Harvard Business Review Meet Azure

Recently Jim Schutze, writing for the Dallas Observer unloaded his thoughts regarding the Dallas tax subsidies, W Hotel, Victory Development by Ross Perot Jr., and the Azure development by Harwood. Looks like a link dump, I know. I wanted to throw an extra stick on the fire, for all those that aren't tired of beating a dead horse. For your sake, I intend to write about this subject in the light of the recent Harvard Business Review article entitled "Building the Green Way" (by Charles Lockwood). This article is $$, so I included a link from the U.S. Green Building Council's website where you can find an extract and commentary on the HBR article.

Like everyone else in a targeted zip code, I've received Azure fliers in the mail, and at first, the only thing they made me want to do was drink water. You'll know what I'm talking about if you've received one. The place looks to be a great development, like the other ones in Dallas--another condo high-rise building in the near Uptown area, or so I thought. Maybe I will rethink my original position.

Back to the HBR article. Before 2000, building green was experimental, but now, companies are starting to discover that incorporating green design from project inception will help them (1) reduce construction costs and (2) lower operating costs. What does this mean? You can build green, match the initial negative cash flows of an equal, non-green development, and have lower future, negative cash flows (or larger positive cash flows). For valuation, this is huge! You can build green for the same as other buildings and have lower going forward costs! So, what's the barrier to going green?

There are plenty of barriers. First, there are a ton of buildings out there with money wrapped up in long amortizations and they aren't going anywhere. Such an example might be the Victory Development (W Hotel and accompanying buildings). Why didn't they go green with that one? Where's the USGBC certifications? And if I'm understanding Jim's article correctly, the Victory Development is brand new and built to old-school building codes. How about that for responsibility?

What would be the motivation for not incorporating green design in a modern looking building? I can think of only one (help me out): build cheap, sell high, and force the hotel operator to cover operating costs. What? Yeah, that's a problem. The common separation of building owners and building operators seems to encourage friction. If the operator were building, it may prefer green structures that have the prospect of lowering operating costs. I digress, but I can't think of what's going on here...

The real point--Azure is a new development that will be built to green standards. Not only will it get the USGBC's second highest rating for energy efficiency and environmental design, it is shooting to achieve the USGBC's highest rating (platinum).

Here's the rub, and this is really funny. We're paying for the Victory deal, but we're not paying for the Azure. Now consider that information in the lens of this direct quote from the HBR article extract at www.usgbc.org: "While the looming shift to green buildings brings many benefits to companies, it also brings massive obsolescence to hundreds of billions of dollars in existing commercial space in the US and worldwide...corporations no longer have an excuse for eschewing sustainability and forgoing LEED certification-they have tools that are proven to lower overhead costs, improve productivity, and strengthen the bottom line."

Author's disclaimer: While I think some of the Victory Developments clash with the architecture of the American Airlines Center, I love the look of the W Hotel. I'm glad we have it, but I don't quite understand why green standard certifications weren't achieved and incorporated to match its modern design.