CalSTRS' new building goes for 'green' gold

Jack Ehnes confronted the same worries you probably faced buying a TV or picking out a new computer: Am I doing this too soon? Will prices come down? Is this new technology a fad?

The big difference between his decision and yours is about $276 million the price of the eco-friendly headquarters of the California State Teachers' Retirement System in West Sacramento.

"People greatly worry with projects like this," said Ehnes, CalSTRS' chief executive officer. "Am I getting into something tested and true or do I wait? It's a dilemma."

Judging from last week's CalSTRS report and interviews with construction experts, Ehnes and his team of architects, contractors and staff made the right call.

The 14-story office building remains on budget. It's slightly ahead of its June 12, 2009, move-in date. It has faced virtually no opposition.

And, experts say, the glass-and-steel building that dominates the view across the Sacramento River will add momentum to Gov. Arnold Schwarzenegger's push for "green" buildings and speed up a similar movement in private construction.

At a meeting Thursday, CalSTRS board members let out a collective "ahhh" over a photo looking up at the 400,000-square-foot building as a construction crane towered over it.

In less than 10 years, the push for green architecture, building methods and interior design has swept through the commercial development industry. But the movement is still in its infancy, and what it adds to the price of building vs. its long-term payoff is unclear.

Comparing CalSTRS' new building with others in the area is complicated. Most commercial buildings get built on faith that the developer can find tenants. Because of that, they often lack many finishing touches and amenities. Those things are negotiated with tenants later.

CalSTRS started the project knowing it was both landlord and tenant, so it is building the space and furnishing it to fit its needs.

The "bare bones" structure, minus things like land, engineering and furnishings, costs about $360 per square foot, according to a report last year to the CalSTRS board.

Compare that to the recently opened U.S. Bank Tower on Capitol Mall. David Taylor Interests put up the 363,000-square-foot office building for $130 million. Assuming the company held to that figure – it has declined to disclose that information – the 25-story tower's cost was about $358 per square foot.

Ellen Warner, the Taylor Interest executive who oversaw U.S. Bank Tower's design and construction, noted that the same architectural firm – Hellmuth, Obata + Kassabaum Inc. – designed both buildings. The building also has several energy-conserving features, she said.

Change orders can add millions to a project. The $265 million headquarters expansion completed about three years ago for the California Public Employees' Retirement System recorded more than 700 change orders that added about $27.7 million to the cost.

CalSTRS has spent only $179,000 in changes to date. It cut down on costly midstream adjustments by breaking with construction tradition. Instead of talking to designers, architects and contractors separately, it got all the players together from the start. That helped reduce conflicts, those involved say.

"It looks like (CalSTRS) did some very, very smart things," said New York City-based construction lawyer Barry LaPatner, an expert in commercial building costs. "They're getting a solid 'A' right now, and assuming this works as planned, they're on their way to an 'A+.' "

CalSTRS, the nation's second-largest public pension fund with $172 billion in assets, realized six years ago that it was pushing the space and technology limits of its aging complex on Folsom Boulevard near Power Inn Road.

As the fund's leaders weighed their options, CalSTRS' investment managers saw a real estate trend emerging: green construction.

"Our research showed we were on a precipice of environmental technology in construction," Ehnes said.

Since 2003 the number of the nation's 200 most populous counties with green building programs has gone from eight to 39, according to a new report by the American Institute of Architects.

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• Call The Bee's Jon Ortiz, (916) 321-1043.