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How Much Carbon Does a Laker Girl Emit?

AGS Managing Partner Michael Gottlieb addresses this and other burning questions in his latest piece for Zurich’s Risks Revealed.

http://risksrevealed.com/2012/06/27/how-much-carbon-does-a-laker-girl-emit/

How Much Carbon Does a Laker Girl Emit?

The answer is considerably less than 736 metric tons of carbon dioxide. That’s the total estimated carbon emissions generated by the more than 1,800 attendees of April’s Professional Retail Store Maintenance (PRSM) conference in Anaheim. Organizers of the event, which included a performance by the Laker Girls, offer sponsors the opportunity to pick up the $10,000 tab to offset the event’s carbon emissions. That money will go to a Chinese hydro power generation project to replace a fossil fuel powered plant, according to Jeff Bond, PRSM’s director of vendor relations.

“I’d really like to find carbon offset projects in the US,” Bond said. “We just can’t find it.”

PRSM might have found that opportunity just to the north at this year’s AltBuild Expo, which attracted an estimated 7,500 attendees to Santa Monica in May. This deeply green event incorporated compostable catering products and a bike valet among various other efforts to make the event as close to zero waste as possible. But the free program’s organizers did not have a budget for carbon offsets.

“Basically we have found it better so far to put our budget and energy into reducing the footprint than paying for making a larger one,” said show producer Christine Dzilvelis of Platia Productions.

Both events placed a significant emphasis on green real estate education, services and products, but the different approaches to mitigating the carbon footprints of the more glitzy PRSM conference and the more granola AltBuild are reflective of a broader divide in business’ approach to sustainability. At one end, you have the true believers, those for whom investing in sustainability provides an inherent benefit regardless of the financial return, and therefore they are not basing their decisions solely on payback. At the other end, you have a much larger cadre of the business world that invests in sustainability primarily for the potential financial return. For that group, particularly in the real estate world, return on investment (ROI) is paramount and also a major inhibitor of green investment.

ROI based real estate investments require relatively short payback periods with returns coming to the property owner in order to justify the investment they make in their assets. With green, which may require paybacks that exceed average real estate hold periods and benefits a more diffuse group of stakeholders, investments may fail to meet simple payback expectations and the risk-adjusted return is questionable. Usually investments are not made without a clear understanding of the risks and returns, but does that mean that green property improvements have no value? No.

If, for example, a property owner invests $100,000 in replacing windows with energy efficient ones, at least a portion of that cost should add to the value of the property when it is sold. That value, combined with other benefits, such as reduced operating costs as well as enhanced tenant attraction and retention, create a more compelling case for green investment.

A new study, “Portfolio Greenness and the Financial Performance of REITS,” by Maastricht University’s Piet Eichholtz, Nils Kok and Erkan Yonder explores this issue by investigating the effects of the energy efficiency and sustainability of commercial properties on the operating and stock performance of a sample of US Real Estate Investment Trusts. They found that the greenness of REIT portfolios is positively related to operating performance. If a REIT increases the share of green properties in its portfolio by 1 percent, its return on assets increases by around 3.5 percent for properties certified by the US Green Building Council’s Leadership in Energy and Environmental Design (LEED) program and by 0.31 percent for Energy Star-certified properties.

Furthermore, the trio found that the predicted greenness variables have significantly positive effects on REITs’ return on equity as well. If a REIT increases the share of green properties within the portfolio by 1 percent, the return on equity significantly increases by 7.39 to 7.92 percent for LEED-certified properties and by 0.66 percent for Energy Star-certified properties.

According to the study, the greenness of REIT portfolios also affects cash flows. A 1 percent increase in the share of LEED-certified properties in REIT portfolios raises the ratio between funds from operations (FFO) and total revenue by 17 to 25 percent. The share of FFO as a fraction of total revenue increases by 2 to 7 percent if REITs expand the share of Energy Star-certified properties in their portfolio by 1 percent.

“Given our findings that portfolio greenness is positively related to operating performance and negatively related to risk, these market developments provide a positive outlook for the return on equity and the return on assets of REIT investors, and are likely to partially shield REIT returns from the volatility of the business cycle,” the study’s authors concluded.

No doubt that as the number of green buildings as a percentage of the total commercial building stock continues to grow, the understanding of how green impacts value also will grow. This ultimately will influence the economic behavior of the real estate industry as it relates to sustainability. That shift in behavioral economics – a concept recently introduced to me by my friend James Finlay, vice president of commercial real estate and appraisal manager at Wells Fargo Bank and one of the sharper minds on assessing the value of green real estate – will change how the real estate industry values green.

In a nod to human behavior – for those of you who read this piece because of my initial question – here’s my best answer. I estimate that each Laker Girl emitted no more than 900 pounds of CO₂ by performing a couple of dance numbers at PRSM, which is considerably more than the reported 130-pound weight limit prospective Laker Girls must meet when they audition in July. Go figure.

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