This year’s International Council of Shopping Centers (ICSC) RetailGreen Conference & Trade Exposition provided a glimpse into the future of the shopping center industry, and that future is green. The mood of the conference was upbeat despite a difficult year that included store closings and retailer bankruptcies. Shopping center developers, owners, and retailers from across the U.S. gathered at the three-day conference in Hollywood, California, to hear and see the latest trends in the shopping center industry: increasing numbers of shopping center owners and retailers are adopting sustainability (i.e., “green”) measures, not just to be socially responsible, but also because of the substantial electricity, water, and other operating cost savings that can be achieved by “going green.”
It was fitting that the second annual ICSC RetailGreen Conference was held in California, the state which has been at the forefront of the green movement. The state’s passage of The Global Warming Solutions Act (Assembly Bill 32), which requires that greenhouse gas emissions be reduced to 1990 levels by 2020, and Senate Bill 375, which is intended to use the regional transportation planning process to help achieve AB 32’s goals, demonstrates its commitment to the ideals of sustainability. Moreover, California has adopted the nation’s first green building code and several cities (e.g., Stockton and San Jose) require that new developments obtain the United States Green Building Council’s (USGBC) Leadership in Energy and Environment Design (LEED) certification. LEED is the prevailing green building certification system, providing third-party verification that a building or community is designed and built utilizing strategies aimed at energy savings, water-efficiency, carbon dioxide emissions reduction, improved indoor environmental quality, as well as stewardship of resources and sensitivity to their impacts.
Los Angeles Mayor Antonio Villaraigosa was one of the keynote speakers at the conference. Mayor Villaraigosa stated that he is a strong advocate for Smart Growth, the urban planning and transportation theory that concentrates growth in the center of a city to avoid urban sprawl. Mr. Villaraigosa stated that he plans to streamline development procedures in the City of Los Angeles for green projects. Mayor Villaraigosa affirmed his commitment to renewable energy stating that the City of Los Angeles’ public buildings have attained 14% renewable energy use with 20% planned by December 2010 and 40% by 2020. Furthermore, Mayor Villaraigosa pledged to encourage growth centered on a smart transportation system.
Interestingly, the shopping center industry is a latecomer to the green party. As of December 2008, only 200 retail projects had registered their intent to certify under the LEED New Construction or Core and Shell rating systems, compared with nearly 15,000 total registered projects. The most prevalent reason for the lack of LEED certification is the split financial incentives between shopping center landlords and tenants. Most retail leases are “triple net” leases in which the tenant pays base rent, the cost of its utilities, as well as a share of the operating expenses, taxes, and insurance. Consequently, if a landlord makes capital improvements that increase the energy or water efficiency of the shopping center, the tenant, not the landlord, receives the direct financial benefit of the energy or water savings.
Retailers have now caught the “green wave” that is rolling through the U.S. Retailers recognize the marketing benefits of going green. Most major retailers have adopted corporate responsibility programs which include sustainable store development and operations in part because customers and employees desire to shop at, or work for, socially responsible companies. In addition to substantial reductions in operating costs due to energy and water savings, there is growing evidence that sustainable stores which utilize daylighting achieve average sales that are 5% higher than typical stores that use incandescent lighting. Moreover, studies have shown that green stores achieve improved productivity and reduced health impacts from building operations.
As more and more retailers have decided to go green, so have shopping center owners and developers. Mary Lou Fiala, Vice Chairperson and Chief Operating Officer of Regency Centers, a shopping center real estate investment trust, and past ICSC Chairperson, stated that Regency is committed to seeking LEED certification for 60% of all new developments beginning in 2010. Regency has adopted a sustainability program and branded it “Greengenuity.” According to Ms. Fiala, Regency’s capital allocation will now consider an assessment of the LEED certification potential of the proposed new development. Regency’s sustainability program will focus on four areas: employee training in sustainability practices, the cost and scope of green construction, LEED and public relations/marketing, and tenant and site assessment issues.
Ms. Fiala and virtually every other shopping center owner or developer who spoke at the conference confirmed that the greening of the shopping center industry isn’t occurring only for social responsibility reasons – economic factors are a driving force as well. Shopping center owners now recognize that by going green they can achieve substantially reduced energy and water usage costs, higher rents, increased building value through higher net operating income (NOI), improved sales and lease-up of properties, marketing benefits, and public relations benefits, especially in obtaining project approvals in cities focused on sustainability. Additionally, shopping center developers are benefitting from increased use of utility and tax incentives for energy conservation. Ms. Fiala stated that although green projects can cost up to 10% more than traditional developments, they can achieve energy savings alone of 35%.
The conference featured three green projects: Macerich’s redevelopment of Santa Monica Place in Santa Monica, California; Vons’ new Pavilions supermarket in West Hollywood, California; and the new Walgreens store in Evergreen Development’s shopping center in Mira Mesa, California. Tours were offered at Santa Monica Place and the new Pavilions store.
Macerich is seeking LEED Certification from the USGBC for the new Santa Monica Place, an open-air, 550,000-square-foot, three-story shopping and dining destination that is a redevelopment of a former enclosed mall located two blocks from Santa Monica Beach along the Third Street Promenade. The "green" elements incorporated into Santa Monica Place include:
- Conversion of the existing enclosed mall into an open-air center, which significantly reduces heating, ventilation, and air conditioning (HVAC) costs.
- Recycling of 92% of the construction debris.
- Water-efficient landscaping and reduced water usage through use of drought resistant plants and smart irrigation systems.
- Installation of high efficiency lighting and smart controls for common area lighting and HVAC management.
- Preferred parking spaces for hybrid vehicles.
- Construction of “green power” (e.g., solar or wind power) capable tenant spaces.
- Installation of solar roofing.
- Addition of pedestrian walkways and public transportation points.
- Use of low-emitting paints, adhesives, carpets, coating, and other materials.
- Use of “certified” wood (i.e., wood that has been harvested using sustainable practices) and recycled materials in construction.
Vons, a division of Safeway, built the new Pavilions store in West Hollywood on the site of an original 36,000-square-foot grocery store built in 1961. The new Pavilions store, which features a modern, upscale look, has the following green features according to ICSC’s website:
- 85% of the demolition debris was recycled, and nearly 90% of construction debris was diverted from landfills.
- Light-emitting diode (LED) lighting was used in the pilasters, which Safeway estimates will reduce electrical consumption by some 28,100 kilowatt-hours per year. The company also used LED lighting for the exterior signs, resulting in an energy use reduction of 80% from the former standard neon, as well as in the refrigeration cases, for a 63% energy-use and carbon-emissions savings compared to fluorescent lamps.
- Lighting throughout the store is directed at the product, not the floors and walls, which Safeway says brings consumption down to 1.1 watts of electricity per square foot.
- Water runoff from the parking lot and roof is collected and directed to an aquifer, minimizing the impact on the municipal storm water system and amounting to the diversion of about 7,400 cubic feet of storm water per year.
- The refrigeration systems are equipped with ozone-friendly refrigerants.
- Dimming sensors in the backrooms, work areas, stockrooms, and frozen cases achieve energy savings of about 80% yearly, compared with conventional lighting.
- More-efficient frozen-food doors are expected to save 135,655 pounds of carbon dioxide per year and about 280 kwh per day, according to Safeway.
- The exterior landscaping uses drip irrigation to conserve water and minimize runoff.
It was announced that the third sustainable project featured at the conference – the Walgreens store in Mira Mesa, California – had received LEED Gold certification, the second highest LEED certification level. To reduce its impact on the environment, Walgreens built a smaller building, which uses a smaller parking area. The store’s green features include:
- Reserved parking for hybrid vehicles, bike racks, as well as being located close to public transportation.
- Skylights and solar tubes allow the sun to light 75% of the store. Daylighting allows Walgreens to shut down its interior lighting for 5-6 hours per day.
- Coolers, freezers, and exterior signs all use LED lights, reducing energy use by 50% over fluorescent lighting.
- The store, designed to be 24% more efficient than California Title 24 standards, will save enough electricity to power 19.3 homes per year.
- The use of native and adaptive plant species will eliminate water usage for landscaping.
- 85% of construction waste was diverted from landfills and recycled.
Although these green features added an 18% premium to construction costs, Walgreens believes that construction costs will come down significantly with experience and efficiency.
In addition to these projects, the ICSC RetailGreen Conference also featured dynamic speakers emphasizing the strategies of going green.
Brad Davis, former Chief Marketing Officer of SunPower Corporation, opened his remarks by showing a video clip from the 100 People Foundation (100people.org) that dramatically highlighted the tension between world population growth and the earth’s limited resources. The mission of The 100 People Foundation is to help students to better understand the complex issues facing our planet and the resources we share. By framing the 6.7 billion person global population as 100 people, The 100 People Foundation seeks to make education more engaging and effective, and improve students' abilities to remember and relate to what they learn. The statistics presented in The 100 People Foundation’s video were striking – of the 100 people representing the world’s population:
75 people would have some supply of food and shelter wind and the rain;
25 would not.
1 would be dying of starvation;
17 would be undernourished.
83 would have access to safe drinking water;
17 people would have no clean, safe water to drink.
Mr. Davis also gave examples of the importance of the green movement in the digital and technological age and showed slides of many retailers’ installations of solar photovoltaic cells in their stores and distribution centers. For instance, the Macy’s store in Irvine, California, has solar panels that result in electricity savings of 40%. Mr. Davis warned against the dangers of “green washing” – the act of misleading consumers regarding the environmental practices of a company or the environmental benefits of a product or service.
Melissa L. Bradley-Burns, senior strategist for Green for All, a Washington D.C.-based national organization working to build an inclusive green economy strong enough to lift people out of poverty, presented her case for why it is important to go green and why there is public and private money available to support this movement. Ms. Bradley-Burns, the founder and former Managing Director of New Capitalist™, opened her remarks by stating that she is a venture capitalist, not an environmentalist. She stated that retailers that go green achieve a strong financial return, while preserving the environment. She noted, for example, that Kohl’s is “the number one purchaser of green power in this country.” She explained that the retailer isn’t doing it for the publicity, but instead, because it is saving millions of dollars. “It is having an impact on the environment and on the bottom line,” she added, “so this is a clear example that this is really working.”
Another seminar at the conference was devoted to the numerous financial incentives available to developers of sustainable projects. While such programs are beyond the scope of this article, suffice it to say that there are millions of dollars of federal, state, and local incentives available to developers of green projects, particularly those that incorporate alternative energy sources into their projects. For more information on some of the federal programs, refer to: “A Business Guide to U.S. EPA Climate Partnership Programs.”
Finally, Andrew Winston, Founder of Winston Eco-Strategies in Riverside, Conn. and author of Green to Gold closed the conference. He stated that “there is no alternative” to the green movement and warned against missing “the green wave.” He closed with this message, “If not us, then who? If not now, then when?”
Cox, Castle & Nicholson LLP is on the forefront of the sustainability movement in the real estate industry. We have a comprehensive sustainable development, climate change and renewable energy practice with the experience and depth to assist clients in addressing the new and complex areas of sustainable development and climate change regulation, and to capitalize on these emerging business opportunities. Our practice leverages experience from a wide variety of legal disciplines to address the broad spectrum of issues facing the real estate, development and business communities as a result of new legislation and regulations addressing climate change and sustainable development. Several of our attorneys are well versed in the areas of sustainable development, climate change and renewable energy including attorneys who have received the USGBC’s LEED Accredited Professional credential (LEED AP). As LEED AP’s, our attorneys are able to team with clients to analyze whether obtaining LEED certification for their projects is cost effective, and we can help our clients structure their leases, construction contracts, and architect’s agreements to conform to the LEED certification requirements.