Certification: Why it Pays Developers to Invest in Sustainable Designs

By Jerry Schmits Director, KLH Energy Solutions | November 23, 2014

Ever since the first hotel became LEED certified in 2004, the USGBC has been refining its signature program for the hospitality industry, and it's reward has been the steady increase in number of registered projects. This year alone, the number of LEED certification projects represented by my developer-clientele has doubled compared to 2013, while both the volume of total projects and clients has remained relatively constant. And while the impetus for LEED certification among this group of developers is largely attributable to the mandates and programs sponsored by the corporations and franchises for which they build, it was generally assumed that there existed a strong business reason why companies invest in the LEED certification program. As it turns out, the reasons are many-all of which contribute to a better health: from both the perspective of the property's environment and it's bottom-line.

There is plenty of information and studies charting the effects of LEED certification on commercial buildings. However, independent data specific to the hospitality industry is sparse when it comes to comparing LEED certified properties to non-certified properties. One of the most recent and comprehensive studies was published by Cornell University School of Hotel Administration through the Center for Hospitality Research (1). The study concluded that during the immediate two-year period following certification, there is evidence supporting greater financial performance (e.g., higher ADR and RevPAR) among LEED certified hotels compared to their non-certified competitors. What's most interesting about the Cornell report is the data related to the trend in ADR and RevPAR figures (for the two property groups), which was tracked during the year prior to LEED certification and for a period of two-years immediately following certification. Two years after certification, the mean ADR for LEED certified hotels was $20 higher ($169) and the mean RevPAR had climbed from $88 to $111, surpassing that of the non-certified competitors.

Of course, there are many variables that contribute to strong balance sheets the industry-specific metrics mentioned above. But at its core, the LEED project aims to create responsible construction and operational practices-through the sourcing and use of energy efficient and environmentally-friendly materials-in buildings of all types. And the argument for applying these principles extends beyond the hospitality industry. The Pacific Northwest National Laboratory (PNNL) was recently commissioned by the GSA Public Building Service to conduct a study of facilities designated as "sustainable buildings" (2) . On average, the study found that sustainable buildings had 25% less energy usage, 19% lower operating costs, 36% less CO2 emissions and 27% greater occupant satisfaction.

All of this is great if you're an academic or a data wonk, but business decisions are mostly made by financial justification, and the devil is always in the details. Mohamed El-Sayed is Managing Partner of the Energy Solutions Group at KLH Engineers. Having worked with hotel and resort property developers for the past several years, EL-Sayed says LEED certification meets his clients' needs on many levels. "My clients demand it, the market rewards LEED certified projects with higher property values and the customer satisfaction data indicates that guests respond more favorably in (certified) properties". "Despite the marginal up-front costs, my clients have been incorporating LEED certification into their projects for years-especially those located in areas where building commissioning is a code requirement." When discussing the program's operational cost impact, El-Sayed added, " When you consider the benefits of added property value and other industry performance metrics, in the long-run, the investment clearly provides a good return".

One of these clients is Greg LeBon, Vice President and Director of Design at T2 Development-a member of the Tarsadia Hotel Alliance. LeBon has spent his career in the construction and design industry, and has been developing real estate projects since 2001. T2 Development has been incorporating LEED certification into their projects since 2010-a corporate decision that is founded in many principles. While acknowledging that there are financial, competitive and intangible benefits realized by committing to the LEED process, he states that the most fundamental purpose has a more global tone. "We have a responsibility to ourselves, our community and the resources we depend on to construct responsible buildings", says Lebon. From a financial perspective, LeBon will argue that LEED certification has little effect on the project proforma. He asserts that materials, finishes, and added certification requirements don't necessarily cost more, in fact, it's his belief that the contrary is true. "Building to LEED certification pushes developers to think about the long-term effects of the building. And in doing so, you create a property that continues to offer a space that maintains a new look and feel for 5 or 10 years after constructio."

When asked about the some of the more notable amenities of a LEED-certified hotel, LeBon offered this observation. "Millenials and Gen X'ers are the guests who will spend time in our hotels and resort properties in the years to come. More than any other generation, they appreciate corporate social responsibility. If we can convince them that you have the right brand, you'll have their loyalty for a lifetime". He believes that they notice sustainable business practices, and that even the smallest of details contribute to higher guest satisfaction surveys. "When you finds outside doors open to conditioned spaces, or if irrigation systems are watering paved surfaces as much as the green space, these small details create mental cues that contribute to the guest's perception of your hotel".

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