Are there risks associated with sustainable developments? And if so, how can they be managed?
As with any emerging market, there are new risks associated with sustainable buildings that need to be managed in a way that reflects the priorities of the developer and any financial partners. Risk management options naturally depend on the developer's choice of sustainable strategy outlined above, but may include:
Cream skimming
In this strategy, the developer offsets some risk by being among the first to tap into a particular limited market segment. If, for example, only 1% of the market would be interested in paying a particular level of premium, then the first player to enter that market has a natural advantage.
Clearly, this approach inherently exposes the developer to the risk that the market isn't strong enough to justify the investment.
Learning from others' experience
Conversely, a strategy of copying cutting-edge projects may still enable a developer to capture market niches but can reduce risks by learning from mistakes of those doing entirely novel things.
Developers, Harold Kalke suggests, have, like other industries, become caught in a rut of doing a predefined series of tasks, and in doing so have lost the ability to look at the market in new ways. Where Geller and he innovate and find new and better ways of doing things, he hopes others will follow:
"What we really need in the development industry, and in places like Nelson and all over the place, is examples," he says. "Innovative examples of, like, little break-out things. Because developers are very good at copying things. What I want to do is drive around Michael's thing at SFU and copy. Really, that's all I want to do."
"You want me though, to experiment and be the first one to find out whether the market will pay for things like composting toilets in every bathroom," jokes Geller.
"Particularly that!" Kalke agrees.
Sharing risk with partners
Clearly, the more willing project partners are to assume risk, the less developers need to assume themselves. In the case of the Lillooet solar pool, for example, the developer was able to raise funds from local companies who could both see the business case, and who had their own interests in promoting the use of local alternative energy.
Taking advantage of special 'sustainability' development benefits
Developers' risk can be somewhat offset by taking advantage of particular government or local authority programs that aim to support sustainable initiatives.
Bob Rennie puts it this way: "[A developer has to ask,] is there enough of that conscious demographic to warrant the extra expense? If not, if you get the municipality or City to offset with density, or something they give you to recognize that you're educating them what the requirements should be, and that you've met some of it, so you can now bring in a much broader demographic because it's not costing them any more…[otherwise] our profit margins are so narrow here, you just have to up the price -- you can't pass it on.
How can developers promote sustainable buildings?
The group proposed a number of ways in which sustainable buildings could be sold to clients.
Precedent
Supporting Harold Kalke's view on the importance of showcase examples, Michael Geller notes from experience the power of precedent in creating clients' awareness of novel building features:
"Interestingly, after Concord Pacific did its presentation centre and demonstrated all the wonderful technological features they were putting into their units, they changed the public perception, I believe, towards technology. And I think that Bob's client built on that in the residences on Georgia, whether deliberately or not, they benefited because Concord suddenly got people asking about technology cable, [and other novel features]. People came into Bay Shore and the first thing they wanted to know was about our Internet capability!"
Identifying sustainability 'hot buttons'
Bob Rennie has also seen how information technology features have become sought after as 'hot buttons':
"I'm doing three 'star wars' technology…projects in Seattle, and always the consumer wants to know 'who are my cable providers, my telephone providers, and high speed internet access [providers]-- that's it".
He suggests that sustainable building developers need to similarly identify and create awareness of parallel sustainability 'hot buttons'. He uses the example of an 'away button' -- a switch an occupant could press on the way out of the door to lower the temperature of the room and switch off all the lights.
"People are lazy -- it's absolute convenience -- they don't want to be educated about this… You just need one thing that you can bring it down to that is so simple that the consumer can think, 'do you know what -- that's great, I don't want to run around and turn all the lights off and I don't want to pay the electric bill'".
"You almost have to find three or four absolute 'hot buttons' that people start asking for….because all this quantitative stuff, nobody cares, because they don't get it, because you're making them look stupid. But an away button I can understand. A low-flush toilet I can understand."
Emphasizing long term benefits to occupants
Harold Kalke, meanwhile, sees long term benefits as the 'hot buttons' he sells to his clients, who typically include that niche market willing to pay a premium for sustainability. "Every project I do … must materially and positively influence the occupants' lives. Materially means money. As the market goes down, their investment in one of these units should go down the least and in an upmarket it should go up the most. How do you do that? [By ensuring there's] a long range quality about it. It's not going to leak…it's well built, that's what it is. But the other thing… is the occupancy cost. Things like water and energy and sewer and all the things you get hit for by the city and other agencies such as Hydro [are lower], so that's how you sell this stuff."
Branding
An important technique Bob Rennie uses to sell condominiums is to specify well-known and sought after electrical appliances. Clients may not know much about, say, building envelopes, but they do recognize the quality of a 'Sub Zero' refrigerator and may associate the whole condominium with the quality cues they can recognize.
Harold Kalke uses a similar approach with whole buildings: "Because when I give you that building to sell, you can't sell concrete and rebar and copper pipes and all of the stairwells that meet zoning codes and the National Building Code, there's nothing to sell yet."
He turns to Bob. "What do you sell?"
Bob Rennie sells Sub-Zeros.
"OK, a Sub-zero. So what you're selling is brand. And the more brands you can hook into, let's say a residential unit, then the better for you. But what about the building itself as a brand? That's where it's at. So if I spend 10% more money, and I can get 300% [return] on that 10%, then that's where the margins are. Because otherwise I'm just competing with concrete and land costs or just trying to beat the trades down and down and down."
Who should take the lead in marketing and education?
Realtors
Not realtors, argues Bob Rennie: "Realtors don't carry knowledge," he says. "They only go find it when asked to do so. They're the toughest crowd…"
Developers
Harold Kalke, believes that innovative developers should assume responsibility for their own market: "I think that the primary role has to be brought to bear by developers. And the reason is that the industry itself is always looking at the focus groups and looking in the rear view mirror as to public opinion."
Municipalities / other organizations
Michael Geller, meanwhile, sees market development and education as something external organizations can usefully become involved in. "I don't think it's the architect or the developer's responsibility to educate the marketplace in terms of the benefits of energy efficient buildings," he says.
"I think it's a broader society responsibility, and the logical people to do it are 'energy companies', or government or other interest groups in society who are deemed to be knowledgeable and reasonably independent. Ironically, I often find that if the developer suggests something, more often than not that's a negative in itself. But what we don't have right now are enough entities out there creating a higher level of awareness of what Bob's talking about. Many years ago I used to be on something called the Canadian Housing Design Council, and one of its mandates was to educate the consumer as to what sorts of things they might expect and demand. And in the absence of things like that, at the end of the day it is the realtors and the developers who end up letting the public know because there isn't that broader knowledge being disseminated."
