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Sustainability as an Imperative and Opportunity for Medical, Educational and Cultural Institutions

By Matthew Kiefer
October 2009
People: Darren M. Baird

Sustainability as an Imperative

Once motivated by altruism, sustainable development and building operation is increasingly encouraged by governments and market conditions, if not mandated by law.  The reduction of greenhouse gas emissions to mitigate climate change is becoming a paramount policy concern at the local, state and federal levels.

Market Standards

The real estate industry has come to embrace “green building,” meaning construction and operation that minimizes environmental impact and is resource-efficient.  The U.S. Green Building Council’s (USGBC’s) Leadership in Energy and Environmental Design (LEED) Green Building Rating System has become the de facto market standard.  Many institutions have developed LEED-certified facilities to serve their campuses, ranging from dormitories to laboratories.  The U.S. Environmental Protection Agency’s ENERGY STAR program also enjoys significant and broadening market acceptance, to evaluate relative energy efficiency within asset classes.

Regulatory Standards

Not always in synch with market conditions, the regulatory landscape is changing rapidly regarding all aspects of sustainability.  LEED is increasingly required by local ordinance, or to qualify for government requests for proposals, and grant programs often favor or require sustainability.  Moreover, many states have tightened their energy codes for new construction and major renovations.  New York City has introduced legislation that would require existing commercial buildings over 50,000 sq. ft. to perform energy audits regularly, and to perform upgrades that are cost-effective over a five-year period.

Sustainability as an Opportunity

Sustainability may present attractive opportunities to medical, educational and cultural institutions, while taking into account their unique challenges, often including:

  • Charitable missions imposing special obligations
  • Long-term facility ownership
  • Real estate operations on a larger, often campus-wide scale
  • Longer lead time for facilities planning
  • Regulatory overlays specific to medical institutions

Energy Efficiency

To improve their energy efficiency, institutions may hire specialized consultants to retrofit facilities and/or retrain operations staff.  Another common model is to hire an Energy Service Company (ESCO) to guarantee a specified degree of improvement.

Distributed Generation

Due to regulatory and market changes, large facility owners and managers can also feasibly generate a larger share of their own energy on site from alternative energy sources.  This requires interconnection agreements with local utilities to allow on-site facilities to interface with the grid, procurement contracts for equipment and consultant services, and/or power purchase agreements with on-site energy suppliers.

Reducing “First Costs”

Available government and utility-based incentives for green building vary based on specific location and issues with local regulated utilities.  New incentive programs are being introduced monthly, including tax-exempt bonds, grants, rebates and loan guarantees, Renewable Energy Credits (RECs), and tax credits and deductions.

G&S Services

Institutions must draw upon many disciplines to determine whether it makes sense to retrofit facilities, adjust operations, and change the way new development is undertaken.  Our years of experience in real estate development, and our extensive network of industry relationships, enable us to assist our clients to select and tailor appropriate measures to achieve their strategic goals.

For questions about the information contained in this advisory, please contact your usual Goulston & Storrs attorney or either of the following:

Darren Baird
(617) 574-6572

Matthew Kiefer
(617) 574-6597

This G&S advisory was authored by Matthew Kiefer, a member of the firm's Real Estate group.

This information should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have.

Pursuant to IRS Circular 230, please be advised that, this communication is not intended to be, was not written to be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.

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