J Real Estate Finan Econ (2016) 52:99–116

DOI 10.1007/s11146-015-9498-z

Green Buildings: Similar to Other Premium Buildings?

Spenser J. Robinson · Andrew R. Sanderford

Published online: 22 February 2015

© Springer Science+Business Media New York 2015

Abstract The statistics, finance, and real estate literature regularly rely on propen-
sity score matching techniques to balance samples of data where randomized
treatment assignment is not possible. In the sustainable commercial real estate liter-
ature the technique has seen substantive use. To analyze price and rent premiums for
green buildings, several studies have used propensity scores to ensure samples that
contains eco-labeled and un-labeled buildings reflect a randomized assignment of the
treatment. Underpinning the argument for the use of propensity scores is the notion
that green buildings contain similar attributes to non-green buildings. However, if
the green labels were ignored, would premium buildings be otherwise statistically
similar to premium buildings in the market? Here, we analyze a research question
focusing on the extent to which propensity scores can predict a green building using
the standard building attributes and whether propensity scoring is an econometric
necessity?

Keywords Propensity scoring · Sustainable commercial real estate · Green

buildings · Econometrics

Introduction

The statistics, finance, and real estate literature is replete with illustrations of the use
of propensity scores to analyze problems where experimental research design or ran-

S. J. Robinson
Central Michigan University, SL 301, Mt Pleasant, MI 48859, USA
e-mail: Robin6s@cmich.edu

A. R. Sanderford ()
University of Arizona, 1040 N. Olive Rd, Tucson, AZ 85716, USA
e-mail: sanderford@vt.edu
100 S.J. Robinson, A.R. Sanderford

domized field trials were not plausible research strategies. Propensity score matching
was designed as a statistical tool to help researchers gain insight into the effect of
a particular treatment over the effect of no-treatment when the researcher had not
randomly assigned subjects into treatment and control groups. Propensity scoring
applies a conditional probability on observational data with the goal of balancing the
observed covariates.
The sustainable commercial real estate literature has begun to adopt this technique
as part of the analysis of the extent to which green buildings command different prices
in the market place than non-green buildings. In several papers, scholars have used
eco-labels as the markers of green or sustainability treatments among commercial
office building data and calculated propensity scores to ensure that the distribution of
their analytical sample mimicked a randomized distribution of the treatment among
the sample. For example, Eichholtz et al. (2011) demonstrated the effectiveness of
using propensity scoring in sustainable commercial real estate analysis and generated
some of the first defensible evidence that eco-labeled office buildings commanded
both rental and price premiums over un-labeled buildings in their respective market
places.
Underpinning the argument of price premiums relative to propensity score
weighted models is the notion that green buildings contain such similar attributes to
non-green buildings that the eco-label accounts for the building differences that drive
premium rent or capitalized value. While logical, this further assumes that that green
building propensity, as measured by an eco-label, can be predicted through building
attributes that typically do not include sustainability feature data. The purpose of this
paper is to examine the extent to which there is evidence to support this assumption.
Further, as other scholars have produced similar findings using value weighting, ref-
erence size weighting, or no weighting in place of propensity scoring, our paper poses
questions about modeling technique requirements. We do not seek to question the
validity of sustainable real estate research using propensity scores, quite the opposite
in fact. Instead, we are curious that as we see similar results generated using (Eich-
holtz et al. 2011) and not using propensity scoring (Fuerst and McAllister 2011),
should there be a recommended modeling practice?
Given the widespread use of propensity scoring outside of the sustainability lit-
erature, we summarize its utility within sustainable property analysis, especially in
the context of growing evidence of price and rent premiums for green buildings. This
paper differentiates itself from previous work by investigating the possibility of dis-
regarding eco-labels (as a research strategy—not in the market place) and inquiring
about whether building attributes can predict a green building. We are curious if green
labels were ignored, would premium buildings be otherwise statistically similar to
other premium buildings in the market? If these buildings were, in fact, different,
such findings would suggest that there are other factors, outside the eco-label, that
account for the price and rent premiums that green office buildings tend to command.
In this context, we ask the research question, ‘to what extent could propensity score
weights help to predict green office buildings using building attributes?’ Further, we
also analyze the extent to which propensity scoring is an econometric necessity when
analyzing green office building data.
Green Buildings: Similar to Other Premium Buildings? 101

Literature Summary-Background

The early sustainability papers (Eichholtz et al. 2010a; Miller et al. 2008) were the
first to test that “...green projects lease, sell, and operate as compared to conventional
buildings of the same type in the same location. This breakthrough in understanding
is critical” (Bradshaw II 2011). One of the critical contributions of these early papers
was their use of large samples to make comparisons between eco-labeled and un-
labeled commercial real estate assets. Following the publication of these papers, the
sustainable real estate literature has grown substantially and now includes several
dedicated field journals. Further, papers on sustainability in real estate have been
published in finance and economics journals; this is an exciting time as there is a great
deal of high quality research emerging that is focused on the role of sustainability in
the commercial property markets.
Along with the growth in evidence in support of the business case for own-
ing sustainable commercial real estate, scholars have begun to explore ideas that
expand the field both topically and methodologically (Simons et al. 2014). Below,
we summarize several different related threads within the growing research conver-
sation on sustainability and commercial real estate. We cluster these threads based
on research strategies and begin with the literature outside of real estate where
propensity scoring is widely used. We use this framework in order to illustrate
more typical processes used by researchers. We then describe how they’ve been
applied to sustainable commercial real estate research. We also discuss the cluster
of sustainable commercial real estate literature absent the use of propensity scoring
to illustrate the types of findings researchers are generating using other modeling
techniques.

Propensity Scoring

Propensity scoring has been widely used since Rosenbaum and Rubin (1984) pro-
posed its utility in balancing out treatment effects for a sample. In its simplest form,
a logistic regression applies propensity scores to the population. Most often the treat-
ment effect is binary (e.g., treated/un-treated). Although generally propensity scores
have been used to create matched pairs, their use as a weighting mechanism in a
regression has become more common (Eichholtz et al. 2010a). Additional papers
offer more recent overviews on the general topic of propensity matching and some
enhancements to the methodology (Dehejia and Wahba 2002; Rosenbaum 2002) and
provide guidance on best practices for implementing effective propensity matching
(Caliendo and Kopeinig 2008). The purpose of our article is to examine the efficacy
of propensity scores in a real estate application. For more detailed literature review
on the use and history of propensity scoring itself, see (Luellen et al. 2005).

Propensity Scoring—Housin

Specific to real estate, the use of propensity scoring in housing and loan studies is
widespread. A number of recent articles examining mortgages implement propen-
102 S.J. Robinson, A.R. Sanderford

sity scoring techniques for matching or weighting (Ding et al. 2011; Gottesman and
Roberts 2007). Studies on housing have employed propensity score techniques to
topics such as examining housing wealth (Benjamin et al. 2004), assessing neigh-
borhood characteristics (Grinstein-Weiss et al. 2012), and the impact of property
condition disclosure laws (Nanda and Ross 2012). Sustainability related topics such
walkability (Zheng and Cao 2009) have also used the methodology.
In housing studies, scholars often use a somewhat homogenous group of housing
units such as a subdivision, a specific urban cluster, or a rural area for analysis. When
the hedonic characteristics such as square feet (meter), lot size, etc., are reasonably
similar, the propensity score approach can often lead to the desired effect—a general
increase in the homogeneity of the sample relative to the test effect.

Propensity Scoring—Sustainable Commercial Real Estate

Use of propensity scores in sustainable commercial real estate research is not uni-
formly applied. However, real estate scholars have employed it to show that it can
be an effective analytical tool. In one of the first studies of the differentials between
green and traditional building prices and rents, researchers used propensity scores
as part of their hedonic price model to control their sample distributions (Eichholtz
et al. 2011). These scholars first generated propensity score matching through the
estimation of a logistic regression containing the typical building attribute variables
used in hedonic price regressions (Eichholtz et al. 2011; Wheaton and Torto 1994).
Then, using the coefficients from this logistic regression, they balanced or weighted
the sample with the propensity scores as control variables to transform previously
un-randomized data into data that mimicked the distribution of a randomized sample.
This balancing technique allowed these authors the opportunity to observe the effect
of the eco-labeling as a treatment providing some of the first large sample based evi-
dence that green buildings traded and rented for higher prices, all other things being
equal. Similar techniques were used in (Chegut et al. 2014; Eichholtz et al. 2011;
2010a; Kok et al. 2011; Parkinson and Cooke 2012).

Sustainable Commercial Real Estate without Propensity Scoring

Outside of this sub-set of the sustainable commercial real estate literature, scholars
have employed hedonic models (and fixed effect models) including dummy variables
for eco-labels or used value or reference weighting techniques in place of eco-label
driven propensity scores. Absent propensity scores, this cluster of literature has gen-
erated similar findings to those papers including them—that green buildings tend
to command a price and rent premium over traditionally built comparable buildings
(Das and Wiley 2013; Dermisi 2009; Miller et al. 2008; Wiley et al. 2010). Further,
this cluster of literature indicates that buildings that are located in more walkable
areas or can be classified as having broader sustainability elements also command
price premiums (Pivo and Fisher 2010, 2011).
Echoing both the findings of the research using and not using propensity scores,
scholars confirm that in the EU, eco-labeling is positively associated with increased
building revenues (Bonde and Song 2013). Further, research finds that green certified
Green Buildings: Similar to Other Premium Buildings? 103

office buildings also tend to maintain higher occupancy rates (Fuerst and McAllister
2009), that not all green certifications command same premiums (Dermisi 2009), and
that buildings energy performance may change after certification (Oates and Sullivan
2011).
The sustainability-price relationship focused findings are reflected in a review
of the sustainable real estate literature where the author posits that most scholars
assume a positive association between energy efficiency and asset price (Warren-
Myers 2012). This assumption has been confirmed in a study of commercial office
prices, energy prices, and leases (Jaffee et al. 2012) and called into question by an
analysis indicating that while green buildings capture premium rents, eco-labeled
buildings are associated with a higher than anticipated total energy expenditure
(Szumilo and Fuerst 2012). The positive relationship between eco-labeling and
energy consumption is the opposite of its expected effect and indicates that the eco-
label premium might be unrelated to a tenant’s operating expenses. This finding is
related to a growing cluster of literature that plumbs the behavioral and policy cat-
alysts for why firms and tenants adopt green technologies and buildings (Costa and
Kahn 2010; Eichholtz et al. 2009, 2010a; Pivo 2008; Simcoe and Toffel 2011; Simons
et al. 2009).
Relatedly, it is worth noting that the sustainable housing literature has not yet
seen widespread use of propensity scoring and instead relied on hedonic pricing
models using dummy variables for both eco-labels and tangible sustainable building
innovations (e.g., see Barrett et al. 2011; Brounen and Kok 2010). Results on price
premiums and questions about the value proposition of green homes follow logically
with those from the commercial real estate literature.
Given the array of literature where models using and excluding propensity scores
have shown that green buildings command higher prices and rents, we ask the
research questions, ‘to what extent could propensity score weights help to predict
green office buildings using building attributes? And ‘to what extent is propensity
scoring an econometric necessity in the analysis of sustainable office buildings?’

Data & Methods of Analysis

To answer the proposed research question, we use Co-Star rent and sales data to
generate logistic regressions and conduct series of non-parametric tests that examine
the similarities of eco-labeled and un-labeled office buildings. The Co-Star captures
data about more than 2.8 million U.S. commercial properties, including sales and
leasing information. The data includes, but is not limited to, green building status,
physical buildings characteristics, and, and lease details.
Within green building status, the Co-Star includes data on buildings that have the
U.S. Environmental Protection Agency’s Energy Star (ESTAR) certification, the U.S.
Green Building Council’s Leadership in Energy and Environmental Design (LEED)
certification, and those buildings earning both. The sample analyzed here describes
the period of Q4 2011 for the rent data, and the period from 2001 to 2011 for the sales
data. Not due to data constraints, time series for the rental sample is limited to one
quarter. However, as Co-Star captures average building rent, the rent can represent
five to ten rolling years of leases.
104 S.J. Robinson, A.R. Sanderford

From the Co-Star master database, we selected all buildings over 10,000 square
feet (SF) for our analysis. Within this selection, variables of interest include those
suggested in the literature as having significant effects on value measured in in a
real estate hedonic regression (Wheaton and Torto 1994). Specifically, the sample
contains measures including Size, Age, Building Class (A, B, C), Market, and log
transformations of Size (Ln Size), Rent (Ln Rent) or sales price per square foot (Ln
PSF) as independent variables.
The rent data includes only data with a size and rent fields existing, and the sales
data includes data with sale price and size fields in place. The rent data consists
of 48,413 observations from Q4 2011 across the largest 50 Metropolitan Statisti-
cal Areas (MSAs) in the United States; the 50 MSAs further refine into 56 defined
markets. Sales data covers from 2001 to 2011 and attendant models include dummy
variables for individual years. The sales data contains 24,678 observations (Table 1).

Logistic Regression

Propensity score matching involves the estimation of a logistic regression containing

all of the typical variables used in hedonic price regressions. Using the coefficients
from this logistic regression, we are then able to create samples that mimic the dis-
tribution where the treatment was randomly assigned. Then, when conducting the
hedonic regressions and inputting the propensity scores as control variables, it is
possible to observe the effect of the eco-labeling as a treatment.
As noted above, several papers that provided evidence that eco-labeled
office buildings carry a rent and sale price premium over un-labeled compara-
ble properties, scholars relied on propensity score matching techniques (Chegut
et al. 2014; Eichholtz et al. 2011; Reichardt 2013). Using the Co-Star data sam-
ple described above that includes LEED and Energy Star certified office buildings
and the typical covariates used in commercial real estate hedonic analysis (Wheaton
and Torto 1994), we generate the generate propensity scores based on the logistic
regression:

 
Pn
Off iceBuilding EcoLabeln ln = μ + β1 + β2 + · · · + βn (1)
1 − Pn
Where n = either, or a combination of the two high performance products, μ is the y-
intercept, and βx for x = 1, 2, . . . , n are the coefficients for (ln)building size, number
of stories, class of space, amenity level, lease type, renovated, amount of space leased
in the building, the land area of the property.
At first appearance, the logistic regression seems well specified with 92 %–94 %
of the data properly identified as green or non-green (Table 2). However, well over
90 % of the sample is non-green. Performing a more detailed examination of the
green sub-sample suggests that the model may not accurately predict a green label
for the buildings that are green. Of the buildings that are, in fact, green labeled, the
propensity models accurately predict 28.3 % of the rental sample and 33.8 % of
the sales sample (Table 3). Where Eichholtz et al. (2011) noted use of propensity
scores for matching of comparable samples for analysis; their paper did not include a
Green Buildings: Similar to Other Premium Buildings? 105

Table 1 This table lists the variables used in this paper, and their corresponding field in the CoStar
database

Variable Definition CoStar Field Rent Costar Field Sales

ESTAR 1 if Building is Energy Star Certified, energy star energy star

but not Dual
LEED 1 if Building is LEED Certified, leed certified leed certified
but not Dual
Dual 1 if Building is both ESTAR and LEED
lnrent Natural Log of Average Weighted average weighted rent
Building Rent
PSF Per Square Foot Sales Price Sale price/bldg sf
lnsize Natural Log of Size rentable building area bldg sf
NNN 1 if lease type = triple net services
FSG 1 if lease type = full service gross services
Percent Leased Percentage of building leased Q4 2011 percent leased
ren within 10 1 if building was renovated year renovated
from 2001 forward
lnland Natural Log of land land area sf
stories Number of Stories in Building number of stories number of floors
A Class 1 if Building is “A” Class building class building class
B Class 1 if Building is “B” Class building class building class
amenity 1 if Building contains any amenities like, Amenities Amenities
Bank, Fitness Center, etc.
Lnage Natural log of years since construction 2012-bldg year 2012-bldg year
year2002 1 If sale occurred during this year sale date
year2003 1 If sale occurred during this year sale date
year2004 1 If sale occurred during this year sale date
year2005 1 If sale occurred during this year sale date
year2006 1 If sale occurred during this year sale date
year2007 1 If sale occurred during this year sale date
year2008 1 If sale occurred during this year sale date
year2009 1 If sale occurred during this year sale date
year2010 1 If sale occurred during this year sale date
year2011 1 If sale occurred during this year sale date
submarket Submarket for physical building submarket cluster
Market Market for physical building market name market

model testing whether or not buildings were or were not green so comparison to other
models does not provide insight. However, the results from the regression models
used in Tables 6 and 7 fall into alignment with many of the papers on the topic of
premiums for green commercial sales and rentals (Eichholtz et al. 2011; Fuerst and
McAllister 2011; Wiley et al. 2010).
106 S.J. Robinson, A.R. Sanderford

Table 2 This table shows the propensity scoring logistic model results for rent and sales, with dependent
variables of the natural log of rent and the natural log of sales per square foot, respectively

Variable Rent Sales

Model1 Model2
Intercept −35.884 −33.382
(0.054) (0.022)
Lnsize 1.318∗∗∗ 1.508∗∗∗
(1154.56) (593.614)
Stories −0.005 −0.026∗∗∗
(2.353) (22.671)
A Class 2.111∗∗∗ 1.817∗∗∗
(120.949) (77.696)
B Class 1.311∗∗∗ 0.948∗∗∗
(49.082) (23.482)
Amenity 16.658 16.982
(0.012) (0.006)
NNN 0.517∗∗∗
(53.701)
FSG 0.571∗∗∗
(119.511)
Renovated 0.050
(0.472)
Percent Leased 0.009∗∗∗
(57.356)
Lnland −0.262∗∗∗
(53.618)
AIC 14, 193 5, 809
SIC 14, 360 5, 939
NObs 48, 413 24, 678
Psuedo R-Squared 0.19 0.18
Age Controls x x

*,**,*** represent statistical significance at the 10 %, 5 %, and 1 % levels respectively

Non-Parametric Test for Buildings with Green Propensity

Extending the analysis, we compare the data sets where the logistic regression pre-
dicted that the building would be labeled as a green building. In other words, we
compare the green sample that was predicted as green to the non-green sample that
was predicted as green (Table 3). Ex ante, the propensity weighting method would
lead us to expect that these samples should be very similar in terms of building
characteristics. In fact, almost by definition, if the propensity weighting is a valid
Green Buildings: Similar to Other Premium Buildings? 107

Table 3 Concordance output from logistic regressions

Rent

Percent Concordant 92.6 Somers’ D 0.856

Percent Discordant 7.1 Gamma 0.858
Percent Tied 0.3 Tau-a 0.114

Sales
Percent Concordant 94.2 Somers’ D 0.889
Percent Discordant 5.3 Gamma 0.895
Percent Tied 0.5 Tau-a 0.091

Table 4 This table shows what percent of green buildings are accurately predicted by the logistic
regression

Rent Sales

Total 46,594 24,678

Non-Green 43,241 23,301
Green 3,353 1,377
Number Non-Green Predicted Green
by Propensity Score 589 282
Number Green Predicted Green
by Propensity Score 951 466
% of Green Accurately Predicted 28.3 % 33.8 %

Table 5 This table presents results from nonparametric tests comparing green buildings predicted by
propensity scores as green to non-green buildings predicted by propensity scores as green

Variable Rent Sales

Lnrent 9.4898∗∗∗
Lnpsf 20.4547∗∗∗
Lnage 0.2375 10.3397∗∗∗
Lnsize 15.8759∗∗∗ 0.4301
Stories 30.5293∗∗∗ 5.3484∗∗

Results are the Kruskal-Wallis test for differences between the two samples for the subject variable. The
null is no difference
∗,∗∗,∗∗∗ represent statistical significance at the 10 %, 5 %, and 1 % levels respectively
 108

Table 6 This table presents results from nonparametric tests comparing the attributes of green buildings to three sets of non-green buildings

Class ESTAR Class LEED

Variable Model1 Model2 Model3 Model4 Model1 Model2 Model3 Model4

Green to whole non-green data Set

Lnrent 1336.40∗∗∗ 1336.40∗∗∗ 303.261∗∗∗ 303.261∗∗∗
PSF 534.201∗∗∗ 534.201∗∗∗ 56.048∗∗∗ 56.048∗∗∗
Y Residuals 3.895∗∗ 4.175∗∗ 287.544∗∗∗ 70.298∗∗∗ 80.499∗∗∗ 59.739∗∗∗ 40.649∗∗∗ 44.721∗∗∗
LnSize 4034.25∗∗∗ 4034.25∗∗∗ 1863.64∗∗∗ 1863.64∗∗∗ 336.399∗∗∗ 336.399∗∗∗ 133.034∗∗∗ 133.034∗∗∗
LnAge 104.960∗∗∗ 104.960∗∗∗ 139.116∗∗∗ 139.116∗∗∗ 480.810∗∗∗ 480.810∗∗∗ 42.924∗∗∗ 42.924∗∗∗
Stories 2915.69∗∗∗ 2915.69∗∗∗ 1402.37∗∗∗ 1402.37∗∗∗ 242.813∗∗∗ 242.813∗∗∗ 69.638∗∗∗ 69.638∗∗∗

Green to top 20 % of residuals from non-green

Lnrent 86.161∗∗∗ 590.958∗∗∗ 23.679∗∗∗ 0.388
LnPSF 120.353∗∗∗ 285.634∗∗∗ 10.543∗∗∗ 24.157∗∗∗
Y Residuals 3449.03∗∗∗ 2994.40∗∗∗ 588.719∗∗∗ 760.973∗∗∗ 127.911∗∗∗ 120.310∗∗∗ 21.401∗∗∗ 25.723∗∗∗
LnSize 2936.33∗∗∗ 2769.09∗∗∗ 1230.06∗∗∗ 1289.57∗∗∗ 196.963∗∗∗ 181.582∗∗∗ 51.624∗∗∗ 56.565∗∗∗
LnAge 21.349∗∗∗ 73.882∗∗∗ 59.357∗∗∗ 59.686∗∗∗ 432.720∗∗∗ 449.018∗∗∗ 32.073∗∗∗ 32.536∗∗∗
Stories 1858.60∗∗∗ 1542.33∗∗∗ 876.492∗∗∗ 914.928∗∗∗ 115.881∗∗∗ 90.606∗∗∗ 18.337∗∗∗ 20.871∗∗∗

Green to residuals with 8 % rent or 16 % sales premium from non-green

Lnrent 96.900∗∗∗ 521.650∗∗∗ 21.138∗∗∗ 0.995
LnPSF 3.593∗ 41.864∗∗∗ 0.330 3.787∗
Y Residuals 3418.60∗∗∗ 2993.05∗∗∗ 289.085∗∗∗ 512.055∗∗∗ 132.511∗∗∗ 120.710∗∗∗ 9.918∗∗∗ 8.650∗∗∗
S.J. Robinson, A.R. Sanderford
Table 6 (continued)

Class ESTAR Class LEED

Variable Model1 Model2 Model3 Model4 Model1 Model2 Model3 Model4

LnSize 2794.42∗∗∗ 2849.36∗∗∗ 1419.79∗∗∗ 1499.25∗∗∗ 178.901∗∗∗ 188.211∗∗∗ 71.351∗∗∗ 78.865∗∗∗

LnAge 25.509∗∗∗ 83.641∗∗∗ 107.346∗∗∗ 72.231∗∗∗ 435.834∗∗∗ 450.588∗∗∗ 37.433∗∗∗ 31.963∗∗∗
Stories 1747.45∗∗∗ 1617.66∗∗∗ 1063.81∗∗∗ 1178.04∗∗∗ 102.462∗∗∗ 96.388∗∗∗ 33.647∗∗∗ 43.153∗∗∗

The first set compares green buildings to all buildings. The second and third sets estimate expected rent/sales with hedonic regressions, and use high value buildings as
comparisons to green buildings. Model 1 is an OLSDV regression with basic controls, market dummies, and no green variable dummies or ownership/buyer/seller control
variables. Model 2 mirrors Model, except using fixed effects instead of market dummies. Models 3 and 4 add professional ownership/buyer/seller controls for OLSDV and
fixed effects respectively. The second set compares green to the non-green buildings whose residuals of expected rent less observed rent are the top 20 % of the sample. The
third set compares green to the non-green buildings whose residuals of expected rent less observed rent exceed 8 % for rent or 16 % for sales. Results are the Kruskal-Wallis
Green Buildings: Similar to Other Premium Buildings?

test for differences between the two samples for the subject variable. The null is no difference. This table is continued in Table 7
Market Dummies X X X X
Fixed Effects X X X X
∗,∗∗,∗∗∗ represent statistical significance at the 10 %, 5 %, and 1 % levels respectively
109
 110

Table 7 This table continues Table 6. This table presents results from nonparametric tests comparing the attributes of green buildings to three sets of non-green buildings

Class Dual Class Green

Variable Model1 Model2 Model3 Model4 Model1 Model2 Model3 Model4

Green to whole non-green data Set

Lnrent 560.097∗∗∗ 560.097∗∗∗ 2233.09∗∗∗ 2233.09∗∗∗
LnPSF 259.162∗∗∗ 259.162∗∗∗ 859.229∗∗∗ 859.229∗∗∗
Y Residuals 9.777∗∗∗ 6.939∗∗∗ 182.512∗∗∗ 17.776∗∗∗ 33.106∗∗∗ 8.338∗∗∗ 511.600∗∗∗ 126.284∗∗∗
LnSize 1458.59∗∗∗ 1458.59∗∗∗ 689.111∗∗∗ 689.111∗∗∗ 5970.94∗∗∗ 5970.94∗∗∗ 2714.75∗∗∗ 2714.75∗∗∗
LnAge 83.784∗∗∗ 83.784∗∗∗ 67.509∗∗∗ 67.509∗∗∗ 377.769∗∗∗ 377.769∗∗∗ 253.187∗∗∗ 253.187∗∗∗
Stories 1264.88∗∗∗ 1264.88∗∗∗ 642.587∗∗∗ 642.587∗∗∗ 4497.87∗∗∗ 4497.87∗∗∗ 2101.32∗∗∗ 2101.32∗∗∗

Green to top 20 % of residuals from non-green

Lnrent 17.205∗∗∗ 5.409∗∗ 21.806∗∗∗ 517.604∗∗∗
LnPSF 0.065 9.565∗∗∗ 116.043∗∗∗ 321.878∗∗∗
Y Residuals 657.952∗∗∗ 682.268∗∗∗ 38.460∗∗∗ 160.070∗∗∗ 4772.50∗∗∗ 4304.06∗∗∗ 662.621∗∗∗ 1027.40∗∗∗
LnSize 1171.83∗∗∗ 1147.48∗∗∗ 533.535∗∗∗ 546.024∗∗∗ 4919.51∗∗∗ 4674.78∗∗∗ 1990.22∗∗∗ 2078.96∗∗∗
LnAge 40.211∗∗∗ 65.120∗∗∗ 35.819∗∗∗ 35.992∗∗∗ 202.440∗∗∗ 352.756∗∗∗ 139.968∗∗∗ 140.916∗∗∗
Stories 966.120∗∗∗ 896.841∗∗∗ 472.840∗∗∗ 482.522∗∗∗ 3313.52∗∗∗ 2824.45∗∗∗ 1454.04∗∗∗ 1513.54∗∗∗

Green to residuals with 8 % rent or 16 % sales premium from non-green

Lnrent 14.480∗∗∗ 3.033∗ 29.480∗∗∗ 442.403∗∗∗
LnPSF 34.646∗∗∗ 4.696∗∗ 22.360∗∗∗ 26.147∗∗∗
Y Residuals 632.844∗∗∗ 681.420∗∗∗ 4.446∗∗ 110.799∗∗∗ 4857.76∗∗∗ 4309.94∗∗∗ 275.108∗∗∗ 647.740∗∗∗
S.J. Robinson, A.R. Sanderford
Table 7 (continued)

Class Dual Class Green

Variable Model1 Model2 Model3 Model4 Model1 Model2 Model3 Model4

LnSize 1126.70∗∗∗ 1158.05∗∗∗ 583.048∗∗∗ 598.236∗∗∗ 4830.89∗∗∗ 4798.94∗∗∗ 2201.84∗∗∗ 2317.35∗∗∗

LnAge 42.728∗∗∗ 69.033∗∗∗ 53.938∗∗∗ 41.044∗∗∗ 227.872∗∗∗ 377.618∗∗∗ 214.860∗∗∗ 155.060∗∗∗
Stories 925.649∗∗∗ 912.147∗∗∗ 533.257∗∗∗ 561.156∗∗∗ 3222.88∗∗∗ 2945.52∗∗∗ 1693.36∗∗∗ 1865.38∗∗∗

The first set compares green buildings to all buildings. The second and third sets estimate expected rent/sales with hedonic regressions, and use high value buildings as
comparisons to green buildings. Model 1 is an OLSDV regression with basic controls, market dummies, and no green variable dummies or ownership/buyer/seller control
variables. Model 2 mirrors Model, except using fixed effects instead of market dummies. Models 3 and 4 add professional ownership/buyer/seller controls for OLSDV and
fixed effects respectively. The second set compares green to the non-green buildings whose residuals of expected rent less observed rent are the top 20 % of the sample. The
third set compares green to the non-green buildings whose residuals of expected rent less observed rent exceed 8 % for rent or 16 % for sales. Results are the Kruskal-Wallis
Green Buildings: Similar to Other Premium Buildings?

test for differences between the two samples for the subject variable. The null is no difference
Market Dummies X X X X
Fixed Effects X X X X
∗,∗∗,∗∗∗ represent statistical significance at the 10 %, 5 %, and 1 % levels respectively
111
112 S.J. Robinson, A.R. Sanderford

predictor of green building labels, they should be statistically alike. In Eq. 1, the like-
lihood of a green label is predicted through a vector of building attributes. Assuming
the model is consistent, accurate, and reliable; we would expect the set of data with
similar outcomes to be comparable.
We assume that the logistic model should differentiate between BGn (building pre-
dicted green) and BNGn (building predicted not green) such that array {BG1 , BG2 ,. . .,
BGn }  = {BNG1 , BNG2 ,. . . , BNGn . However, one would expect any random subset of
{BG1 , BG2 ,. . . , BGn } ≈ any random subset of {BG1 , BG2 ,. . . , BGn Regardless of how
the array of data predicted to be green is divided, it should have similar building char-
acteristics. To test this, we separate the array of predicted green buildings into the
actual green buildings and the actual non-green buildings. If the logistic regression
for propensity matching is reliable then the sets should be approximate to each other.
However, using a Kruskal-Wallis test with a null hypothesis of no difference
between the samples, only age in the rent sample, and size in the sales sample appear
statistically similar. Further, three of four key variables driving the analysis present
as statistically different (Table 4).
The results from these logistic regression models and means’ tests indicate a some-
what muted discriminatory capability and also statistical dis-similarity between green
and non-green buildings predicted as green. Using dependent variables as predictors,
the buildings that are predicted as green should be similar, regardless of whether of
their observed eco-designation. This is not the case. We argue that the lack of clear
evidence that propensity weighting in eco-buildings shows consistent results provides
initial validation of the need for our research questions. To explore the research ques-
tions further, we conduct a series of non-parametric tests on building attributes gain
insight into the attribute similarities between green and non-green buildings.

Non-Parametric Test & Findings Premium Rent Buildings to Green Buildings

Much of the extant research questions whether green buildings labels, in and of
themselves, cause rental and sales premiums. One potential explanation for green
price and rent premiums is that green buildings contain similar characteristics to
non-green buildings that generate premium rent for other reasons. This is part of the
logic of propensity scoring and its use analyzing samples of eco-labeled commercial
buildings.
In other words, if the green labels were ignored, would eco-buildings be otherwise
statistically similar to premium buildings in the market? Comparing non-green high
rent buildings to green buildings tests whether the eco label itself drives the premium.
The results provide limited support for this theory.
This hypothesis is tested through a series of non-parametric tests (results
Tables 5 and 6). Green buildings, those with the ESTAR, LEED, and Dual, are exam-
ined independently in three different ways. First, all green buildings are separated
into a subset, and all non-green buildings into a subset. The non-green subset is
regressed in two sets of rent estimations and two sets of sale estimations. The purpose
is to subset and test different sample comparisons. Model 1 is an OLSDV regression
with basic controls, market dummies, and no green variable dummies. Model 2 mir-
rors Model 1, except using fixed effects instead of market dummies. Models 3 and 4
Green Buildings: Similar to Other Premium Buildings? 113

are the same methods applied to the sales database, but including year dummies and
fixed effects respectively. The regression models most closely follow Fuerst and
McAllister (2011) and the results are qualitatively similar. However, the focus of
this paper is to assess the reliability of using building characteristics to predict green
labels, not the regressions themselves (omitted to conserve space) (Table 7).
The regressions are used to create a high-rent/sales subset by using the residuals.
Those buildings whose observed rent exceeds their expected rent by certain criteria,
described below, are considered market premium buildings. Second, using the regres-
sion coefficients from the non-green regression, expected rent and sales are estimated
from the green dataset.
The market premium subsets are generated to compare building attributes, and
also residuals, from the market premium buildings to the green set of buildings. Three
sets of comparisons, all shown in Tables 5 and 6 follow from this procedure. Results
are the Kruskal-Wallis test for differences between the two samples for the sub-
ject variable (ESTAR, LEED, Dual, Green). First, as a baseline, the green building
characteristics are compared to the entire non-green data set. As expected, build-
ing characteristics from the general population are statistically different than green
buildings across the board.
The next two comparisons are designed to specifically test whether premium rent
or sales building are similar to green buildings. In the second comparison, the green
building set is compared to the building with the highest 20 %, or the top quintile of
residuals from the non-green regression, or the market premium buildings. Tests of
specific building characteristics such as size and age all appear as unique, indicating
that the premium 20 % buildings do not statistically share the same characteristics
with green buildings.
Lastly, a sub-set of the data is created that, rather than top percentage of residuals,
includes all residuals whose actual rent exceeded expected by 8 % or more and sales
by 16 % or more. 8 % and 16 % are as the upper bounds of the reasonable findings in
the green real estate literature. Here again, the majority of the green and non-green
premium sets appear to be statistically different The findings from this model do not
indicate that green buildings as a group share common characteristics with buildings
that, for other reasons, generate premium rent in a market.

Discussion & Conclusions

Using Co-Star data describing both rents and sales prices for eco-labeled commercial
office buildings in the U.S. during 2011, this paper analyzed the extent to which green
buildings could be predicted using building attributes. Based on a propensity scoring
model and several non-parametric tests of a sample that included eco-labeled and tra-
ditional buildings across an array of office markets, we find little statistical evidence
that building attributes are good predictors of whether or not a building will be certi-
fied. The lack of evidence for statistical similarity of building attributes in green and
non-green buildings represents a contribution in and of itself. This finding validates
the need for paper’s research question, examining the extent to which propensity
scoring is an econometric necessity in analyses of sustainable office buildings.
114 S.J. Robinson, A.R. Sanderford

Further, it suggests that the multiplicity of modeling strategies that have produced
similar results are each valid econometric techniques. Its findings also support the lit-
erature illustrating that eco-labeled office buildings tend to command price and rent
premiums over un-certified buildings all other things being equal. Our results also
raise the broader question about whether or not there is an optimal modeling structure
for sustainable commercial real estate.
It is important to note that the findings from our propensity model and non-
parametric tests should not raise questions about the validity of the strong sustainable
office building price premium research that has used propensity scoring. Instead, we
argue that those findings, combined with ours and those from research not using
propensity scoring, illustrate that there is merit in a range of analytical approaches
including those using propensity scoring, dummy variables for eco-labels without
propensity score balancing, as well as value and reference weighting approaches.
We recommend that researchers use propensity scoring where plausible as it helps
place sustainable real estate analyses in methodological alignment with finance and
social science traditions. It also provides analytical elegance and distributional bal-
ance within one’s sample of buildings where eco-labels are not randomly assigned.
However, researchers should consider that inclusion of propensity scores might add
additional complexity to a problem, without adding additional information. In envi-
ronmental models, perhaps the simpler technique is preferred (Young et al. 1996).
Based on our findings here, the simpler technique should not be discarded out of
hand, and its implementation dependent on the specific data set and objectives.
Beyond confirming that a wide range of econometric approaches to sustainable
commercial real estate analysis are effective, the findings from this paper prompts
the asking of a broader question that that with which we began—what is the optimal
analytical and methodological approach to examining sustainable commercial real
estate prices and rents using non-randomly assigned treatments (e.g., certifications,
technologies, and other sustainability attributes)? Perhaps as the data available for
analysis grows and captures information about the inclusion of various sustainable
technologies, management types, and other sustainability attributes, this question will
resolve itself.

References

Barrett, L., Glick, S., Clevenger, C. (2011). The process for adopting an energy efficiency code in existing
homes: a case study of boulder, Colorado’s SmartRegs program. The Journal of Sustainable Real
Estate, 3(1), 192–210.
Benjamin, J.D., Chinloy, P., Jud, G.D. (2004). Real estate versus financial wealth in consumption. The
Journal of Real Estate Finance and Economics, 29(3), 341–354.
Bonde, M., & Song, H.-S. (2013). Does greater energy performance have an impact on real estate
revenues? Journal of Sustainable Real Estate, 5(1).
Bradshaw II, W.B. (2011). Creative construction: the capacity for environmental innovation in real estate
development firms. The Journal of Sustainable Real Estate, 3(1), 274–311.
Brounen, D., & Kok, N. (2010). On the economics of energy labelling in the housing market. Journal of
Environmental Economics and Management.
Caliendo, M., & Kopeinig, S. (2008). Some practical guidance for the implementation of propensity score
matching. Journal of economic surveys, 22(1), 31–72.
Green Buildings: Similar to Other Premium Buildings? 115

Chegut, A., Eichholtz, P., Kok, N. (2014). Supply, demand and the value of green buildings. Urban Studies,
51(1), 22–43.
Costa, D.L., & Kahn, M.E. (2010). Energy conservation “nudges” and environmentalist ideology: evidence
from a randomized residential electricity field experiment. National Bureau of Economic Research.
Das, P., & Wiley, J.A. (2013). Determinants of premia for energy-efficient design in the office market.
Journal of Property Research (ahead-of-print), pp. 1–23.
Dehejia, R.H., & Wahba, S. (2002). Propensity score-matching methods for nonexperimental causal
studies. Review of Economics and statistics, 84(1), 151–161.
Dermisi, S.V. (2009). Effect of LEED ratings and levels on office property assessed and market values.
The Journal of Sustainable Real Estate, 1(1), 23–47.
Ding, L., Quercia, R.G., Li, W., Ratcliffe, J. (2011). Risky borrowers or risky mortgages disaggregating
effects using propensity score models. Journal of Real Estate Research, 33(2), 245–277.
Eichholtz, P., Kok, N., Quigley, J. (2011). The Economics of green buildings. Journal of Sustainable Real
Estate, 1(1).
Eichholtz, P., Kok, N., Quigley, J.M. (2009). Why do companies rent green. Real Property and Corporate
Social, 22.
Eichholtz, P., Kok, N., Quigley, J.M. (2010a). Doing well by doing good? Green office buildings. The
American Economic Review, 2492–2509.
Eichholtz, P., Kok, N., Quigley, J.M. (2010b). Why do companies rent green? Real property and corporate
social responsibility.
Fuerst, F., & McAllister, P. (2009). An investigation of the effect of eco-labeling on office occupancy rates.
The Journal of Sustainable Real Estate, 1(1), 49–64.
Fuerst, F., & McAllister, P. (2011). Green noise or green value? Measuring the effects of environmental
certification on office values. Real Estate Economics, 39(1), 45–69.
Gottesman, A.A., & Roberts, G.S. (2007). Loan rates and collateral. Financial Review, 42(3), 401–427.
Grinstein-Weiss, M., Key, C., Yeo, Y.H., Yoo, J., Holub, K., Taylor, A., Tucker, J. (2012). Homeownership,
neighbourhood characteristics and children’s positive behaviours among low-and moderate-income
households. Urban Studies, 49(16), 3545–3563.
Jaffee, D., Stanton, R., Wallace, N. (2012). Energy factors, leasing structure and the market price of office
buildings in the US.
Kok, N., McGraw, M., Quigley, J.M. (2011). The diffusion of energy efficiency in building. The American
Economic Review, 101(3), 77–82.
Luellen, J.K., Shadish, W.R., Clark, M. (2005). Propensity scores an introduction and experimental test.
Evaluation Review, 29(6), 530–558.
Miller, N., Spivey, J., Florance, A. (2008). Does green pay off? Journal of Real Estate Portfolio
Management, 14(4), 385–400.
Nanda, A., & Ross, S.L. (2012). The impact of property condition disclosure laws on housing prices:
evidence from an event study using propensity scores. The Journal of Real Estate Finance and
Economics, 45(1), 88–109.
Oates, D., & Sullivan, K.T. (2011). Postoccupancy energy consumption survey of Arizona’s LEED
new construction population. Journal of Construction Engineering and Management, 138(6), 742–
750.
Parkinson, A., & Cooke, A. (2012). Market responses to the sustainability and energy performance of
commercial property. Sustainability in energy and buildings (pp. 8597). Springer.
Pivo, G. (2008). Responsible property investing: what the leaders are doing. Journal of Property
Investment & Finance, 26(6), 562–576.
Pivo, G., & Fisher, J.D. (2010). Income, value, and returns in socially responsible office properties. Journal
of Real Estate Research, 32(3), 243–270.
Pivo, G., & Fisher, J.D. (2011). The walkability premium in commercial real estate investments. Real
Estate Economics, 39(2), 185–219.
Reichardt, A. (2013). Operating expenses and the rent premium of energy star and LEED certified
buildings in the central and eastern US. The Journal of Real Estate Finance and Economics,
1–21.
Rosenbaum, P.R. (2002). Constructing matched sets and strata. Observational studies (pp. 295331).
Springer.
Rosenbaum, P., & Rubin, D. (1984). Reducing bias in observational studies using subclassification on the
propensity score. Journal of the American Statistical Association, 79(387), 516–524.
116 S.J. Robinson, A.R. Sanderford

Simcoe, T., & Toffel, M.W. (2011). LEED adopters: public procurement and private certification. Working
paper.
Simons, R.A., Choi, E., Simons, D.M. (2009). The effect of state and city green policies on the market
penetration of green commercial buildings. The Journal of Sustainable Real Estate, 1(1), 139–166.
Simons, R.A., Robinson, S., Lee, E. (2014). Green office buildings: a qualitative exploration of green
office building attributes. The Journal of Sustainable Real Estate, 6(2), 211–232.
Szumilo, N., & Fuerst, F. (2012). The operating expense puzzle of US green office buildings. Available at
SSRN 2166028.
Warren-Myers, G. (2012). The value of sustainability in real estate: a review from a valuation perspective.
Journal of Property Investment & Finance, 30(2), 115–144.
Wheaton, W.C., & Torto, R.G. (1994). Office rent indices and their behavior over time. Journal of Urban
Economics, 35(2), 121–139.
Wiley, J.A., Benefield, J.D., Johnson, K.H. (2010). Green design and the market for commercial office
space. The Journal of Real Estate Finance and Economics, 41(2), 228–243.
Zheng, S., & Cao, Y. (2009). The determinants of jobs-housing spatial relationship in Beijing [J]. Urban
Studies, 6, 008.
Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.