LEED for sale

Burnside Rocket Building in Portland

Developer-designer Kevin Cavenaugh is performing a kind of commercial real-estate test case as he puts a for-sale sign in front of The Burnside Rocket. His four-story mixed-use building at East Burnside Street and 11th Avenue in Portland, priced at $4 million, will be one of the first offices in the United States with a top-level Platinum Leadership in Energy and Environmental Design (LEED) rating from the U.S. Green Building Council to be put on the market for resale.

Despite a preponderance of commercial office vacancy, the Burnside Rocket has been fully occupied since its April 2007 opening. “There’s a huge demand to be in well- designed, well-crafted buildings,” says Cavenaugh. “But there’s still been this debate among architects, developers, investors  and lay folk: what’s the value of leed Platinum? We all have an idea of what the cost is, but not the value.”

Given its routinely full occupancy even during the economic downturn, as well as its reduced operating costs (energy use is about half that of a conventional building designed to code), Cavenaugh says an owner could count on a solid annual return on investment. The building also draws its green features from insulation, operable windows and an underground well, so there is no costly need to maintain sophisticated building control systems. But at 16,500 total square feet, the Burnside Rocket may not be big enough to attract larger real estate investors.

Cavenaugh had planned to keep the building, which he designed, but decided to sell it after failing to secure loans for his next project on his list. While spending a year at Harvard University’s Graduate School of Design on a prestigious Loeb Fellowship in 2008, Cavenaugh began planning a tiny subdivision just south of downtown Portland called 14 Parcels involving architects from all over the world. But unlike in the past, when Cavenaugh secured funding from lenders such as Pacific Continental Bank and the City of Portland’s Green Investment Fund for the Burnside Rocket and two previous mixed-use projects in Portland, he hasn’t been able to procure the necessary loan to go ahead with 14 Parcels.

“I’m having to be my own bank,” he says. “Every other part of the equation is beautifully aligned right now. I’m in for permits on two of the homes. But what used to be an easy seat at the table to fill—the lender—is virtually impossible to fill.

To borrow a million dollars, [the lender] expects you to put down a half a million dollars first. It makes it untenable. And I came to the realization a couple weeks ago that I’m not going to wish I owned more buildings. I’m going to wish I created more buildings.”