ONE | Green building gamble

While venture capitalists continue to wager most of their bets on emerging clean energy companies, many are siphoning their earnings toward the growing green building sector.

Despite the current slowdown of the U.S. housing market, the market for green building materials grew 23 percent annually from 2004 through 2006, according to a November 2007 report released by market research firm SBI. The report predicts the value of the green building products industry will double to $4.7 billion by 2011.

“We have identified the green building area as one ripe for expansion,” says Bryant Tong, managing partner at San Francisco–based Nth Power. “It’s one thing to have your entrepreneur very enthusiastic about the potential benefits of their product; it’s something else when you hear that same enthusiasm coming from the consumer.”

In a 2007 survey of architects conducted by Autodesk and the American Institute of Architects, 70 percent said client demand is the leading driver of green building projects, with reduced operating costs as the primary reason owners and developers are demanding green buildings.

Tong attributes much of the increased interest in green building materials to the growth of the U.S. Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (LEED) program, noting the record number of attendees at USGBC’s 2007 annual Greenbuild conference in Chicago. More than 40,000 building developers and owners have registered their projects with USGBC since 2000.

“People who may not have been interested in this area three or four years ago are attending these events to the point where it’s nothing short of amazing how much interest there is in this area,” Tong says.

The firm has invested in Microposite Inc., a Michigan-based company that designs and manufacturers advanced, lightweight composite materials for construction, including siding. Tong says one segment poised to take off due to stricter building codes and increased consumer demand for higher performing buildings is insulated concrete forms (ICF).

“We’re trying to anticipate where the market is headed, and we see the ICF market as something that could be very huge,” he says. While not ready to make any formal announcements, Tong claims Nth Power is planning to invest in an ICF company he thinks is a “serious contender” for capturing a large part of the market.

Nitin Gupta, an analyst with Menlo Park, Calif., and Radnor, Penn.–based DFJ Element Ventures, notes better insulating materials— from walls to flooring to insulation— represent a huge market. “Studies have shown that as a cost to society, the best way to save energy is through insulation,” Gupta says. He notes the increase in heating oil and natural gas prices, coupled with the surge of new LEED-certified homes, will continue to drive the market.

While the overall construction industry experienced an 8 percent decline in construction starts in 2007, McGraw-Hill Construction’s “2008 Construction Outlook” reported the green building industry is experiencing double-digit growth. And although McGraw-Hill forecasts another 2 percent drop in the U.S. construction industry in 2008, it predicts continued growth in the green building sector. In November, Trademark Property Co., a Fort Worth-based developer, announced plans to pursue LEED certification for its entire $1 billion portfolio, the first developer to make such a commitment. McGraw-Hill expects the residential green building market will grow to between $19 and $38 billion by 2010.

Almost 80 percent of the builders and developers included in a recent survey by the National Association of Homebuilders (NAHB) showed interest in participating in a voluntary green building certification program run by NAHB. “We have some concerns about the housing slump,” Gupta says. “But for venture capital investments, we look at a five-year horizon.” He notes the U.S. construction industry is expected to build 60 million homes over the next 30 years.

Sales of home renovation giant Home Depot’s (NYSE: HD) Eco Options–labeled products reportedly improved 10 percent since the branding was unveiled in April 2007 [see “Home Depot introduces Eco Option label,” SI, April 2007]. Yet, the company’s overall third-quarter profits plummeted 26.8 percent to $1.09 billion from $1.49 billion a year ago—in large part due to the housing slump, analysts say. Aside from increased consumer demand for greener buildings, stricter building codes across the United States are also driving the marker, Tong says.

“The trends seem to indicate that changes in building requirements— particularly in the residential housing market—in terms of energy-efficiency requirements, are concrete drivers that will move this industry much quicker.”

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TrendWatch 2008
The Sustainable Industries editorial team talked with dozens of industry leaders, reviewed hundred of articles, and sifted through stacks of research to bring to you, our readers, insights on what to expect from sustainable industries on the West Coast and beyond in the year ahead. Keeping reading for more insights into the year ahead!
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