1. Comments on: Certification Matters: Is Green Talk Cheap Talk?
Stephen Popick
George Washington University
*The view and opinions are my own and not necessarily representative of George Washington University or the Federal Deposit Insurance Corporation

2. Key Findings First study of Leed certification effect on MF units
Large Sample
Carefully done manual selection of comparable non-Leed units (faux green or not-green)
Nearly all units operate w/ net lease structure
Finds 9% LEED rental rate premium over non- Leed non-green units

3. Asset Pricing
Heavy tax incentives to build LEED units in many metro areas – builder pays fraction of total cost.
In some cities LEED improvements are fully funded.
LEED improvements lower operating costs (energy savings)
This should raise Asset Price.
What happens to rents depends on who benefits
(A) Property owners benefit if LEED improvements return lower maintenance and owner-paid costs
Should not affect rental prices
(B) Renters benefit if LEED improvements lower utility bills
But property owner could capture % of this
Effect on rental prices unknown
It is clear lease structure will matter.

4. Lease Structure Authors find nearly all leases are net leases
Implies that renters bear all energy costs
Implies net lease structure invariant in other respects
From 5 LEED certified multi-family apartment websites in Chicago
Not always clear exactly what utilities are renter’s responsibility
2/5 properties included in-unit WIFI at no additional charge
From Chicago Apartment Guides
2 common net lease types in Chicago
(A) water, sewage, trash removal, gas, cable, and internet
(B) water, sewage, trash removal, and gas
Gas may refer to cooking AND / OR Heating. Park Huron (LEED) includes heating / cooking gas in rental price
If LEED units are more likely than non-LEED units to offer (A) than (B) or other lease structures which may not include gas , then rental rates may be higher because (A) includes more utilities.
Recent study of conventional apartments found 25% included one or both of heating / cooling in base rental rate

5. Hedonic Controls Property level characteristics
Pools, Gyms, Size, Parking, etc
Indicator variable use assumes other qualities invariant
Could LEED buildings have relatively bigger pools?
Do their gyms offer yoga for free?
Some LEED buildings offer wine lockers, basketball courts, and a spa for residents.
Local knowledge matters : Despite spatial proximity, a complex may simply be more valuable due to local geography
(tough to observe via google)

6. Unobserved Quality
Hedonic controls in paper account for “outside the walls” differences between properties.
Inside the walls qualities are unobserved
If correlation (LEED, unobserved quality) > 0
Some portion of the LEED estimated effect may reflect differences in unobserved quality.
Are LEED buildings more likely to have granite counter-tops, stainless steel appliances, more sound- proofing, and other such amenities?
Do residents pay for heating , cooling?

7. Is there a premium? LEED Unit ($1,400 rent, $100 util )
Non-LEED Unit ($1,300 rent, $200 util)
Units otherwise identical
Renter pays utilities
No premium to renter : total cost is the same
Transfer of $100 monthly income from utility company to property owner

8. Is there a premium? LEED Unit ($1,450 rent, $100 util )
Non-LEED Unit ($1,300 rent, $200 util)
Naïve LEED rentee premium $50
If units identical, $50 is rentee’s LEED premium
If units not identical, $50 is not the rentee’s LEED premium
LEED unit may have better amenities

9. Suggestions
Include results of joint hypothesis using Model 5 which is referenced in text.
Differentiate by LEED status (Basic, Silver, Gold)
When non-statistically significant amenities were included in the specification, did their inclusion alter the oomph and size of the LEED estimate?