Let’s face it:   Eminent domain is a slow-moving vehicle.   Don’t get me wrong, it’s a very important and nuanced area of real estate valuation, and the professionals who work in this arena know their stuff.  But the new developments come along at an evolutionary rate, not a revolutionary rate.   It’s more like punctuated equilibrium than disruptive change.  So when a big change happens, it’s pretty, well, BIG.

We’re at one of those inflection points that evolutionary biologists talk about right now. Get ready to dot your exclamation point.   The confluence of demographics (millennials), technology (CRE Tech), economics and real resource constraints (sustainability) are coalescing to create a new market paradigm for the role of real estate in society.

As we discussed at the IRWA Chapter 42 Spring Conference today, high-performance and green buildings reflect a changing market paradigm – one that balances the needs of the occupants, owners, community, and the environment in a very dynamic way.   It’s no longer about perimeter ego offices and granite lobbies.   Try equal access to outdoor views, space that tells you everyone’s opinion matters, and communicates that the employer cares about the employees’ well- being – as well as the needs of the community and the environment.   Because market value is what the market values, this change in the market is creating real change when it comes to the valuation of real estate in the 21st century.

Building performance is the new metric.  Yes, energy efficiency is important, but so is the occupant experience.  Why?  Work-life balance in the 21st century is about a seamless experience that melds work life with personal life, face-to-face experience with on-line reality, 24-7 connectivity and personal space.  Employers (tenants) are looking to their real estate as a productivity enhancer.  In the knowledge economy, the employee cost is 10 -20 times the rent on a per square foot basis.  So if your millennial George Jetson makes $100k per year and the occupant density is 200 square feet per employee, your people cost is $500 per square foot per year.  Even in Silicon Valley, that’s at least 10x the annual NNN rent.  If what you do with your real estate allows the 21st-century Mr. Spacely to eke out just 1% more in productivity from millennial George and his co-workers, that’s $5 per square foot (10%) in additional rent potential to play with.  That’s the real value proposition of sustainable, green and high-performance real estate.

The savvy tenants get this. Trouble is, the kind of properties that enhance productivity and have a light environmental footprint may not look that much different than conventional buildings, particularly to those of us non-millennials.  Learning how to recognize these high-performance/green buildings and how to properly value them takes specialized education and experience that relatively few appraisers have at this point.  And that’s a big problem, because whether you’re the acquiring Agency, or the condemnee, getting the value right is critical to a fair, defensible just compensation award.

So what do George and Jane Jetson think of all of this? Well, if their futuristic net zero energy home with biophilic design is in the way of the next inter-stellar transit hub, they’ll need to make sure they get credit for all of their home’s high-performance and green features.  And the Agency?  Well, they’ll need to be sure they can parse between George’s pie-in-the-sky hopes that his dream home is the key to a greener future, and the true fair market value reality.

So like it or not, the future has come to eminent domain.