Greening America’s Schools: Growing Construction Market

1. Greenbuild International Conference & Expo – Denver, CO Greening America’s Schools: Growing Construction Market Harvey M. Bernstein Vice President, Industry Analytics, Alliances & Strategic Initiatives McGraw-Hill Construction

2. What are Green Schools? “Facilities that improve the learning environment while saving energy, resources and money” - U.S. Environmental Protection Agency

3. Why are Green Schools Important? • Children spend 40+ hours per week inside schools • Indoor air quality has been linked to increases of asthma and other health problems • Absenteeism and productivityare related to school facilityconditions

4. Prior Studies Show Student Performance Improves in Green Schools 1 Heschong Mehong Group, 1999 2 Niklas and Bailey, 1997 3 Hathaway, 1995 4 Kuller and Linksten, 1992 Daylighting Improvements Lead To… Improved Test Scores17% - 18% Outperforming Peers25% - 14% Reduced Absenteeism 3 4 Improved Concentration & Annual Body Growth4

5. Why Is McGraw-Hill Studying Educational Green Building? • Understand Drivers Behind Development of Green Schools • Assess Influence Green Will have on Future Education Construction • Educate Industry About Green Building Marketplace in this the Education Sector • Gain Understanding of How ‘Greening’ Schools Differs from Other Green Building Projects

6. Education Construction Marketplace

7. Education Construction On the Rise: Square Footage 2005: +5% 2006: +5% 2007: +7% = $53 billion Source: McGraw-Hill Construction, 2006

8. 2005 Strong 2006 Strong 2006 Education Construction On the Rise: Regional Market Changes Pacific Northwest and Mid-Atlantic will see most rapid growth for 2006 2005 Strong Growth 2006 Strong Gains 2006 Moderate Gains Source: McGraw-Hill Construction, 2006

9. Education Construction Growth • High increases in college and university construction: Driven by Echo Boom Generation enrollment increases • K-12 school construction will grow: Coming from projects delayed during the 2002 – 2004 recession

10. Growing Enrollment Fuels Education Construction Increase

11. Education Poses Great Market Opportunity Nonresidential Construction Activity by VALUE Nonresidential Construction Activity by Square Footage Retail20.5% Retail13.1% Education16.4% Education27.4% In Midwest, education projects lead nonresidential construction for square footage. Other regions follow national trend (above). Source: McGraw-Hill Construction, 2006

12. Education Project Types:Value versus Number of Projects Education Project Types by NUMBER of Projects Education Project Types by Project VALUE Additions25.7% Additions54.0% New Starts54.0% Alterations49.8% New Starts24.5% Alterations54.0% Source: McGraw-Hill Construction, 2006

13. Strong Future Funding Support for School Construction = Opportunity Local funding availability will keep K-12 construction strong California proposition 1D: Just passed during 2006 election $10.4 Billion for Education Construction (K-12 and Higher Ed) • $7.3 billion for K-12 projects • $100 million in incentives for green school facilities New York: $11.2 Billion Bill to fund NYC Schools (signed by Governor Pataki in April) Folsom Cordova (CA) Unified School District:$750 Million Bond for 30 New Schools Wake County, NC:$1 Billion Bond Bill San Francisco, CA:$450 Million Bond

14. Green Building Marketplace

15. Non-Residential Green Building an Increasing Share of Construction Projects Projected Green Building Market Value 2010:5%-10% of non-residential building starts;$10-$20 billion 2004:2% of non-residential building starts; $3.3 billion Source: McGraw-Hill Construction (MHC), 2005. Market values projected based on MHC non-residential construction starts value for 2005, and forecasted starts value through 2010.

16. Changing Ethics Will Increase Share of Green Building Percentage of 13-to-25 Year olds who say they: • Are likely to switch brands (given equal price and quality) to support a cause: 89% • Are more likely to pay attention to messages of companies deeply committed to a cause: 74% • Consider a company’s social commitment when deciding where to shop: 69% • Consider a company’s social commitment when recommending products: 66% Source: Business Week, November 6, 2006; data: Cone Inc./AMP Insights; survey of 1,800 13-to-25 year olds.

17. Aging Building Stock Creates Opportunity for Green Schools • Average age of educational buildings in 1999: 40years1 • Lifespan of an education facility: 42years2 • Today’s educational facilities: accelerated deterioration • Largest share of alterations for K-12: Older, more established areas like the Northeast New Jersey High School 1 National Center for Education Statistics 2 GAO, facility maintenance can vary this number slightly

18. Education Expected to Have the Largest Green Building Growth Sectors Expected to have Substantial Growth in Green Building Source: McGraw-Hill Construction, 2005. Survey of representative sample of architects, engineers, contractors and owners

19. McGraw-Hill Construction Green Schools Research Program

20. MHC Research Study • Qualitative Research: • Phase One: Surveys of USGBC LEED Certified Schools and Universities • Phase Two: Owners of Green Building Projects with Interview Subjects provided by Turner Construction • Phase Three: Online survey of school facility managers in partnership with CEFPI • This presentation based on Phase One results • Complete research in Education Green Building SmartMarket ReportComing 1st Quarter 2007

21. Research Goals • What is the market for Green Educational Facilities? • Are cost issues more motivational than health, environmental and social issues? • How important are productivity improvements(student test scores and teacher productivity) in the decision-making process? • What role do product manufacturers play in this construction sector? • What are the drivers for building more green schools?

22. Education Green Building Research Results

23. Most Important Motives Behind Building Green Schools: Cost Savings Top List Most Important Motivators: • Increasing energy conservation • Saving on building operational costs in short run and long run • Enhancing staff and student well-being

24. Three General Reasons For Building Green Schools • Operational—reducing operating costs, improving class enrollment, etc. • Environmental—reducing energy usage, better air quality, greater recycling, etc. • Social—improving staff and student well being, promoting stewardship of society, etc. Operational and environmental concerns outweigh social concerns in the decision to build green educational facilities.

25. Operational Improvements Make the Business Case for Green Schools School Building Energy Usage • Average expected decrease in operating costs: 11% • Average expected decrease in energy use: • 8% - 9% for AEC/O community • 14% for school community • Average expected increase in building value: 6% Other Research Evidence: Annual utility cost savings: 20% - 40% new 20% - 30% renovated Energy reductions of up to 40% Water reductions up to 30%

26. “ “ “If you can’t show me that cost savings over the next 10 years will exceed the initial building costs, then we won’t build Green.” “ “ - School Administrator

27. Top Environmental Reasons for Building Green Schools Top List of Environmental Reasons to Build Green Schools:“Lowering Energy Use”and“Valuing the Environment” 76% 63% 57% 44% Of the top reasons, the most important were the following: • Lowered Energy Use • Improved Air Quality • Right Thing to Do 38% 6%

28. Top Social Reasons for Building Green Schools “Greater Health and Well-Being” Far Outpaces Other Social Reasons for Building Green Schools Greater Health & Well-Being 93% Promotes Stewardship 50% Interesting Notes: • U.S. Economic Impact: Though not often sited, when it was, it ranked #1 in importance • Stimulation and Student Productivity: When looking at Most Important reasons, they increase in importance Improves Staff Productivity 50% Stimulates Innovative Thinking 45% Improves Student Productivity 44% 13% Aesthetically Pleasing Supports U.S. Economy

29. School Stakeholder Satisfaction with Educational Green Building Increased Satisfaction = Increased Motivation to Build Green

30. Key to Education Green Building Success • Increasing Energy Conservation • Being Part of the Educational Sector that Values the Environment • Benefiting from Perception as a Green Building Leader • Cost Saving on Building Operations • Enhancing Student/Staff Well-Being

31. “Soft” Advantage Debate Continues…Despite Evidence “ “ “IAQ management in schools…appears to provide a healthy indoor environment conducive to improved student and teacher health, higher school attendance, increased school funding and improved student performance.” “Green building wouldn’t really help us boost student attendance or bring a higher level of faculty on board.” “ “ - School Administrator - U.S. EPA, Indoor Environments Division, Office of Radiation and Indoor Air in “Indoor Air Quality and Student Performance,” 2003

32. Green Building Products and Practices

33. Product Usage Oriented Toward Improving Health Thermal and Moisture Protection Is the Most Used Product Category, Far Surpassing Other Product Areas Results Not Surprising Given the Link Between Mold and Asthma and other Health Problems

34. Most Used Green Building Products in Schools • Doors and Windows • Furnishings • Mechanical • Electrical • Finishes Not surprising given focus on improved health and increased productivity

35. Building Practices in Green Schools Most Important Practices: • Performance Testing • HVAC: Sizing and selection for peak efficiency • Energy-Efficient Appliances • Use of Non-Toxic Materials • Ceiling and Wall Insulation: Above code • Low-E Glass Least Important Practices: • Geothermal Heat Pumps • Ground Water Systems • Renewable Energy Sources

36. Renewable Energy = Opportunity Area • Energy Efficiency Practices Use Traditional Energy Sources • Renewable Energy Not Being Implemented Widely • Initial Cost Barrier • Lack of Familiarity with Technology

37. “ “ “No one has ever explained to me how to incorporate renewable energy sources with traditional sources, and how that will save us money operating our buildings.” • Green School Administrator

38. Market Opportunity for Green Building Products in Schools Why Should BPMs Invest? • Schools Are Selecting Green Building Products • Investment in Green Educational Facilitiesis Increasing • Energy Costs Are High • Federal, State, & Local Governments Are Increasingly Requiring Green Building • There is an Expressed Need for Information and Education on Green Products

39. Green Building Product Standards & Labels The Education Sector wants an Independent third-party to… • Create a specific set of standards • Certify products that meet that set of standards • Provide a distinctive label Alternatively, they are interested in… • Creation of a “de facto” standard • Online accessibility through a reputable clearinghouse Green Product

40. Influencing the Decision to Build Green Schools • Most Influential Decision-Makers: • Executive Management (e.g. School Boards, Deans) • School Facilities Staff • Faculty • “Word of Mouth” • Students Can Also Be Influential • Greater Community and Contractors Not As Influential

41. What’s Next?Concluding Thoughts

42. Role as Information Provider USGBC, McGraw-Hill Construction, Green Building Alliance and Others Have Great Opportunity to Help Accelerate Building Green in the Education Sector Needed Actions: • Demonstrate Cost-Effectiveness • Act as or Encourage Development of an Independent Source for Green Product Standards and Information • Provide Detailed Information About Green Building Products and Techniques • Use Entrepreneurial Innovation to Develop New Products and Practices

43. Strategies for Action Specific Strategies To Help Transform Market • Be an Information Provider • Focus Arguments Around Student and Staff Health and Well-Being • Persuade by Making the Business Case, Highlighting Energy and Other Cost Savings • Improve Stakeholder Satisfaction with Green Schools • Get Involved in Creating Policy • School Districts and Universities Are More Likely to Build Green If It’s Part of Their Mission

44. McGraw-Hill ConstructionGreen Sources • Existing MHC Green Building SmartMarket Report Studies: • Commercial Green Building SMR • Residential Green Building SMR • New Green Building SMRs (information sign-up form available now and at MHC booth #612) • Education: 2007 1st Quarter • Healthcare: 2007 2nd Quarter • GreenSource Magazinewww.greensourcemag.com • MHC Green Resource Center: www.greensource.construction.com

45. Go to thegreensourcemag.com forum or come to Booth 612 Continue the Green Conversation Online • Post your question. • You could win $500 for you and$500 to the charity of your choice.

46. For More Information on McGraw-Hill Construction Studies & Solutions Michele A. Russo Director, Industry Communication McGraw-Hill Construction michele_russo@mcgraw-hill.com MHC Resource Websites: • www.analyticsstore.construction.com • www.greensource.construction.com • www.greensourcemag.com