There’s been a lot of buzz lately about all things Green; not just in our industry but across many sectors and jurisdictions.

With any industry, the reasons for adopting new business practices are driven by potential returns. The decision to go Green is no different. We can all call for change but ultimately, such decisions need to enhance asset values and drive profits to the bottom line.

It seems that incentives offered in many jurisdictions are providing sufficient enticement to developers to embrace Green construction practices. A noteworthy example is the new Green brand, element by Starwood Hotels & Resorts (www.elementHotels.com), which has committed that every hotel under this flag will meet the US Green Building Code’s LEED certification requirements (www.usgbc.org). While pure speculation, Green incentives linked to LEED certification likely factored into the site selection for element hotels and their projected returns. Embracing Green operating practices also contribute to a property’s bottom-line, but will be discussed separately.

While incentives offered in each locale vary (which will also be addressed separately), we can make some general observations regarding the impact of going Green on the underwriting process:

1. Development costs are likely be higher overall on a per key or square foot basis, offset by cash incentives for materials and equipment used in some jurisdictions. Increased hard costs will be compounded by soft costs required to identify such Green building initiatives and substantiate them to authorities in order to obtain required certifications and incentives.

2. Post-opening, certain operating costs are likely to vary from a typical operation due to the green construction methods used, including:

a. Rooms Expense: Moderate savings may be realized in Rooms Expense should refillable dispensers be installed to provide bathroom amenities.

b. Repairs & Maintenance: R&M expense will likely be slightly higher as Green building products and materials tend to be less durable and more costly to replace.

c. Utilities: Utilities costs are likely to be lower with energy efficient doors, windows, equipment, light bulbs etc, having larger windows to make greater use of natural light, and generally using less water.

d. Replacement Reserve: A higher than usual Replacement Reserve is likely prudent for the same reasons discussed in R&M above.

e. Corporate Taxes: Obviously corporate taxes should be lower when accounting for federal, state/regional and local incentives. Tax credits are available to developers in nearly every state in the United States today, and vary widely.

Ultimately, the choice to go Green is a business decision not an ethical one. But with increasing levels of benefits to be realized, can companies afford to not go Green?