How Risky Are Sustainable Real Estate Projects? An Evaluation of LEED and ENERGY STAR Development Options

Jerry Jackson

Journal of Sustainable Real Estate, 2009, vol. 1, issue 1, 91-106

Abstract: Recent empirical evidence on rent and occupancy premiums associated with sustainable buildings is used to evaluate risks and returns associated with green real estate development projects. Green building premium estimates are derived from four recent empirical studies while incremental green construction costs are based on a review of existing literature. Monte Carlo analysis is applied to determine the expected return and risk associated with two green building certifications. Findings reveal a mean internal rate of return for Leadership in Energy and Environmental Design (LEED) buildings of 126% with a 10% probability of achieving an IRR of 50% or less. Buildings with an ENERGY STAR certification achieve a mean IRR of 140% with virtually no probability (1.6%) of achieving an IRR less than 50%.

Date: 2009
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DOI: 10.1080/10835547.2009.12091790

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