Proposed redesigns for Shops on Main, which will open spring 2009

By Allen Kenney

While a growing number of real estate developers are warming to the concept of “eco-friendly” building, few have embraced the challenge as wholeheartedly as Regency Centers Corporation (NYSE: REG).

In November 2007, Regency, a shopping center REIT based in Jacksonville, Fla., with a market capitalization of $4.67 billion, announced an initiative to “incorporate sustainable elements into its developments, operating properties and corporate operations.”

“We’ve taken a global look at Regency’s practices and have established higher environmental standards,” Regency CEO and Chairman Martin “Hap” Stein said at the time of the announcement. “As a result, our company will fulfill our commitment to becoming better stewards in the communities we serve through operating and development practices.”

Building on the recommendations of a yearlong study by the company’s “green” building task force, Regency is starting to put its new development plan into action. Regency is currently working with the United States Green Building Council (USGBC), a nonprofit organization that helps foster environmentally sound development, to create a method for sustainable shopping centers.

Regency picked USGBC as a partner because it administers the benchmark for sustainable building: the Leadership in Energy and Environmental Design (LEED) Green Building Rating System. The LEED ratings evaluate projects across a host of factors, such as building materials, energy efficiency and water usage.

Among Regency’s new goals, the company intends to obtain LEED certification for 20 percent of its new developments in 2008, 40 percent of next year’s starts and 60 percent of new projects thereafter. Other plans include creating a sustainability officer to oversee Regency’s operations and incorporating LEED certification into redevelopment projects.

“Perfect Storm”

Few would mistake the Rust Belt for a hotbed of environmental consciousness, but Regency has decided to put its new program on display at Shops on Main, a shopping development in Schererville, Ind. Regency broke ground on the site in late 2007, and a grand opening is slated for May 2009.

The project marks Regency’s second effort intended for LEED certification. Previously, the company used a Whole Foods Market-anchored redevelopment project in Santa Barbara, Calif., as a pilot program for some of its green building principles. Some of the measures taken at the Santa Barbara site include preferred parking for electric vehicles and the use of solar energy to provide part of the facility’s power supply. Regency is also taking steps to restore the natural environment of a creek that is contiguous to the shopping center, such as improving the quality of water flowing into the creek and removing the non-native plants that surround it.

However, at just under 70,000 square feet, the Santa Barbara shopping center is being constructed on a far smaller scale than the 340,000-square-foot development in Indiana. With the Indiana property, Regency Vice President of Investments Nicholas A. Wibbenmeyer says he hopes that the company can create a “blueprint” for sustainable development in the future.

Shops on Main is Regency’s second effort intended for LEED certification. The center will be home to 70 commercial tenants.

The Shops on Main site lies 25 miles southeast of Chicago’s downtown, inhabiting the 34 acre former site of a commercial recreation center and truck service center. Area residents will soon be able to visit retailers like Barnes and Noble Booksellers and apparel store Chico’s at the shopping center. They will also have their choice of a wide selection of sit-down and quick service restaurants. In total, the center will be home to 70 commercial tenants.

Historically, one of the biggest concerns regarding green building has been a fear of significant development cost increases. Yet Shops on Main provides evidence to the contrary, according to Wibbenmeyer. While he can’t disclose specific project costs, Wibbenmeyer claims that Regency’s research shows that its new practices should yield benign cost increases topping out at 2 percent.

Wibbenmeyer says Regency’s decision to make the Schererville site its first major LEED project was primarily a matter of timing. “We were in the pre-development stages of this project right as our company was starting to understand LEED certification,” he says. No matter, the site stills offers benefits that create the “perfect storm” for this kind of undertaking, according to Wibbenmeyer.

First, Shops on Main is actually a redevelopment of pre-existing facilities. Environmental advocates favor such endeavors over brand new developments, because it gives builders the opportunity to recycle old materials from previous structures into their new facilities. USGBC even offers LEED points for redevelopments.

Shops on Main is a redevelopment of pre-existing facilities.

Furthermore, Regency has ready access to an abundance of qualified consultants and contractors in nearby Chicago. In fact, Wibbenmeyer contends, the right partners are imperative for a sustainable building project to work. It’s no accident that three LEED-certified firms—commercial property engineer Atwell-Hicks, architecture firm KKE Architects and general contractor Weiss Construction Company—are spearheading the building effort.

“It’s critical that the consultants working on the project understand LEED certification inside and out,” Wibbenmeyer says.

From Red to Green

Regency isn’t the only beneficiary of its eco-friendly program. “There are many tangible, as well as intangible, benefits that we can expect to see from this practice,” Wibbenmeyer says.

Regency projects “significant” utility savings for the tenants of Shops on Main, for example. Local communities can expect a muted environmental impact in areas where Regency builds, thanks to measures such as low-flow plumbing fixtures and environment-friendly paints and adhesives. Most importantly, shareholders can rest assured that Regency is taking the necessary steps to address the growing influence of climate change on public policy.

“From an investment standpoint, we understand there are a lot of institutional investors that look very closely at the type of impact their investment has on the local community and the environment as well,” Wibbenmeyer says. “We knew it was going to be important, as we moved forward and as we grew, to show our shareholders that we are becoming more sustainable.”

Of course, LEED certification isn’t without its difficulties for builders. Wibbenmeyer notes that the process adds yet another layer to the already-cumbersome mountains of red tape and paperwork that developers face. He cites the necessary due diligence as the biggest challenge associated with the Shops on Main project.

That also goes for the developer’s partners as well. The general contractor, for example, has to document everything in a project from the way recycled materials are used to whether or not suppliers meet LEED standards. Likewise, landscape architects have to attest that elements such as the property’s irrigation system are up to par.

“Everyone has to excel in terms of understanding LEED certification, understanding how to correctly document it and, ultimately, understanding how to execute it,” Wibbenmeyer says. “That adds an entirely new level of responsibility to everyone’s scope.”

With all that hassle, is green building really worth it?

“Absolutely,” Wibbenmeyer says. “What seem like minor changes today will have a major impact in the future.”