An Interview with Ada Healey

Former BetterBricks Developer Winner Ada Healey from Vulcan Talks About What's Next

Since joining Vulcan in 2002 as its vice president for real estate, Ada Healey has helped the company, formed by Microsoft co-founder Paul Allen, become the principal developer in Seattle's burgeoning South Lake Union neighborhood, adding some 10 million square feet of mixed-use office and retail space to the edge of downtown. Healey manages Vulcan's entire real estate development portfolio, which primarily includes property in the Northwest. She also manage a variety of projects and relationships with real estate brokers, developers and other business partners to maximize the portfolio's value and leverage development projects in various markets.

Healey won a BetterBricks Award in 2006, a time when the real estate market was booming, for Vulcan's commitment to high performance buildings. In the ensuing three years, the marketplace has become very different, but Healey's values about promoting sustainability and green construction are stronger than ever.

 

BetterBricks: What do you know now that you wish you had known three or four years ago when you won the BetterBricks award about developing high performance buildings?

Healey: I think what we probably should have done a better job on was measurement tools, refining the cost premium for being LEED certified and tracking that in a more vigilant manner across projects. And also convincing our tenants about measuring the validity of successes: productivity, absenteeism, retention, or some of the other measurement tools.

What challenges have you seen in making sure your buildings' perform as designed and keep performing over time? Are your tenants willing parties in this? What steps have you taken to ensure energy performance is maintained?

Ultimately, it's a partnership between landlord and tenant. Certain tenants are extremely focused on energy consumption and the bottom line across the entire spectrum of their operations from energy consumption to water to recycling. Other tenants, it's just not a priority. For example, daytime janitorial: some tenants are all about having them start earlier when the lights are still on. And other tenants do not want that disruption. The challenge is every tenant has a different view and we can't always pick and choose whom we'll lease to.

On the residential side, often times you need to secure tenants' permission to measure (energy), and for whatever reason some don't want to do that. Also there tends to be more turnover on the residential side. Maybe an occupant is there for 12 or 18 months and a new occupant comes in with a different use pattern. It's harder when people turn over to come up with a unit-by-unit baseline.

In terms of how we're trying to deal with that, we have and continue to try to share with our commercial tenants the value proposition about energy consumption. We have data we can take to our less enthusiastic occupants. On our residential leasing focus, we try to get tenants to approve us having access.


Have you seen changes in how important sustainability and being in a high performance building are to your tenants? Have you seen the demand shift?

I do think there's definitely a higher degree of knowledge around it. In many cases it's a criteria that you have to beat to be considered. It's a competitive advantage for Vulcan real estate, that our product meets those standards. I do believe it's a differentiator. I think over time, and even more so with the new administration and its focus on energy efficiency, I think it will continue to gain acceptance. As companies have reflected on what sustainability really means, it has a positive impact on their bottom line. In trying economic times, saving money and passing that on to the customer is a wining competitive strategy. I think of companies like Walmart. They're obviously very focused on the bottom line.

I do see the knowledge base of the average tenant significantly higher than it was four or five years ago. The brokerage community has also become more knowledgeable. More corporations have created that demand and brought the brokerage community up to speed.

You have a lot of biotech and tech-industry tenants. Do you think Vulcan's focus on sustainable developments has helped you market to these types of prospective tenants?

I absolutely think so. It was a competitive advantage when no one was doing it. Now you have to because everyone's doing it. Certainly in Seattle, the marketplace has spoken. That's the level of product you have to deliver or you'll be at a competitive disadvantage.

Have you changed how you structure your green leases?

We haven't gone from a triple-net lease, which is the market here in Seattle, to a gross or a modified gross structure. We'd have to look at it. The structure we use today is very accepted in the market. It passes on to the tenant any cost increases, but also the benefits of any cost savings. Which of course is one of the challenges of investing in existing buildings: the landlord doesn't share in the profit or the payback. So that's one of our to-dos, is to look at whether it makes sense to transition to a green lease. That also has implications with our financial partners. In the long-term it may be of interest.

Have you changed how you hire brokers, property managers?

I think we initially didn't have the luxury of hiring firms based on their commitment to sustainability. There just weren't that many who had that level of commitment. Today I think most brokers or property managers we engage are up to speed and certainly are even leaders in sustainable development and operations. I wouldn't say we wouldn't hire anybody who doesn't have those credentials because we can teach them, but our preference wouldn't be to have to be the educator.

Looking forward from your perspective how do you think we are going to meet the 2030 Challenge goals? What needs to change for us to get there?

I think one significant piece of the puzzle that needs to be figured out soon is we need a common nationwide standard for how you measure carbon. I don't know if the industry and the government and other players have come together that way. That really needs to happen. Without a common standard, it's hard to measure progress across the country. It probably is similar although not identical to what the EPA has done on ENERGY STAR. And I can imagine that tool being political because certain industries will look better or worse.

Secondly, once we have that standard measurement tool, government at all levels needs to figure out how to motivate people with a carrot and a stick alike. They both are needed. There needs to be incentives for people achieving those goals, incentives as well as penalties. And as a cost effective way of determining whether you're meeting the goals, a number of developers are abandoning the cost of LEED certification and saying 'built to LEED standards'. This tells me that the name has some value but the cost is more significant in this challenging economic environment.

What's ahead for you and Vulcan?

We're trying to benchmark our portfolio for energy, water consumption and waste management. Once we get that, it will be easier for us to measure how our policies and investments are producing results.

In terms of specific projects, we're building a new headquarters for amazon.com. We're seeking LEED gold certification. We're really on hold in terms of new development activity until the capitol market improves. Part of the benchmarking really gets back to securing LEED-EB designation and what value that brings. So we're looking at investing in new energy-efficient technologies. We're doing a little experimenting.

How do you see the market performing in the 2010?

In terms of the next twelve months, I think the market's going to continue to be challenging. I don't see things improving dramatically. In this market we still have a lot of supply and not enough demand. I think that'll make occupancy rates high and rental rates low. I think holding our ground would be a victory of sorts. If you look at the residential market, we're going to have a lot of supply delivered with apartments. On the condo side, I think most of the supply has been delivered. In the commercial class-A office market, the lion's share has been delivered. Perhaps the technical end of the recession has passed, and there are certainly some industries that are growing. I think many businesses have continued to right size. It's unclear when they will start to grow again.