The Largest Private Real Estate Development in U.S. History Goes Green

At Related Companies, climate change is driving new levels of innovation in what it means to develop and operate environmentally-conscious real estate projects. With their 28 acre Hudson Yards project [1], Related is pursuing sustainable development on the largest scale in the United States. However, Related still has room to grow in the space.

The Surge in Green Building

The green building sector is a huge and growing industry which is expected to contribute 3.3 million jobs and $303.5B to GDP in the United States by 2018 [2]. This focus on resource efficient design, often noted by LEED certification, is not only beneficial to the environment, but is also a large cost-saving opportunity for real estate operators. LEED-certified buildings have almost 20 percent lower annual maintenance costs than traditional commercial properties [3]. These cost-savings, as well as the investor and end-consumer appeal of energy efficient properties, have enabled real estate firms such as Related to embrace green building.

Related Companies: Embracing Sustainability from Corporate to Property-level

Related Companies is a New York City-based diversified real estate company with an existing portfolio of over $30B in real estate assets [4]. The company has implemented sustainability not only in its development projects, but also in its corporate office and property operations. On the development side, Related pursues a minimum of LEED Silver certification for all its eligible developments. Currently, this totals twenty-seven completed developments, and an additional sixteen planned developments [5]. Additionally, Related makes environmentally conscious decisions in many aspects of their corporate office. These decisions include choosing a hybrid car service, stocking recyclable pantry items, and relying on electronic payroll processes [6]. Lastly, Related has enhanced its properties’ recycling capabilities and exclusively offers eco-conscious dry-cleaning and house-keeping services [6].

Hudson Yards: A Model for Sustainable Urban Development

            Hudson Yards, the largest private real estate development in United States history, is currently under development in New York City by Related. When the project is completed in 2025, it will include over 100 shops and restaurants, 4,000 residences, a public school, a luxury hotel, as well as commercial office space for companies like Coach, KKR, and Wells Fargo Securities [7]. The first tower to open as part of Hudson Yards is a LEED platinum-designed tower, the highest level of LEED certification. The entire project goes above and beyond traditional green building by incorporating organic waste conversion facilities, storm water collection, and an advanced technology platform that can reduce energy use through efficiently directing services like electricity and air conditioning [8]. Hudson Yards’ onsite power plants are projected to save 24,000 MT of CO2 emissions, the equivalent of over 2,000 homes or over 5,000 cars [8].

Looking to the Future: The Potential for Green Retrofitting

While Related has made significant progress in incorporating green building into new developments, opportunity remains in retrofitting existing properties to green standards. These upgrades include reducing water usage, improving the air and light quality of the property, and increasing energy performance.

Benefits of green retrofitting include:

  • A reduction of operating costs by 9% over one year, and 13% over two years [9]
  • A payback period of seven years [9]
  • An increase in property return on investment of just under 20% [9]

Currently, Related has about 135 portfolio properties [10] that are not specifically mentioned on their company website as LEED certified, and may therefore present an opportunity for green retrofitting. Assuming Related is planning on holding existing properties for over the seven-year payback period, retrofitting could represent significant cost savings.

Additionally, by incorporating green retrofitting into its strategy, Related will be well positioned in its primary city target markets, which increasingly focus on retrofitting as a way to reduce energy usage. In New York City, Related’s largest market, Mayor de Blasio released the ten-year plan One City: Built to Last in 2014. This plan seeks to reduce the city’s contribution to climate change by 80 percent of 2005 levels by 2050 though retrofitting public and private buildings [11].

As a leader in green development, Related is already taking advantage of the focus on energy reduction due to climate change. However, it is now time for the company to further embrace the green development opportunity by adding green retrofitting to their strategy.

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Sources

1 Ryan Boysen, “Hudson Yards’ Smart City Initiatives Could Provide Glimpse of NYC’s Future,” Bisnow, February 22, 2016, https://www.bisnow.com/new-york/news/commercial-real-estate/hudson-yards-smart-city-initiatives-could-provide-glimpse-of-nycs-future-56252, accessed November 2016.

2 “New Study Finds Green Construction is Major U.S. Economic Driver,” USGBC, September 16, 2015, http://www.usgbc.org/articles/new-study-finds-green-construction-major-us-economic-driver, accessed November 2016.

3 “Benefits of Green Building,” USGBC, April 1, 2016, http://www.usgbc.org/articles/green-building-facts, accessed November 2016.

4 Related Companies, “Corporate Info,” http://www.related.com/our-company/CorporateInfo.aspx, accessed November 2016.

5 Related Companies, “Development and LEED,” http://www.related.com/our-company/businesses/23/Development-LEED, accessed November 2016.

6 Related Companies, “Sustainable Building,” http://www.related.com/our-company/businesses/16/Sustainable-Building, accessed November 2016.

7 “Hudson Yards Welcomes its First Employees and Officially Opens its Doors,” press release, May 31, 2016, on Related Companies website, http://www.related.com/our-company/press/247/HUDSON-YARDS-WELCOMES-ITS-FIRST-EMPLOYEES-AND–OFFICIALLY-OPENS-ITS-DOORS, accessed November 2016.

8 Hudson Yards New York, “Hudson Yards: Engineered City,” http://www.hudsonyardsnewyork.com/wp-content/uploads/2016/08/HY_Press_HYPIS_FINAL_4-15-2014_1846.pdf, accessed November 2016.

9 Harvey M. Bernstein et al., “World Green Building Trends: Business Benefits Driving New and Retrofit Market Opportunities in Over 60 Countries,” SmartMarket Report (2013), McGraw Hill Construction, http://www.worldgbc.org/files/8613/6295/6420/World_Green_Building_Trends_SmartMarket_Report_2013.pdf, accessed November 2016.

10 Related Companies, “Property List,” http://www.related.com/our-company/PropertyList.aspx, accessed November 2016.

11 Christopher Cadham, “NYC’s Public-Private Partnerships to Fight Climate Change,” State of the Planet (blog), Columbia University Earth Institute, March 30, 2016, http://blogs.ei.columbia.edu/2016/03/30/nycs-public-private-partnerships-to-fight-climate-change/, accessed November 2016.

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9 thoughts on “The Largest Private Real Estate Development in U.S. History Goes Green

  1. It is impressive that Related has taken energy conservation and efficiency in its projects, especially in the Hudson one you’ve noted. I wonder though if this is move is genuine — whether it is driven by a desire to save the environment versus a regulatory requirement by the municipal corporation? This question’s relevance is perhaps not much in the developed world where breach of regulation is met with harsh legal action but in the developing world, where often breach of such regulations (especially in real estate development!) are covered up through corruption. I would then wonder that if Related were acting in a developing country, would it follow the same model, assuming that it could incur lesser capital costs by building properties that were not as energy efficient.

    I also believe that Related should take up a more proactive, policy-developing approach — it could, for example, partner with local governments / policy makers to define real estate development standards in energy efficiency and then ways in which that could be implemented.

  2. This is a nice perspective of efforts taken by a player in the real estate industry to respond to climate change.

    I really like the notion of retrofitting existing properties to be more green. You laid out the returns from a financial perspective and by adding the positive environmental impact of such efforts, it definitely makes retrofitting very attractive from Related’s perspective.

    The challenge I see with green retrofitting of existing properties is having to vacate (at least partially) the premises. Tenants of the retail / commercial units may be reluctant to agree with the proposal, given the hassle that it would cause them. The financial benefits just may not be attractive enough to offset the hassle.

  3. This was a very interesting read apedrajo!

    I am happy to see that an industry leader is taking a stance on this important issue and appreciate your ideas for more robust efforts. As we often see, perhaps the fact that a major player in the industry is going down the path it will have a ripple effect on other related companies. One example of this may be Related’s supply chain and the company’s ability to influence the supply chain by administering certain requirements from their suppliers.

    Another interesting angle to view this, which you touch upon, is the role of municipal and government regulations. Are real estate firms like related receiving incentives from the public sector to maintain high levels of sustainability? such involvement by different levels of government could perhaps add further value for real estate companies to go greener.

  4. Hey Ana,

    Very cool! It is incredible what scale of energy savings Related is able to create through its LEED and retrofitting approaches. Very compelling. It also seems like a classic “win-win” where the profit maximizing decision is the same thing as the most environmentally sound decision.

    A few thoughts / reflections:
    1) Hudson Yards: I’ve done a bit of work following the Hudson Yards development mostly from a civic tech/ urban innovation perspective. I know that the project is going to be not only one of the most environmentally friendly (as you describe) but also one of the most comprehensively networked developments ever built. I know that Hudson Yards is partnering with CUSP to install a wider array of sensors to track elements of lifestyle and behavior in the “quantified community”, including pollution levels, traffic patterns, waste, energy usage, etc. (https://www.engadget.com/2014/05/07/hudson-yards-smart-neighborhood/). This strikes me as an awesome opportunity for Related to learn about the actual environmental impact of its developments and to test and tweak the model to figure out what will actually drive more sustainable performance.
    2) The incorporation of high standards for efficiency are obviously helpful for the climate change mitigation fight (reducing emissions, etc.), but how is Related thinking about climate change adaptation? New York’s coasts will be vulnerable to extreme weather, flooding, and rising seas. Are there ways that Related can incorporate a resilience and protection lens into its projects? What investments need to be made to allow its projects to safely persist in a more volatile context? (http://www.nytimes.com/2016/09/04/science/flooding-of-coast-caused-by-global-warming-has-already-begun.html?_r=0)
    3) I also totally agree with Kenny’s point about retrofitting. I wonder if there would be resistance at the individual level (even though it’s clearly a great idea from a longer-range energy savings perspective). This past summer I worked at the City of Boston on the Economic Development team, and they were working on a really interesting initiative designed to give small business owners bridge capital to finance energy efficiency projects that would have long-run cost savings impact. (https://www.boston.gov/economic-development/energy-efficiency-and-sustainability). I wonder if a similar approach could be used to incentivize retrofits?

    Thanks for the post! Very cool!
    Retrofitting at individual level– what working capital mechanisms– city of boston;

    1. Oops! Ignore my last line of notes to myself 🙂

  5. Wow Ana, I had no idea that Hudson Yards was such a sustainability-oriented project! Having been in New York for the last five years, I’ve heard a lot about Hudson Yards, typically around all the new businesses that are opening up or moving over there (I mean, KKR is leaving 9 West to move there… That’s like the end of an era). There is a lot of speculation that Hudson Yards will shift the hustle and bustle of the city out west to an area that is currently very under-developed. Hudson Yards is expected to be the next city center. Given the project’s clout and Related’s prestigious reputation in New York City, I could see this project really spearheading other real estate developers to focus on sustainability. I hope Related uses this project as an opportunity to influence and inspire the real estate development industry to work together towards an eco-friendly urban plan. But… does Related have the responsibility to do this? Just because it has the size and reputation required to influence, does that mean it should be held responsible to do so (especially since doing so would require some sacrifices in short term profitability)? Why aren’t other developers being asked to enact the same changes to the same degree?

    Regarding Saurav’s speculation that Related’s sustainability initiatives for Hudson Yards might be due to regulation instead of genuine desire to save the environment, I would go a step further to say that Related is probably garnering significant benefits – monetary and non-monetary—for incorporating so many eco-friendly initiatives into the Hudson Yards project. Given the huge economic benefits that this project will create for the city of New York, I would expect that Related is receiving a host of benefits from the city, from tax breaks to accelerated permit approvals for its other projects. I maintain skeptical of Related’s true motivations for introducing so many sustainability initiatives into its largest development project of the moment.

    The Hudson Yards Development Corp. provides an excellent overview of financial incentives that Related is receiving for introducing sustainability into its massive project [1].

    Sources:

    [1] Hudson Yards Development Corp. http://www.hydc.org/html/project/financial.shtml, accessed November 2016.

  6. I’m impressed that they have gone toward the top of the LEED metal certification level as well. I do believe that many large corporation headquarters will trend toward LEED certification as sustainability becomes more and more important in company perception. While I was at DaVita, the headquarters in Denver was built as LEED silver and was then upgraded to Gold after a few years of sustainable practices. They have another building under construction across the street that will be LEED platinum as well.

    As Reilly put it, I see it as a “win-win” here and I’m not sure it matters if Related’s move is “genuine” when they are helping the environment and making a profit. I do appreciate Saurav’s point about whether or not they may do as sustainable projects in real estate development. I don’t think they would, but not because they are an “evil real estate developer” but because to compete in such a space would be difficult to financially manage because I’m guessing that the demand for sustainable buildings isn’t there yet.

    I love the idea of green retrofitting! I think some things are easier to retrofit than others; such as shower heads, compost/recycle areas, lights, etc. Some of the other upgrades may create the issues others noted above but it seems that Related could work around those challenges and the owners of the buildings would also benefit from the cost savings in the long term.

  7. Super interesting article, Ana! Thanks for sharing.

    As a real estate investor and native New Yorker, I have been quite a fan of Related’s sustainability efforts through the Hudson Yards project. The good news is it seems green development is becoming an industry standard among comparable Class-A and luxury residential developments in urban markets (eg. Veronic Mainetti’s Sorgente), as luxury tenants increasingly demand eco-friendly spaces [1]. In those instances, not only does sustainable development help drive operational savings, but it can yield premium rents/prices, helping push top-line growth.

    In regards to green retrofitting – I’m definitely huge fan. Virtually all of the workforce housing redevelopment projects my team and I have worked on in the South Bronx incorporate some sort of sustainable renovation solution. However, unlike, the luxury market, many of our tenants are not eco-conscious thus while while we may gain some cost-savings, limited upside on the top-line puts downward pressure on the overall yield on cost. Building on the momentum from Bloomberg’s book, I would be interested in seeing more regulatory engagement on this, providing affordable housing developers with incentives to allow for more economically-viable green retrofitting in underserved urban communities.

    Would love to pick your brain on this sometime when you’re free!

    [1] http://nreionline.com/finance-investment/sustainability-new-norm-real-estate-development-and-investing

  8. Ana – wonderfully written and researched article. I’ve quite an affinity for these types of projects that I would loosely categorize as forms of ‘enlightened capitalism’ – in that they are espousing both attributes of moral goals and those of traditional capitalistic institutions. It is interesting that based on your article I leave with the feeling that at this point in time much of the activity is represented in LEED Silver Certified projects – sans the one large LEED Platinum Certified tower which may be more of a ‘for show’ or exemplary piece. Why do you believe that silver is currently dominating the market, if it is? Is the price-benefit ratio at equilibrium right there are this current moment, and if so, how can we help to push it towards platinum (with the assumption that that will be better for the environment and our planet in the long run)?

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