News Article | 6/11/2007

Hillwood, Granite Plant Seeds for Green Future

FORT WORTH-Two Texas developers are taking a leap of faith into LEED-certified development because they believe today’s decisions will become standard requirements for tomorrow’s tenants.

Hillwood’s vow has a green industrial park breaking ground in two weeks in Southern California and Granite Properties Inc. is pledging to make all future office construction green, if at all possible.

David Karr, senior development manager for Hillwood Properties, has just become the developer’s first LEED-accredited professional in Texas. He will be heading up a cutting-edge industrial development program at AllianceTexas, following a lead set in California. Tammy Spencer, development manager for Hillwood Investment Properties in San Bernadino, and her team are poised to break ground on 135,000-sf and 219,000-sf industrial buildings, the first of five totaling 1.3 million sf in InterChange Business Park, a 144-acre development at the University Parkway interchange of Interstate 215. A sixth building is an 800,000-sf build-to-suit that’s under negotiation, but not likely to end up LEED-certified space like the rest of the park, according to a Hillwood spokesman.

Dallas-based Granite broke ground in March on the 318,557-sf Granite Westchase II at 10350 Richmond Ave. The silver LEED-CS project, set to deliver in April 2008, is 40% preleased with its quote at $20 per sf net plus electric. Granite COO Greg Fuller tells that the company paid 1% to 3% more to go green, bringing in development costs at $200 per sf for the class A speculative project.

“If we had to spend 10%, we couldn’t do it. It’s the right thing to do, but when you’re a multi-tenant developer the market isn’t paying for that yet,” Fuller says. “We think it’s one of those things that if you’re not on ‘the list’ you’re not going to be considered by tenants. If you are, you stand a better chance.” He says that’s the strategy behind Granite’s decision to go green on all future office projects “when it’s reasonably possible to achieve it” as with class A office with fully structured parking. He points out it will be harder to make the numbers work for value-add office.

Granite relied on its architect, Kirksey in Houston, to walk its 14-story Granite Westchase II design through LEED certification. The spec building now has two tenants waiting for their space: locally based Petrobras America Inc., which took 70,000 sf, and Malone & Bailey PC, also local, which has lined up 47,000 sf. Fuller says the tenants, like a growing number of others, are reflecting in finish-out proposals that they want office interiors certified like the core shell.

“In five to 10 years, everybody will be building to certification,” Fuller says. “And, it will be a requirement just like three per 1,000 parking is now a requirement.”

Hillwood too plans to be on the front line of the development changes. Alliance Town Center, an $800-million mixed-use plan, has been selected by the US Green Building Council for a neighborhood pilot program. Hillwood and Fort Worth-based Trademark Property Co. are co-developing the 1.3-million-sf retail component in the 300-acre development, which includes office, residential and entertainment space and a 60-acre medical campus along Interstate 35 in northeast Tarrant County, the home turf of AllianceTexas.

Meanwhile, Karr has assembled a LEED task force for office and industrial construction in the 17,000-acre AllianceTexas, where Hillwood is in the midst of a two-million-sf spec development program. The 262,000-sf Gateway 52 along Henrietta Creek Road will be the next one to break ground–and it could possibly come out green, according to Karr. He tells that the decision will be made in 60 days after the team figures out the pricing delta between two mock-ups, one traditional and one green.

Ross Perot Jr., Hillwood’s founder and CEO, recently told a conference that LEED industrial projects were coming, but he didn’t say how soon. If Gateway 52 gets a nod to go green, ground breaks in about 120 days.

Karr says Hillwood already incorporates many LEED standards into its designs although they aren’t certified, including the 120,000-sf Heritage II office building now under construction along Heritage Trace Parkway. That too could happen with upcoming industrial projects, but the long-range goal is to get LEED-certified industrial space on the ground in Texas. The USGBC is reconsidering industrial standards; Hillwood already has had input via a web conference.

“If it makes economic sense, we’ll do it,” Karr says. “We can do it now and be the leader or do it later and play catch up. We don’t like to play catch up.”

Hillwood already uses white roofs and buildings to reflect heat. It also buys green power. The new considerations are high slotted windows outfitted with interior shelves to direct light onto white roof decks that redirect rays into the workspace, drip irrigation and Xeriscaping, which relies on native plants instead of green turf that requires extensive watering to survive the Texas heat. Hillwood also has opened discussions with a Colorado company to explore photovoltaics or solar panels for its industrial buildings. It’s cost prohibitive now, but maybe not in the future, Karr says. And like other environmentally conscious users, Hillwood is reviewing the 24/7 lighting schedule for select areas. “There is a lot as a developer that we can do to drive sustainability without spending money,” he adds.

A recent panel, sponsored by the North Texas NAIOP chapter, focused on LEED certification and green initiatives in the region. By 2012, at least 50 buildings owned by the City of Dallas will be LEED certified, says Jill Jordan, assistant city manager.

Jerrold P. Lea, senior vice president for Houston-based Hines, says it costs $150,000 to $200,000 per building for consultants, fees and documents costs to get the LEED blessing, but the upside is buildings lease faster at premium rents. And, there’s another premium at the closing table when it’s time to exit, he says.

It’s no secret in the industry that Gerald D. Hines has called for all of his company’s ground-up office projects to be LEED certified going forward. His joint venture with Hillwood for One Victory Park is the only silver LEED-CS building in Dallas.

The 450,000-sf high rise is laced with harmonic mitigating transformers, under-floor wiring and air systems and floor grills so employees can control temperatures in their personal work spaces. “We’re not doing these things so we can get LEED certification. These are the things that tenants care about,” Lea says. “If we do these things, we can get LEED as a byproduct.”

Fuller and Karr concur that more and more tenants are inquiring about the LEED ratings, including finish-outs. The rapidly rising cost of energy, with no end in sight, is the motive. Karr says the average is 5% to 10% greater efficiencies and in some cases, more.

“People are looking at energy usage in a way they didn’t before,” Karr says. And if they aren’t, he says “it may take us as a developer to guide the tenant toward those decisions.”

Karr admits it’s not easy for industrial certification, given the present standards. That’s why he’s set up a task force of consultants and subcontractors, the muscle that built Hillwood’s bricks and mortar. Effectively, it’s a working classroom for all to learn together about going green. “Do we know how to do it–no. Will we know how to do it–yes. Will we know how to do it before everyone else does–probably yes,” Karr says. “We’re committed to sustainable projects and we’re going to do it.”