Flipping Green Houses

From Calgary HeraldOzzie Durock
Environment trend has green cash potential
Note: Real estate expert Ozzie Jurock is to be a speaker for the real estate section of the InvestFest conference, which is to be held on June 8 to 11 at the Fairmont Palliser Hotel in Calgary.
"According to a new U.N. report, the global warming outlook is much worse than originally predicted. Which is pretty bad when they originally predicted it would destroy the planet." Jay Leno
Green. The term is everywhere these days.
Climate change and global warming have become the new doomsday clock, the new cold war, the new Y2K of our collective what-if nightmares.
Attempts to inject rational thought into the zealous belief that human activity will cause seas to rise, crops to fail and hurricanes to whirl is being drowned out in an amazingly on-script media and public chorus.
Yet, according to the Intergovernmental Panel on Climate Change, the international august body which recently released its definitive report, if the entire world accepted the complete Kyoto protocol (which commits to reduce carbon emissions by five per cent from 1990 levels by 2012) tomorrow, there would be no noticeable change in the planet's climate for 80 years -- at a cost of five Iraq wars per year.
To put it another way, if Canada immediately stopped producing any form of greenhouse gas emissions, it would take only 18 months for that to be replaced by China's growth in emissions.
Sorry, your new Hybrid will not make much of a difference in the big global picture.
We agree with the premise behind climate change, but we also agree with the findings of the experts that nothing we do in our lifetime in Canada will make any difference, and it is not likely it will change the weather for our children, or even our grandchildren.
It reminds me again of the old adage: "Forecasting is never easy, particularly when it is about the future."
But the American government currently spends 51 cents US per gallon to oil companies to produce ethanol, plus a thousand other incentives and that lead us to believe that we should be buying farmland in Saskatchewan, for example.
The U.S. government also gives some $6.5 billion in grants to the "green research" industry.
All that momentum -- valid or not -- will accelerate the train towards more greening. Most importantly, the reality is that the Canadian public, especially in B.C. and Alberta, are solidly behind the climate change philosophy and most (at least 80 per cent according to a recent poll) want to personally do something about it.
With that kind of support, green is a force to be reckoned with in the real estate industry and it would be a fool who would ignore the challenges and opportunities it represents (certainly -- we hasten to add -- in my own home, we recycle religiously, eat organic, use biodegradable cleaners and soaps, and we look continuously for ways to be become more and more aware.)
The green real estate effect is already having an impact on everything from house sales to farmland, from condominiums to waterfront.
We have seen some very interesting real estate reactions to the green philosophy, some of which were overdue and make good economic sense.
Consider Avalon Homes of Red Deer.
Five years ago, as a newcomer to the booming Alberta new home market, Avalon was struggling to make its first sales and find a niche in the competitive market.
Then it began marketing itself as the "green builder," constructing homes that are a notch above others in Alberta's popular Built Green program founded in Calgary.
Today, Avalon is among a dozen builders across Canada -- and three in Alberta -- chosen by the federal government this February as the top environmentally conscious in the country.
Last year, Avalon sold 200 new houses, making it the number one builder in Red Deer despite charging more than its competitors.
It expects to top that sales pace this year. Its prototype house has solar panels on the roof, thick insulation and other green attributes that make it a "zero net energy" house, meaning it can actually produce as much energy as it uses.
Chard Developments in Victoria is another example.
In the midst of a slowing new condo market in Victoria, which saw 3,100 new condos started last year alone, Chard presented a "green twist."
In its pre-sales for its 15-storey Juliet tower now being built on Johnson Street, Chard offered to cut $25,000 off the price if the buyers would forego an underground parking space for a bicycle locker and a deal to join in a local car share program, where Chard would pay their initial membership fee.
It worked. The lower cost suites -- in a building with an average per-square-foot price of $500 -- sold first and fastest, the project received positive press as a green project and Chard could spend less on the parking space.
In Vancouver, developer Aragon Properties Ltd. is marketing a townhouse project that it built on spec on a former industrial site in one of the less-than desirable neighbourhoods of Marpole.
But, by an intelligent blend of fairly low-cost green features, its Moda project has proved a hit with the upscale, yuppie clients it was aimed at.
The green attributes include recycled brick for interior walls, reclaimed wood for the hardwood floors and individual gas meters allowing residents to monitor and control individual gas use, plus Energy Star washers and dryers.
Not a lot of green, really, but enough to notch Moda successfully into the "green marketing" environment.
Of course, the green marketing can stretch credulity a bit.
In Ucluelet, where legendary golfer Jack Nicklaus is backing the new Wyndansea Oceanfront Golf Resort, developers have recruited the Audubon Society, a non-profit environmental organization, as overseers on the project.
The entire project, which will cover hundreds of hectares along the Pacific Coast, will also be built to the Leadership in Energy and Environmental Design (LEED) Gold standards.
It turns out, incidentally, that the Audubon Society is overseeing 27,600 hectares of "sustainable" golf courses around the world (only a cynic would question that if the developers are so concerned with the environment, why they didn't just leave the pristine waterfront alone.)
Nicklaus and co-developer Marine Drive Properties recognize that green sells.
We share their confidence that the golfside residential lots, expected to start in the half-a-million dollar range, will sell out, and probably quickly.
For there is no overestimating the green demand side.
Fully two-thirds of Canadian consumers would switch their spending to companies that have demonstrated a commitment to green policies according to a survey done last month by Environics Research Group.
The poll found that 67 per cent said they are likely to switch to green businesses.
In British Columbia and Alberta, consumers are most likely to make the switch, with 83 per cent saying they would, even it meant paying a higher price.
"We're seeing a fundamental shift in consumer behavior that reflects the increased mainstreaming of environmental consciousness," says Michael Adams, founding president of Environics. "Canadians are very deliberately rewarding those companies who are taking action on the environment."
The flip side message: consumers will punish those who don't make environmental improvements.
So as a real estate investor, what does this mean to you?
As with any investment opportunity, there are many in the green area. When we can do our homework and find bargains and growth opportunities before the general market recognizes them, it is always a good thing.
First of all, buy into green buildings.
The ones built to green standards are usually built better and tend to retain tenants longer and command higher rents.
Buy into green condominium projects because they attract the kind of upscale, higher-income consumers you want to be associated with.
Ditto for commercial buildings.
Studies, such as Green Building Costs and the Financial Benefits (done for the Massachusetts Institute of Technology in 2003) show that while incorporating basic green features to a building can add less than one per cent to the overall cost, tenants are willing to pay higher lease rates, tend to stay in place longer, and the owners enjoy lower maintenance and energy costs.
"It used to be risky to go green," says Gregory Kats, managing principal of Capital E Group and former director of financing for energy efficiency and renewable energy at the U.S. Department of Energy.
"Now, it's clear, it's more risky to design inefficient and unhealthy buildings. It's bad management and bad investment strategy to not build green buildings."
Mark Palmer, San Francisco's green building co-ordinator, notes: "In a study of 33 buildings nationally (in the U.S,) the average added cost for building green was less than two per cent and the return was 10 times the investment over a 20-year period."
We would also advise investors to still look at waterfront real estate.
We know, we have seen the scary headlines and seen the Al Gore clip of New York and Florida disappearing beneath the waves.
Yet, according to the best and latest information and projections from the Intergovernmental Panel on Climate Change, worldwide sea levels may rise about 41 centimetres (16 inches) in 100 years.
If your oceanfront property is a yard above the water, you should be OK. Of course, lakefront would likely not be affected at all.
Buy farmland on the prairies. In Idaho and Iowa -- major producers of crops used for ethanol production, considered a greener fuel additive, farmland values have shot up as much as 20 per cent in the past year to $5,000 US per acre.
In Saskatchewan, where three ethanol plants are operating and a big one is about to open near the U.S. border at Belle Plaine, croplands average $350 per acre.