Green is becoming a selling point for skyscrapers

NEW YORK -- When owners of the Empire State Building decided to blanket its towering facade this year with thousands of insulating windows, they were only partly interested in saving energy. They also needed tenants.

After 78 years, Manhattan's signature office building had lost its sheen as one of the city's most desirable places to work. So the owners did what an increasing number of property owners have done -- they went green and shelled out $120 million on a variety of environmental improvements, a move that would have been considered a huge gamble a few years ago.

Buildings that define city skylines across the country -- some national icons -- are catching up to the sleek, new structures designed with efficiency in mind, as property owners and managers become convinced that a greener building now makes financial sense.

That's because in recent years, environmental retrofits have begun to pay off for owners and tenants alike. Higher-profile companies are seeking more efficient office space, and new technology at older buildings has started to translate into higher property values, leases and occupancy rates.

"In a good market, we're going to get the best rents for the best tenants," said Anthony E. Malkin, who leads a real estate group that owns the Empire State Building. "In a bad market like we have now, we're going to get tenants when other buildings won't." Renovation specialists around the country have been plugging porous walls in numerous old buildings, adding high-tech water systems and using recycled material in carpets and tile.

One of them is the Christman Building in Lansing, Mich., an 81-year-old Elizabethan Revival office that is listed on the National Register of Historic Places. While repairing the limestone exterior and preserving unique details such as the mica light fixtures, the building owners spent $8.5 million to add water-efficient plumbing and increased the amount of natural light. They also capped the building with a reflective "cool" roof.

Chicago's Willis Tower announced in June that it will embark on a five-year, $350 million green renovation. The 110-story, staggered skyscraper, which turned 36 this year and was known as the Sears Tower, will crown its rooftops with solar panels, wind turbines and up to 35,000 square feet of sunlight-absorbing gardens.

When complete, the improvements will cut the tower's annual electricity use by 80 percent and save 24 million gallons of water, property managers say. Building owners trumpet their environmental commitment when extensive modifications are made, yet in many cases those changes are being pushed by tenants.

Many high-profile tenants won't even consider moving into a property without the U.S. Green Building Council's Leadership in Energy and Environmental Design certification, said Allan Skodowski with Transwestern management group. They may not even know what the certification means, he said, but they demand it nonetheless.

"They say 'We want LEED,'" Skodowski said, "and that's it."

Nine of Transwestern's properties received certification this year. A combination of energy-efficient light bulbs and other green equipment helped those buildings slash energy consumption. On average, they've seen a 2 percent drop in energy costs, even as electricity rates jumped between 10 percent and 40 percent, Skodowski said.

Leasing rates have not risen as a result of the changes, Skodowski said, yet occupancy rates have not fallen. That's a victory for an industry hit hard by the recession. Vacancy rates at office buildings nationwide rose from 10.9 percent at the end of 2007 to 12.4 percent in the first quarter of this year.

"If one extra tenant comes and looks at the building, if the owner gets an extra penny or so a foot, then at the end of the day it's paying for itself," Skodowski said. Arecent analysis by real estate researcher CoStar Group, Inc. found that green-certified buildings had fewer vacancies than other buildings with similar age, size and location.

The CoStar study, which included about 3,000 green-certified offices, found that buildings with the council's certification enjoyed higher occupancy rates (90.3 percent) than their peers (84.7 percent) in the first three months of 2009.

Certified buildings have fetched higher lease rates for several years. The CoStar report said the buildings rented at an average of $38.86 per square foot in the first quarter of 2009, compared with $29.80 per square foot for their peers.

"This isn't just a 'we are doing the right thing' movement," said Marc Heisterkamp, the U.S. Green Building Council's director of commercial real estate. "In the end, the numbers pencil out."

At the Empire State Building, Malkin proposed a top-to-bottom renovation that included a $13.2 million investment in new green technologies. The goal was to sufficiently reduce greenhouse gases without spending more than he could justify to his investors.

What the owners settled on was a series of upgrades that include retrofitting all 6,500 windows. Under every window, radiators will be padded with extra insulation. The building's lighting, cold water and ventilation systems also will be upgraded.

The renovation should take 18 months. Afterward, the owners expect an annual energy savings of $4.4 million, enough to pay off the new technologies in about three years.

Already, the renovation has lured upscale, energy-conscious companies such as Swedish construction firm Skanska, said Ray Quartararo with Jones Lang Lasalle, which is managing the renovation.

"We had looked at several downtown spaces, but the Empire State Building made the most sense," a company spokeswoman said.