While green building over the past decade has experienced the most activity in the public sector, through the General Services Administration, federal and state government, etc., the compelling economics of green building are now catching the eye of savvy private real estate investors. Sophisticated operators are now deploying innovative approaches to create real estate investment value through financial, operational and legal restructuring strategies with sustainability at their core.

According to a recent CoStar report, there are approximately 19,600 office buildings spread across the fifty largest office markets in the U.S. that are considered distressed (defined as having less than 40% occupancy), an 8.6% increase over one year ago. By historical standards these properties should be trading, but evidence points to the opposite happening with a dearth of transactions taking place over the past year.

Distressed, opportunistic and value added investors believe that this is due to three major factors: 1) lack of financing, 2) very conservative underwriting assumptions and views of acceptable levels of risk in today's market (by both lenders and buyers), and 3) a persistently wide bid/ask spread between buyers and sellers when it comes to prices.

Operational efficiencies and tax incentives may be able to reduce the risk somewhat for a buyer witha green building strategy. For instance, sustainability improvements are able to provide significant benefits in the form of reduced operating costs (perhaps 40% reduction in energy usage) and, while not as measurable, potentially huge benefits in employee productivity and retention payback.

Is this a worthwhile strategy?

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