An Overview of Issues in Leasing and Managing Green Commercial Real Estate Space

1. Leasing & Operating Green An Overview of Issues in Leasing and Managing Green Commercial Real Estate Space Michael Kerwin Christopher Stevenson William Amann Ginny Carita Brian Banaszynski Jesse Nash The material provided herein is for informational purposes only and is not intended as legal advice or counsel.

2. Sustainable Somerset A Quality of Life Found in Somerset County, New Jersey

7. RideWise is the Transportation Affiliate of the Somerset County Business Partnership; the Source for Sustainable Travel Solutions that Improve Mobility, Reduce Traffic Congestion & Decrease Carbon Emissions RideWise

12. The Emerging and Evolving Green Leasing Market Chris Stevenson

22. William Amann, P.E., LEED AP Chairman: USGBC, NJ Chapter Chairman: Somerset County Energy Council President: M&E Engineers, Inc. Green Leasing – Technical & Performance Issues

24. So what is a Green building?

26. CONTINUALLY STRIVING TO MAKE THE GOOD PRACTICE OF TODAY, THE STANDARD PRACTICE OF TOMORROW THE U.S. BUILDING MARKET 70 % REGULATIONS lawbreakers DEGREE OF GREEN MARKET SHIFT typical building practices market leaders innovators & risk takers 20 % 5 % 5 %

33. RESULTS OF THE CALIFORNIA STUDY AVERAGE BOTTOM LINE SAVINGS 30 % 30-50 % 50-97 % energy savings water use savings waste cost savings

34. THE TRIPLE BOTTOM LINE Reduced Enviromental impact. Optimal Performance. Increased Occupancy Rates. Lower Operational Costs. Increased Asset Value. Increased Tenant Satisfaction. Improved Productivity. Reduced Absenteeism. Build Green. Everyone Profits. planet people profit

35. KEY VALUE DRIVERS for GREEN OPERATIONS COMMERCIAL REAL ESTATE Occupancy Rate Operating Cost Tenant Retention Tenant Satisfaction Asset Value Shareholder Value CORPORATE Operating Cost Employee Relations Shareholder Value GOVERNMENT Environmental Stewardship Operating Cost Employee Satisfaction Stakeholder Relations

36. 3 green improvements pay for themselves in years annual return on investment is 25-40% RESULTS OF THE CALIFORNIA STUDY AVERAGE BOTTOM LINE SAVINGS The Getty Center The J. Paul Getty Trust Los Angeles, CA Museum/Office LEED-EB Certified Version 2.0

37. Technical Performance LEED EB Gold Certification Johnson & Johnson HQ New Brunswick, NJ An energy audit in 2002 yielded an initial ENERGY STAR score of 52. Major upgrades to Lighting, Controls & HVAC, reduced the buildings overall energy consumption by 25%, improved ENERGY STAR score to 85. Obtained LEED Gold Certification in 2009.

38. What about multi-tenant commercial office leases? What are the main goals of the Landlord/Operator, the Architect/Engineer, and the Tenant?

39. Main goal of the Landlord/Operator is to maximize profits by maximizing rents as the market allows, minimizing costs, and attracting and retaining tenants to minimize vacancies.

40. Main goal of the Architect and/or Engineer is to not get sued. Over-sizing systems and using VAV reheat is safe. Maximizing energy efficiency is risky.

41. Most important factors for the Tenant are the comfort and quality of indoor air, the acoustics, and the quality of the building management , according to ULI Study.

42. Who pays for improvements? Who controls expenses? Who benefits from savings?

43. Who pays for improvements? Improvements are often based on a $/Sq. Ft. fit-up allowance determined prior to lease signing, and has no real connection to performance or life-cycle cost.

44. Who controls expenses? With a triple-net lease, operating costs are passed through to tenant. Tenant has only marginal control over operations, and generally has little expertise.

45. Who benefits from savings? The Tenant can obtain better productivity, reduced absenteeism, less employee turnover. But this can very rarely be quantified and directly associated to IEQ.

46. Gross Lease Financial risk/reward for operating costs returned to or shared with Landlord. Intelligent building controls allows Landlord to monitor and limit occupant manipulation of controls.

47. Green Leasing LEED is a collection of best practices for building design, construction and operation. Market supply for Green Buildings depends upon the demand.

49. US Green Building Council – New Jersey Chapter Mission: “ To be NJ's foremost coalition in the public and private sectors promoting the planning, design, construction, and operation/maintenance of buildings that are environmentally responsible, cost effective, productive, and healthy places to live, learn and work” USGBC-NJ 14 Maple Ave Suite 201 Morristown NJ 07960 Chapter Coordinator: Marianne Leone [email_address] www.usgbcnj.org

50. Ginny Carita Vice President, Property Management LEASING AND OPERATING GREEN A Property Manager’s Perspective

53. Without Visibility Green is more expensive! Green is too complicated! Green is too much work! This May Be Your Reality…

64. Seminar Break

65. Brian Banaszynski Vice President - Leasing LEASING AND OPERATING GREEN A Leasing Professional’s Perspective

71. Green Lease Process Lease Portfolio Portfolio Characterization Establish Green Criteria New Leases Existing Leases & Renewals Negotiate: Green Criteria for Tenant & Common Space. Core & Shell. Operations. Green Leases Measure And Monitor Site Selection

78. Green Leasing Scorecard A scorecard that includes a building’s green attributes will allow for more informed decisions around a company’s green leasing decisions.

79. Sample Tenant Green Indicator Score Card QUESTIONS Yes (1)/No (0) Does the building have any LEED certifications? Are there any tenants in the building who have achieved LEED certification for space in this building? Have you calculated the ENERGY STAR score of the building? If the ENERGY STAR score has been calculated, does the building have a score of at least 60? Are there mass transit options near the building? Have the building's mechanical/electrical/plumbing systems been commissioned within the last three years? Does the building have any special energy efficiency features such as night cooling, passive stacks, chilled beams, geothermal or renewable energy sources? Have renewable energy certificates (RECs) been purchased to offset energy use in the building? Does the roof minimize heat island effect by using highly reflective materials and/or vegetation (have a "green roof")?

80. Sample Tenant Green Indicator Score Card QUESTIONS Yes (1)/No (0) Are tenants' spaces separately sub-metered for utilities? Does the building have an indoor air quality management program in place? Is the building non-smoking and is smoking prohibited next to the outside air intake louvers? Does the building use low-flow plumbing fixtures (<1.6pf for toilets and <2.5 gpm for lavoratories and sinks)? Does the building or site utilize high efficiency irrigation technologies? Is at least 50% of parking underground or is the parking surface permeable? Will tenant be permitted to build out its own space and select its own architect and general contractor? Does the building provide a tenant recycling program for paper, cardboard, cans and bottles? Are waste and recycling volumes and/or weights tracked for this building? Are green cleaning practices used in the building and made available to tenants? Are integrated pest management practices used at the building? TOTAL

83. 445 South Street, Morris Twp., NJ C A S E S T U D Y

85. Original Exterior View C A S E S T U D Y

86. New Dramatic Entryway C A S E S T U D Y

87. Original Lobby C A S E S T U D Y

88. NEW Two-Story Lobby C A S E S T U D Y

89. Original Windows C A S E S T U D Y

90. New Low-E Glass Windows C A S E S T U D Y

91. New HVAC Equipment C A S E S T U D Y

92. New Modernized Common Areas C A S E S T U D Y

93. New Full-Service Cafeteria C A S E S T U D Y

94. New On-Site Fitness Center C A S E S T U D Y

95. New Conference Facilities C A S E S T U D Y

96. New Parking Lot & Landscaping C A S E S T U D Y

97. New Parking Lot & Landscaping C A S E S T U D Y

101. Covanta Energy Score Card 1 1 1 1 1 1 1 1 1 1 1 1 12 C A S E S T U D Y QUESTIONS Yes (1) No (0) Does the building have any LEED certifications? 0 Are there any tenants in the building who have achieved LEED certification for space in this building? 0 Have you calculated the ENERGY STAR score of the building? 0 If the ENERGY STAR score has been calculated, does the building have a score of at least 60? 0 Are there mass transit options near the building? 1 Have the building's mechanical/electrical/plumbing systems been commissioned within the last three years? 0 Does the building have any special energy efficiency features such as night cooling, passive stacks, chilled beams, geothermal or renewable energy sources? 1 Have renewable energy certificates (RECs) been purchased to offset energy use in the building? 0 Does the roof minimize heat island effect by using highly reflective materials and/or vegetation (have a &quot;green roof&quot;)? 0 Are tenants' spaces separately sub-metered for utilities? 1 Does the building have an indoor air quality management program in place? 1 Is the building non-smoking and is smoking prohibited next to the outside air intake louvers? 1 Does the building use low-flow plumbing fixtures (<1.6pf for toilets and <2.5 gpm for lavoratories and sinks)? 1 Does the building or site utilize high efficiency irrigation technologies? 1 Is at least 50% of parking underground or is the parking surface permeable? 0 Will tenant be permitted to build out its own space and select its own architect and general contractor? 1 Does the building provide a tenant recycling program for paper, cardboard, cans and bottles? 1 Are waste and recycling volumes and/or weights tracked for this building? 1 Are green cleaning practices used in the building and made available to tenants? 1 Are integrated pest management practices used at the building? 1 TOTAL 12

103. Practical Solutions for Greening the Commercial Lease Jesse Nash

105. Green Standards and Leasing Generally An appropriately drafted lease is a major component of any “Green” project – Impacts all major LEED qualification areas:

108. Green Standards and Leasing Generally Green leasing generates a much higher level of Landlord/Tenant interaction and need for mutual accountability.

110. Where Does the Green Go? Operating Expenses - The Split Incentive Problem generally

115. Question & Answer Session Thank you for coming!