Smart and safe

Sustainable development is the new buzzword in real estate circles.
But is this merely the flavour of the month, or something much more substantial?
Orco Property Group is currently developing 2 major projects in Poland that could claim to be sustainable. ‘Eurobuild Poland’ caught up with the president
and CEO of the company, Jean François Ott

z Magda Konstanynowicz, ‘Eurobuild Poland’: In Poland there have been many press conferences and articles about sustainable development, and it seems that wherever I turn my head now I hear something about it. How much do you think is real concern about the environment from developers and how much is just marketing, because it happens to be a really fashionable idea at the moment?

Jean-François Ott, president and CEO of Orco Property Group: There’s nothing wrong with fashion in itself. If democracy is in fashion it doesn’t make democracy a bad thing. The beauty of fashion is that people may go along with it for marketing reasons; but at the end of the day, if it is good for the planet, then it is good anyway.  Deep inside as a businessman I think that it is not really a fashion, because it is a necessity. Buildings are going to have to be more energy efficient for the users or the tenants.

z MK: So you think that developers do care. It is marketing, but it is also right – people start to care at the same time?

JFO: People realize that they can do something. They maybe didn’t know before that their actions could have an impact. I was reading about the Montreal treaty 20 years ago about protecting the ozone layer by focusing on CFCs. Now, 20 years later, it’s been a success. These dangerous gases have been pretty much eradicated. They are not in air-conditioning systems or aerosols any more, and the hole in the ozone layer, which had been getting bigger and bigger, is now getting smaller again. It shows that a big treaty like Kyoto – that might be skeptical about – could actually change something.

z MK: Don’t you think that some kind of definition for sustainable development should be established? My worry is that one developer might put some special kind of glass in his project, claim his project is sustainable.

JFO: It is going to have to be a bit more defined, and it’s probably going to need the help of you in the media, as well as the education of the future engineers in the schools, before people really start to learn about the real steps that are being taken. Putting in a little bit of glass is better than no glass, but the real reason they are doing this is more technical, to make the insulation of the building more efficient. I;e said this before, that the best way to save energy is to not consume it.

z MK: That’s right. Isn’t it true that elements such as rain-water collectors, solar panels or energy-saving glass are more expensive than – let’s say – ordinary materials. How do you make these sustainable projects profitable?

JFO: I think there are many parameters. There are a few steps that are fundamental. The first one is that – and you are right – it is more expensive to do something than to do nothing. It appears to us that collecting rain-water is a way to save some water. But when calculating the costs of the investment, you could write in brackets “but you have rainwater for free”. So there is a return, but we can’t say that it is profitable in the same way that you expect profits from doing business in terms of pure margins. On the other hand, I think the second thing is that some of the clients are cost-sensitive and are not willing to pay a little bit more because they don’t feel the need to be in an environmentally-friendly place. Thirdly, in many countries there are some subsidies and tax-breaks or some formulas – usually from the state – to help the developers to do something more. All in all it costs a little bit more for the developer/investor, a little bit more for the final user, and a little bit more from the state when they, for example, subsidize green electricity from windmills – but all in all, this type of investment costs only a few percent more.

z MK: What will be the difference in your residential project located in Szczecin?

JFO: I think if we do everything we want to, there will be an 8 pct difference in total, and depending on what we get from subsidies and from state programmes, the final additional cost to the user is going to be something like 2 pct.

z MK: That is not bad. And have you done any research on the Szczecin market – I mean amongst potential home-buyers to find out if the idea of green homes is one that is important to them,? And is there any potential for marketing this project in this way?

JFO: We do not do any surveys such as doing polls of everybody in the region, but we do take information from other places where we do business. And we believe that in general people in Poland are sensitive to this issue – or at the very least they are aware of it. To take light bulbs as one example: you can buy light bulbs that are cheap, or those that last 5 times longer costing twice as much – but it makes sense to do so. In the same way, people when buying apartments are being smart – they are calculating and comparing and have come to the conclusion that they can save money in the long run because it is a safer investment than renting, for example. So there is a little bit of the same logic and we believe that our clients are sensitive to this issue. And the benefits have to be explained – and that’s why we need you the journalists to “walk the talk”.

z MK: And that’s why we are doing this interview. Have you already prepared the marketing strategy for this project? I’m not talking about business-to-business, but the strategy for attracting the clients.

JFO: We haven’t yet for this project, because at the moment we are still working with the architects. I think the most important thing in our job is to choose architects who know something about sustainable development, because it has to be part of the design. It is not only a matter of solar panels – you and I could get together some solar panels, put them on the roof and maybe get them working. With architects we can co-operate on the design, and in such a way to make it more competitive. We don’t have solar panels on the roof – we have solar panels that are part of the roof, tiles that are panels. This costs a little more, but you don’t have to have both tiles and panels connected to each other.

z MK: I would still like to tackle the Szczecin project, because I don’t want to say that Varsovians are better than people in Szczecin, but I’m afraid that maybe we are living in the centre of the real estate industry, with people being richer here, so maybe some of them have the power to spend more money for ‘green homes’ at the beginning than those in Szczecin. I think maybe the sustainable development angle for marketing would be quite good for Złota 44: quite rich people, and I’m sure they would be ready and sensitive to the environmental issues. Why don’t you market it in this way for the project?

JFO: Well, we do. Every design that can be is capable of having these features incorporated into them has had this done. The advantage of Szczecin is quite obvious to me and that is the size of the site, which is more than 7 ha. In my experience – and especially from one big development of ours in Prague on a 50-ha site – it is so much easier and cheaper to develop in a sustainable way when the project is big. I know it sounds a little stupid, but we can buy a lot of materials en masse at a discounted price. For Złota 44 in Warsaw we are doing everything we can, but it’s a tower and there is one small roof . So there are a lot of issues, such as energy and construction management. A lot of the solutions for conservation of energy lie with the management and computerization – or ‘domitech’ as people call it now. And it’s all about the quality of the glass and the façade to retain the heat inside or to protect from the sun in the summer. Looking at Szczecin, I think the reason why people are sensitive there is that when you go to such an area everything is more natural: you are on the river, you have the access to the sea – it is a much more green-sensitive environment. When you are living in Warsaw or New York or Paris it’s tough: you either leave the big city or you get used to it. In Szczecin, you expect a lot more from the quality of living in a more country-type environment.

z MK: So Szczecin is more complex: you have much more opportunity to realize this idea there?

JFO: For me it is not a one-off thing. We started on each project by trying to better and trying to incorporate what we have learnt from previous projects. Obviously, it just happens that in Szczecin we are quite excited because we have already done a few projects where we have tried many things, and I think now we know that there will can do more of these than we could a year ago. It was really difficult before. It is easy to say: ok, I’m going to plant some trees and some grass and then call my project sustainable. But it is not so easy to say that you’re going to make the building 30 pct more efficient by just restructuring it, or by using a different type of glass, or double – or triple – glazing. All of this can be quite tricky.

z MK: Is it true that valuers estimate the values green buildings higher than standard ones?

JFO: For the moment I don’t think so, but I hope it will be in the future. A lot of investors are very responsible about what they do with their money. It is very likely that we could see some slight movement from big foreign investors from America or other countries in Europe, who would rather have buildings possessing all the features of being sustainable, partly because they want to play their part in this process, but also because they are not building the buildings, and so would be more inclined to buy the buildings that have the best environmental quality. Having said that, I haven’t seen it and I don’t think it is happening now.

z MK: But something is happening. I have gone through the programme of this year Expo Real conferences, and this was one of the main topics.

JFO: Yes, for sure. It is something that I would probably agree with. It is in the air and it is only a matter of months until we see some investors clearly showing an interest. I’m just saying that I personally I haven’t seen this, where an investor has been prepared to buy a building for more than another because t has all the sustainable features.

z MK: Have you come across the idea of sustainable investment funds?

JFO: Not yet.

z MK: They seem to invest only in sustainable projects. And I was wondering what was your opinion on how these funds could influence the real estate market, and the way that developers will build for selling.

JFO: It will be different here, you are absolutely correct. I haven’t seen such funds myself. I have a company in Poland called the Greengate Corporation, which has invested a lot in windmill projects, in this country and in Czech and Slovakia. Personally, I hadn’t thought about setting up such a direct fund though – maybe we will.

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