Making the Case for Investing in High Performance Green Building
Our View From 10,000 Feet
“Buildings are the single largest contributor to global warming, accounting for almost half of total annual US energy consumption and CO2 emissions.” – US Energy Information Administration
While a typical building may not have an obvious tailpipe, it does create a tremendous amount of pollution over its life cycle. In fact (and shocking to most), buildings are responsible for 48% of all energy consumption, which compares to 27% for automobiles and light trucks — nearly double the amount.
Overwhelming challenge or tremendous opportunity?
Undoubtedly, the “built environment,” a term that is increasingly becoming the way we define our man-made surroundings ranging from our homes and offices, to our schools, hospitals and civic centers, is in the early stages of a profound transformation.
While far from a new approach (the US Green Building Council published LEED-NC in 1998), we believe green building crossed a tipping point sometime in 2006 and is poised for rapid acceleration. Today, leading developers, builders and designers worldwide are embracing the opportunity as a core business strategy. I like this recent quote from Greg Shay, President of Boston’s largest property owner Equity Office Properties Trust, who said: “It’s gotten to the point where not taking action is somewhat foolish.”
Growth drivers are coming from both the top down (policy mandates) and from the bottom up (financial returns). Across the US, over 75 cities have adopted green building ordinances, including Los Angeles, Boston, Dallas, and San Francisco. In addition, early studies from CoStar and Berkeley suggest that green buildings generate higher rents and better cap rates. Feedback from industry leaders consistently suggests that green buildings just sell or lease up faster, reducing risk and increasing returns.
Not surprisingly, entrepreneurs are drawn to the opportunity to develop innovative materials and technologies focused on the $1.4 trillion construction industry.
Opportunities for a Venture Capitalist
In short, here’s where we at Navitas Capital see some of the best opportunities to drive change in the built environment and where we plan to invest our time and money in the years ahead.
Sustainable Building Materials
Drywall, concrete, windows, steel, and other building materials require a tremendous amount of energy (embodied energy) and natural resources to manufacture and install on a jobsite. Did you know that cement alone is responsible for producing 5% of all manmade C02 emissions globally? New startups like Serious Materials, Integrity Block, and iCrete are rethinking the building materials manufacturing process and are coming up with high performing replacements that are competitively priced and use far less energy and natural resources to manufacture.
Building Automation
Whether in the design, construction or operation of a building there are lots of opportunities to make the process more efficient, thus saving time, money, and hassle.
Ask yourself, does it really make sense to build a “virtual” factory on every job site? Imagine being able to automate the building process in an off-site factory and assemble a better performing building in just a matter of days. This off-site construction method is already being done successfully in many places around the world (e.g. Japan and Europe) and is already making its way to the US. Check out Michelle Kaufman Homes, LivingHomes and others in this innovative area.
And what about measuring and managing energy, water, and air quality levels in our buildings and homes once they are built? New startups are addressing the need for cost-effective, smart applications that will help measure and thus reduce (we need to know how much we’re using before we can start reducing!) energy and water consumption over the life of a building.
Finally, what about all the time consuming paperwork and the variety of stakeholders in the construction industry? We think software and other web applications will help streamline and speed up the building process through more efficient means of communication and information sharing during both design and construction. Building Information Management (BIM) is a broad example of this technology being used today.
Water Management - Blue is Clearly the Next Green
After oil, we have all been reading that water is going to be the next critical natural resource in short supply. On-site there are opportunities to manage our total water consumption by reexamining the way we use water for drinking, showering, irrigation, and even flushing our toilets. Where are the opportunities? How about recycling gray water or capturing and using rain water? Or how about “smart” irrigation systems? Or wirelessly identifying and shutting off leaks when they occur?
On-Site Renewable Energy & Storage
Finally, there are extraordinarily good opportunities to create distributed power systems where energy is produced on-site through a variety of means, whether it be solar photovoltaics (PV), building integrated photovoltaics (BIPV), micro-wind turbines, or fuel cell technology. While first costs have remained expensive and tax credits have been hard to come by (expanded Federal tax credits were included in September’s $700 billion bail out package), the ability to go “off the grid” with renewable energy is an exciting vision that has been the focus of many leading entrepreneurs. The long term goal of course is to create “net zero” buildings where the building itself produces as much renewable energy as it consumes.
Conclusions
Green building is rapidly changing the construction industry and forcing all of us to ask questions about how best to address this transformation. Unquestionably, cost and performance are still of primary importance and require careful consideration prior to any building or investment decision.
With these considerations in mind, there is a tremendous opportunity for innovation at various points along the construction process and we are excited about working with the entrepreneurs, developers, builders and designers who are leading the way to a sustainable future.