I recently had the chance to speak at the ULI Japan Summer Conference and to see many old friends. One of the speakers on our panel (Will the 2016 Tokyo Olympics Drive Green Development?) was a Japanese building construction engineer who had just passed the most recent LEED AP exam.  

Japan has its own green building standard program commonly known as CASBEE (Comprehensive Assessment System for Built Environment Efficiency). CASBEE is typically Japanese in that its metrics are vague, can be interpreted many different ways and it is a self-certifying program. As one might expect, most Japanese construction companies generally follow CASBEE guidelines exclusively, unless the building owner insists on achieving a LEED building rating.  

My Japanese construction engineer friend pointed out that many clients are now starting to insist on using LEED assessment criteria because LEED is rapidly becoming an international standard for efficient building design/construction/management. Historically, there have been few Japanese LEED professionals because the language barrier is just too high for native Japanese speakers. Most LEED-credentialed Japanese are usually engineers or architects with foreign academic backgrounds. 

Later at the post-conference reception, I ran into four other non-Japanese colleagues who proudly told me that they too had just passed the LEED AP exam. All four were former real estate brokers and/or building management consultants who had become unemployed in April of this year. None of the four had engineering, architectural or environmental backgrounds, but they were all more or less familiar with local standard building codes and management practices.  

At first I started to wonder whether the LEED certification process had become devalued. I thought back to the early 1980s when anyone who had ever hung a sheet of drywall became an "asbestos removal expert". 

On further reflection, I concluded that maybe having this type of professional wasn't such a bad thing after all.  As far as I know, there is no requirement for any specific professional background for LEED credentialling and my four friends did have general real estate backgrounds. 

Maybe I'm just seeing this here for the first time, but it makes me wonder whether any of our members has seen a similar trend in the US, and if so, what are your thoughts on this "new breed" of LEED professional?  

I certainly embrace most efforts to improve energy efficiency and conserve natural resources and this may be a case where the end does justify the means.

My head hurts. Sheesh, my original intent was to write a piece on Phase II investigations in Japan, but based on the state of global economies I thought it might be more interesting to offer an idea of how deeply the credit crisis is impacting Japan. And who said “misery loves company”?

In late August/early September, the Japanese government proudly proclaimed that its economy would suffer minimal impacts from the so-called “sub-prime mess” in the US. The reality is that nothing could be further from the truth. It is true that the major Japanese banks did not suffer the magnitude of losses faced by US & European institutions due to the banks’ strict (and highly regulated) investment strategies. However, the government touted “decoupling” of the Japanese economy from other world economies, and especially from the US economy, is pure myth. As the crisis has deepened, Japan now finds itself facing a very real threat of recession.

Foreign capital has long supported the Japanese markets (particularly real estate) due the high property values, the favorable exchange rates and the low interest rates set by the government. Unfortunately, global capital has essentially disappeared and foreign investors are now abandoning Japan as they seek shelter at home. Locally, Japanese banks have all but stopped lending on anything but a sure bet. Real estate values in Tokyo are dropping (although not nearly as badly as in other countries) and the Japanese bankruptcy rate has gone up by 30% in the past two months. Many of the bankrupt companies are real estate developers caught between heavy debt burdens and the inability to re-capitalize their operations.  Last week I looked at some raw land deals in Tokyo trading at 70-80% discounted values.

I’m sure that this sounds too familiar to all of us providing due diligence services in support of real estate transactions and/or mergers & acquisitions. Business is off and just when you think it can’t get any worse, it does.

Now for the good news. I’m not Alan Greenspan, but I see the Japanese markets recovering more quickly than in the U.S. and parts of Europe. We’re already seeing private equity, large real estate companies and some real estate funds sniffing around undervalued/distressed Japanese portfolios and companies. Other are taking a “wait & see” approach hoping that values decline further. In any case, there are definitely opportunities forming for some highly profitable deals both here and abroad.

I’ve heard the adage that “Nobody wants to look dumb, and absolutely nobody wants to look dumb alone”. Conventional wisdom would be to evaluate your deals critically and to strike when the opportunity is too good to pass up. With any luck, this evaluation process will improve as underwriting standards tighten and the real value in thorough and accurate due diligence (including environmental) will rise.

From my perspective, I can only hope that the values find their bottom soon and that the more stable investors act quickly and with gusto. I’m tired of being hit in the head with brick of bad news every morning. 

I encourage feedback or comments from our global community.

I’m sorry that I haven’t updated the blog in a while, but I’m sure many of you recognize that paying clients tend to take precedence in day-to-day schedules. Gomen nasai.

While we will be discussing Japanese environmental laws, regulations and standards in future blogs, I thought it would be a good idea to preface this information with some simple observations.

The concept of perception plays a key role in Japanese life. Gift wrapping in Japan is legendary for being both meticulous and beautiful, regardless of the quality of the gift. This concept carries through into daily life as well. I can hardly buy food in my local market without having each item wrapped individually before being placed into my shopping bag (the concept of “green packaging” has a long and difficult challenge ahead in Japan). I have realized over the years that this concept of perception carries over into all aspects of Japanese life, including laws and regulations.

When I discuss environmental issues with clients, I often compare Japanese environmental regulations/standards to pastries. Enter a patisserie in Paris and you’ll find a display case of different pastries, some beautiful to behold (i.e. petit fours) and others more common in appearance. If you taste any ten different items, you’re likely to find that each has a unique taste which may or may not appeal to you. Conversely, if you enter a Japanese bakery you’ll encounter a wide variety of items which are all exquisitely detailed and visually stunning. But if you taste any ten different items you’re likely to find the insides to be either uniformly bland and dry or so full of sweet azuki bean paste that you can feel your teeth rotting in your head.

Japanese regulations are often similar to Japanese pastries in aspects of appearance and content. As an example, the Japanese standard for asbestos content in materials is 0.1%. While this appears to be one of the most rigorous asbestos standards in the world, if you go deeper inside the regulation you find that the mandatory Japan Industrial Standard (JIS) analytical method for asbestos in building materials is a combination of XRD and PCM techniques. This same XRD/PCM method is deemed inadequate by most other countries because XRD is widely known to be inaccurate in determining asbestos concentrations less than 5% when analyzing building materials (due to interfering minerals in the materials). Why would Japan specify this method when the body of world scientific opinion backs the more common PLM/TEM methods? Maybe the fact that 55% of the voting members in the JIS Asbestos Advisory Committee are representatives of the Japan Asbestos Manufacturers’ Council or other Building Material Manufacturers’ lobbying groups has something to do with it. You do the math.

As we will see, other Japanese environmental regulations have similar underpinnings and associated flaws, all of which must be considered by analysts, scientists and consultants providing technical services.

Next up, Phase I Due Diligence practices and standards in Japan. Stay tuned.