Expert Q&As

Q&A with Elizabeth Kulik, partner in the Schonbraun McCann Group’s Strategy Group By Susan Piperato

Elizabeth Kulik heads the Strategy Group at Schonbraun McCann Group, and co-founded HelixGlobal with Barry Barovick, in New York City.

How is the Schonbraun McCann Group (SMG) getting started with green initiatives?
We’re a service organization. We provide top-level financial and strategic advice to all the major players in the real estate industry. Now, do we have a specific green initiative? No, because we work with our clients on everything. Green comes through in a variety of ways, on an individual client basis. Is the industry embracing the whole greening and the environmental awareness program? Absolutely. We are starting to see it in management practices and with many of our clients.

Can you give some examples?
Clients are not so much saying “green, green, green—we have to go green,” but they’re beginning to recognize the importance of green and sustainable, that it’s becoming a vital part of what they need to do as they plan for future use and investment. That’s where we’re starting to see the attention. The real estate industry is beginning to recognize the staying power of green demand. SMG has many mature industry clients with significant real estate investment portfolios who have begun to embrace LEEDs. And there’s an influx of new developers who are driven by a triple bottom line mission, who are on their first or second development, and embrace green whole-heartedly because it’s a vital component of their vision. For the more mature real estate developer, embracing green means a more dramatic, and structured change. You can look at new developments and say, “Green should play a role here,” but when you’re looking at large portfolios of existing assets, green plays a very different role. Capital improvements, things like HVAC, lighting or energy retrofits, are where you can apply the LEED standard. There’s a big difference between existing portfolios and new buildings. New buildings can be designed to be green and it can be cost-effective, but older buildings, you have to retrofit. That can be very problematic, and certainly a whole different financial analysis.

Does SMG have any green initiatives in place at this point?
Our role right now is to be aware and educate our clients as we go along. It’s more about bringing people together who are involved in the green industry and our clients that are interested and understand its importance, not only from an economic basis but from a social and tactical basis, and helping them to understand and to create programs. We’re doing that through a series of events. At the end of November, for instance, SMG is hosting an informal breakfast at which we’ll have a few select clients and a guest speaker, Professor David Cahen of the Weizmann Institute of Science in Israel. Professor Cahen is the incumbent of the Rowland Schaefer Professorial Chair in Energy Research and the head of the Materials and Interfaces department at the Weizmann Institute of Science, and the Scientific Director of Weizmann’s Alternative and Sustainable Energy Research Initiative. Major objectives of this program are to educate a generation of scientists who will spearhead multidisciplinary research and to provide scientific groundwork for future technologies that will lead to clean, affordable, and sustainable energy for generations to come.

Over breakfast, our clients and other real estate industry leaders will have an opportunity to explore crucial applications of building green and worldwide concerns about alternative energy and global warming with Professor Cahen. That’s one example of how we’re bringing best practices and thought leadership in sustainability to our clients.

How do you see things changing, say, 10 years down the track?
I hope everything will be green. The green movement is a grassroots effort from consumers and businesses that are demanding green because they recognize the impact to bottom line. Enhanced productivity, decreased sick days, increased retention, and for all those things that having a healthy environment does, as well as the overriding concern that we have for the environment. Studies have shown that green buildings dramatically reduce cold-transmission and illness. People feel better in green buildings, that’s plain.

What’s driving the industry towards change? For a developer, a real estate investment has to provide returns throughout the development and operating lifecycle. Investors want returns. Developers are tasked to provide returns. When you look at building green, it has to be able to fit into that equation.
There has to be a balance between green and its cost. A developer puts something in the ground because he can finance it, and that investor wants a return. The development cost of green has to get to the point where it allows the developer to be able to achieve returns without sacrificing his own pocket. That, in 10 years, will absolutely be in equilibrium.

The real estate community, in its own funny way, has always been sustainable. What is being called green and particularly what we call “sustainable” now has always been in the industry. The highest values for real estate development are for buildings built around transportation hubs so people can walk places, use public transport. Locational factors have always been in real estate. The best real estate is going to be on a subway line or a near a train station; that’s where you see the development of tertiary markets into primary markets, when the balance between live, work, and play is in effect.
There’s a whole equilibrium between the demand of tenants and supply from developers that needs to occur. Look at Bank of America, or PNC, or other major corporations who have recognized the impact of green—they all have initiatives. The real estate industry has to become greener or it will not be able to effectively service its core base. The real estate industry has always been doing sustainable [things], but it may be kicking and screaming as it moves into the next stage because green is more expensive today. The flip side is that ongoing operating costs are much less expensive. Ultimately the green and sustainable movement is going to create a very tight package between supply, demand, cost, and returns, where 10 years from now the returns are going to be outstanding.