 years as a reporter for Dow Jones. She is a former assistant editor of Building Operating Management.