Realtors worry about 'green' ordinance

Evanston's City Council Monday is scheduled to vote on an ordinance to require green certification for major new construction and rehabilitation projects. The North Shore–Barrington Association of Realtors objects that the ordinance has an "all sticks and no carrots" approach to encouraging green building.

FINANCING

Real estate is a product rarely built with cash. New construction and interior renovations most often require financing that depends on lenders’ willingness to lend – often based on loan-to-value and debt service coverage ratios. Because the risk of default is always at the forefront of lending decisions, lenders need to be sure that construction makes economic sense. If construction costs increase, let’s say by five percent, for buildings affected by this ordinance, lenders will not simply loan five percent more unless buildings will surely generate five percent more income. Especially when comparing the construction costs and net revenue of other nearby non-LEED properties (even in other communities), the case to supplemental money to comply with the ordinance will fail with most lenders. Moreover, certainly, lenders will not lend an additional $50,000 to $500,000 for borrowers to hand over to the City for possible confiscation.

DEPOSITS

Again, property owners are going to find it nearly impossible to finance deposits between $50,000 and $500,000. We echo the Evanston Chamber of Commerce’s (the Chamber) position that this is a “heavy-handed” approach to ensure compliance.

Property owners affected by this ordinance that wish to make improvements to their property will likely think twice if the added expense and burden of procuring and possibly risking a minimum of $50,000 is worth it. Unbelievably, affected property owners that wish to make even $10,000 in improvements will be compelled to assemble $50,000 or they will not be able to move forward on their project.

In fact, City staff has recognized the financial burden and difficulty of the deposits, that the ordinance exempts City-owned or financed properties from that burden.

INTERIOR RENOVATIONS

As written, the ordinance is extremely broad in requiring all interior renovations and additions to seek LEED for Commercial Interiors (LEED-CI) certification. As pointed out by the Chamber, if a building owner sought to provide cleaner airflow by replacing ducts in the building, he or she would also need to broaden the scope of the project in order to seek LEED-CI. For example, if an owner of a 20-unit apartment building was to remodel only one or two units in a building to provide a better living space for his or her tenants, the property owner may be forced to make heavy investments in other building components such as the boiler or electrical system.

ECONOMIC DEVELOPMENT

This ordinance will have a chilling effect on economic development within Evanston. Despite best efforts, some projects may not take off at all as financing will not be able to be secured. Others may elect not to improve their property at all. A property owner that may seek improvements to his or her property – even green improvements – will have to strongly consider if they are willing and able to substantially increase their costs.

Building construction, renovations, and transactions contribute tens of billions of dollars to the Illinois economy. The following industries benefit from direct and indirect expenditures as a result of construction: construction, retail, transportation and warehousing, finance and insurance, real estate, professional management and support services, and public administration.

Stifling construction not only adversely impacts the construction trade, but a number of other beneficiaries, including the City coffers which relies on sales taxes and property taxes that are generated from real estate.

While the rest of the country is seeking ways to create jobs and improve economic activity, the City of Evanston should be cautious about passing an ordinance that will likely have the opposite effect.

ALTERNATIVES

NSBAR, however, strongly supports thoughtful measures to incent green building. We recognize that green building creates a healthier living environment for occupants and abates the strain on our natural resources. That is why we support efforts that make economic sense so property owners will actually move forward on green projects rather than resist. We believe the best means for the City of Evanston to encourage green building practices is by offering incentives. While not limited to these means, we would suggest the City consider such measures as expedited permitting, increased FAR, permit fee reductions or rebates, and decreased water rates.

Howard Handler is the government affairs director for the North Shore–Barrington Association of Realtors.