This is “East West Partners: Sustainability Strategy”, section 5.2 from the book Entrepreneurship and Sustainability (v. 1.0).
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The first case looks at how a young entrepreneur, who recently completed his graduate training, successfully built an innovative pilot effort within a large real estate firm that manages real estate and ski resorts.
It might seem unlikely that a real estate developer, much less a project focused on expanding a ski resort, could provide a model of sustainable business practices, but real estate developer East West Partners (EWP) has done just that through its collaboration with a ski resort called Northstar Tahoe. Land conservation, waste reduction, and the adoption of wind energy are all part of EWP’s incorporation of environmental and community considerations into every aspect of the project. At the same time the developer realizes significant cost savings and builds a reputation that enhances its competitive advantage. This was accomplished through top leadership’s creating the opportunity for a young man with a newly minted MBA to innovatively integrate sustainability thinking into strategy.
East West Partners was founded in the 1970s by a group of real estate professionals working in the Richmond, Virginia, area. To “protect what we’re here to enjoy” was a founding principle for EWP. In the mid-1980s, two senior EWP partners formed autonomous divisions in North Carolina and Colorado, maintaining a commitment to community and environmental quality and a loose affiliation with the Virginia group.
In 2000, Booth Creek Holdings, Northstar ski resort’s parent company, approached EWP’s Colorado office about a joint venture to develop land owned by the resort. Their subsequent agreement created East West Partners, Tahoe. EWP’s initial decision to partner in the redevelopment of Northstar was based on the project’s positive economic potential and sense of fit between EWP’s and Northstar’s business philosophy. The project was big. Northstar, a popular, family-oriented ski resort, owned hundreds of acres of land that could be developed into residential home sites, each with a market value of hundreds of thousands of dollars. The expansion and redevelopment of Northstar-at-Tahoe, which included a ski village with an ice rink and a massive increase in resort housing, including fractional-ownership condominiums, was expected to cost $2.7 billion over fifteen years. EWP would get zoning approvals, develop land, and build residences and commercial properties, profiting ultimately from property sales and management.
EWP Tahoe’s chief executive, Roger Lessman, and project manager, David Tirman, reasoned that through careful design and the latest green building techniques they could develop new homes with limited environmental impact that would save money on owner operations, particularly energy and water costs. Furthermore, environmentally responsible development and a proactive approach with the local communities would enhance community relations, possibly ease government approvals, and add to the sales appeal of their properties.
By mid-2002, however, the importance of environmental performance and the level of effort necessary to incorporate it into branding and marketing had exceeded initial expectations. Within a year of helping area residents develop a new community plan, EWP discovered that a small but vocal group of citizens was unilaterally antigrowth and opposed to any development, regardless of efforts toward sustainability. It became clear to Lessman and Tirman that they would need help working with the community and establishing EWP as a resort development industry leader sensitive to local social and environmental concerns.
In the early 1990s, no single ski company could claim more than 3 percent of the North American market. But industry shifts were under way and by 2002, about 20 percent of US ski resorts captured 80 percent of skier visits. The total for US ski visits in 2001–2 was 54,411,000, with the four largest companies accounting for about 15,000,000. The trends toward acquisitions and larger companies with multiple resorts were accelerating. So too were the industry’s awareness and concern about global warming and its accompanying changing weather patterns influencing snowfalls and spring melts. Because of the industry’s intimate links to well-functioning natural systems, its acute weather dependence, and the protection of aesthetic beauty associated with nature, which customers travel there to enjoy (and pay to surround themselves with), the term sustainability was an increasingly familiar one in ski resort strategy discussions.
During the 1990s the industry emphasized ski villages and on-mountain residences. The affluence of aging baby boom generation skiers and their growing affinity for amenities such as shopping, restaurant dining, and off-season recreation alternatives led to a development surge in ski area villages and mountain communities. Unfortunately, social and environmental issues developed alongside the economic windfall provided by ski area land development. The second homes and high-end shops that attracted wealthy skiers also displaced lower-income residents who lived and worked in or near resort areas. Wildlife that was dependent on the fragile mountain habitat was displaced as well.
Environmental groups issued scathing reports on the damage caused by ski area development and rated ski areas for their impacts on wildlife. In October 1998, environmental activists in Vail, Colorado, protested a ski area expansion into Canada lynx habitat by burning ski resort buildings in a $12 million fire.Hal Clifford, “Downhill Slide,” Sierra, January/February 2003, 35, accessed January 7, 2011, http://www.sierraclub.org/sierra/200301/ski.asp. Elsewhere, local citizen groups pursued less radical and perhaps more effective means of protecting mountain land and communities through actions that blocked, delayed, and limited development plan approvals by local zoning boards. In the California market, land developers faced very difficult government approval processes. Local government agencies and citizens were key players who could block or supply approvals for land development plans.
The proactive approach that EWP adopted—engaging all relevant actors in an open process—had both benefits and drawbacks. It seemed that a small group of citizens would inevitably oppose development of any kind, and keeping that group informed might not have been in a developer’s best interest. On the other hand, a majority of nongovernmental organizations (NGOs) and local residents were likely to see the merit of socially and environmentally sustainable development, which argued for EWP’s full disclosure of its plans with sustainability considerations factored in throughout. The trust of locals, won through an open and transparent planning process, seemed to speed approvals and inform and even attract customers. EWP’s decision was to proceed with the sustainability-infused strategy and accept the risk that construction delays related to its proactive approach could cause added expenses, potentially overwhelming the benefits of goodwill, market acceptance, and premium pricing.
EWP executives knew that environmental concerns were high on the list of factors they should consider in the Northstar development project given the area’s high sensitivity to environmental health and preservation issues. Not only were prospective buyers more environmentally aware, but also, in the California market, land developers faced a very difficult government approval process relative to that in other states.
To address these concerns in the summer of 2002, Lessman hired Aaron Revere as director of environmental initiatives and made him responsible for ensuring that no opportunity for environmental sustainability was overlooked in building and operating the resort consortium. Revere, a recent University of Virginia environmental science and Darden School of Business MBA graduate, made it clear to subcontractors and materials suppliers that any attempt to substitute techniques or materials that circumvented environmental design facets would not be overlooked or tolerated. With complete top management support, Revere’s efforts met with little or no internal resistance. Coworkers wanted to help preserve the natural beauty of the areas they worked in and took a strong interest in new methods for reducing environmental impact.
In the new development model Revere proposed, sustainability would be a defining criterion from the outset. He presented top management with a business plan for making environmental amenities a central platform that differentiated EWP’s project designs. He developed sustainability guidelines and outlined a strategy for making the Tahoe projects’ environmental criteria a model for design and marketing. EWP would streamline government approvals by meeting with community stakeholders and outlining EWP’s program for corporate responsibility before a project began. Contractors, subcontractors, suppliers, and maintenance services interested in working with an EWP project would know as much about a project’s environmental and social criteria as they did about its economics. Marketing and sales personnel would be educated about the sustainability qualities of the project from the start and were expected to use those qualities to help generate sales. As the story unfolded, early tests of EWP’s ability to translate ideals into concrete actions with measurable results came quickly.
Revere was pleased to find that other top employees, particularly Northstar project manager David Tirman, had already written of EWP’s intent to make environmental sustainability a key feature. The Leadership in Energy and Environmental Design (LEED) green building certification served as a cornerstone in these efforts. The LEED system was the result of a collaborative panel of respected green building specialists convened by the US Green Building Council (USGBC). The USGBC was formed in 1993 to address the growing US interest in sustainable building technology. The group was associated with the American Institute of Architects (AIA), the leading US architectural design organization. USGBC created the LEED system to provide unambiguous standards that would allow purchasers and end users to determine the validity of environmental claims made by builders and developers. Additionally, LEED provided conscientious industry players with a marketing tool that differentiated their products according to their efforts to minimize adverse health and environmental impacts while maintaining high standards for building quality and livability.
EWP expected to be among the largest builders of LEED-certified projects as that certification system branched into residential buildings. EWP encouraged customers who bought undeveloped lots to use LEED specifications and was offering guidelines and recommended suppliers and architects. By 2006, LEED certification was sought for all Northstar structures.
Successful projects implemented with LEED certification by 2007 included careful dismantling of the clock tower building at Northstar. EWP worked with the nonprofit group Institute for Local Self-Reliance (ILSR) to develop a deconstruction and sales strategy for the assets. Revere, who with three other EWP employees had become a LEED-certified practitioner, documented the percentage of waste diverted from the landfill, energy savings, and CO2 offset credits that would result in tax benefits to EWP.
EWP’s renovation of Sunset’s restaurant on the shore of Lake Tahoe was already under way when Revere was hired. Revere nevertheless wanted to pursue LEED certification for every possible Tahoe Mountain Resorts structure. He soon became a familiar figure at the restaurant, finding design changes, products, and processes that captured environmentally effective building opportunities in the simplest and most efficient ways. His presence on the job enabled Revere to see new opportunities: A system for dispensing nonpolluting cleaning chemicals was installed; and “gray water” from sinks was drained separately, run through a special coagulation and filtration system, and reused for watering landscaping plants outside the restaurant. Sawdust from sanding the recycled redwood decking was captured and prevented from entering Lake Tahoe.
The end result of Revere’s efforts and the enthusiastic participation of the architect, contractors, workers, and even the chefs was the first restaurant renovation to receive LEED certification and a marketing tool that appealed to the resort’s environmentally aware clientele. By the time the renovation was completed, Revere estimated that the expense of seeking superior environmental performance was a negligible part of total renovation cost. Savings on operations—due to low energy-use lighting, maximum use of daylight and air circulation, natural cooling, and superior insulation—were expected to more than pay for the additional cost within the first two to three years.
While the pursuit of LEED certification for buildings was an excellent step toward reducing environmental impact, Revere and EWP management knew that they would have to do more to persuade the local community of their commitment. In 2002, the problem of habitat degradation from ski areas became the topic of considerable negative press. The environmental group Ski Area Citizens’ Coalition (SACC) published claims that ski areas had transitioned from economically marginal winter recreation facilities to year-round resorts with premium real estate developments, mostly without sensitivity to environmental and social issues. The group went on to rate several prominent ski areas on environmental concerns, issuing grades from A to F, on its website.Ski Area Citizens’ Coalition, “Welcome to the 2011 Ski Area Report Card,” accessed January 7, 2011, http://www.skiareacitizens.com.
Since the SACC weighted its ratings heavily on habitat destruction, and new construction necessarily destroyed habitat, Northstar, which planned a 200-acre expansion of its ski area, a 21-acre village and a 345-acre subdivision, fared poorly. While other ski areas with more land and larger residential areas had disturbed more habitats, the SACC viewed past development as “water over the dam.” In the eyes of the group, Northstar’s planned expansion of both ski trails and housing overwhelmed any possible sustainable development efforts. Though the SACC rating would probably have little if any impact on the number of skiers visiting Northstar or the number of new homes sold, EWP executives were nevertheless annoyed. They were working hard to be good stewards of the land, determined to set an example for profitable, socially and environmentally responsible development and operations without giving up their planned projects.
Rather than ignore the SACC rating and environmentalists’ concerns about development of any wilderness area, EWP management, under Aaron Revere’s leadership, began an open and direct dialogue with conservation groups such as Sierra Watch and the Mountain Area Preservation Foundation. In March 2005, the groups reached what many termed as a precedent-setting agreement to limit Northstar’s development of its eight thousand acres of land to fewer than eight hundred acres. In addition, the agreement required a transfer fee on all Northstar real estate sales to be used to purchase and protect sensitive wildlife habitat in the Martis Valley area of Tahoe. The fees were expected to total more than $30 million for the Martis Valley alone. In contrast, the previous two state conservation bonds raised $33 million for the entire Sierra mountain range.
In addition, the agreement called for a “habitat conservation plan” for the more than seven thousand acres of Northstar land not earmarked for residential and commercial development. EWP viewed that agreement as having dual benefits. Through the agreement, environmental and community groups dropped their opposition to the development projects proposed by Northstar, and a large tract of land was protected for the foreseeable future. The additional revenue generated for the purchase of more protected acreage allowed EWP to do more than simply responsibly develop land. Through the strategic intent to develop highly desirable and environmentally sustainable properties, the company had designed a new method of generating funds for the protection of the natural environment that is by definition key to its properties’ success.
Aaron Revere’s definition of his job with EWP included proving wherever possible the commercial viability of “doing the right thing.” What preserved and enhanced the natural environmental systems on which the resort depended would serve the longer-term economic interests of the owner. But Revere was interested in the quantitative gains in the short and intermediate terms. He wanted to add to the growing pool of data in the ski industry on the cost differentials between typical construction and development practices and those that strived to incorporate sustainable design elements. Tahoe Mountain Resorts provided an ideal opportunity for tracking improvements and measuring the economic benefits that sustainable practices brought to the company. Metrics included biodiversity/natural capital (ecosystem, flora and fauna, and rare species assessments), air and water quality, and water and energy use. Revere’s strategy included building an environmental initiation team within EWP/Northstar. He also sought early adopters in both Tahoe Mountain Resorts and nearby Booth Creek who would build sustainability into the corporate culture and brand. Sales and marketing people were encouraged to view sustainability features as what he termed “cooler and sexier” selling points that could command a premium price. Revere used weekly e-mail advisories to help keep implementation ideas fresh in the minds of his coworkers. He wanted to put local and organic food items on the menus of Tahoe Mountain Resort restaurants and eliminate the serving of threatened species such as Chilean sea bass and swordfish—the idea was to be consistent and authentic across operations. Advisories sent to colleagues included the following: “Consider permeable paving stones or grass instead of asphalt, stockpiling snow from road-clearing above ‘sinks’ that would replenish aquifers, preformed walls, VOC [volatile organic compound]-free paints, stains, and sealants, water-conserving sensors on faucets and lights, and recyclable carpeting.”Andrea Larson, East West Partners: Sustainable Business Strategy in Real Estate and Ski Resorts, UVA-ENT-0093 (Charlottesville: Darden Business Publishing, University of Virginia, October 21, 2008).
The California Waste Management Board awarded EWP its Waste Reduction Awards Program’s highest honor for eight consecutive years (1997–2004). Describing EWP, the board stated, “To date, East West Partners has achieved successful and unique waste reduction and recycling activities within its Coyote Moon golf course operations, Wild Goose restaurant operations, general office operations, and the planning of Old Greenwood and the Northstar Ski Village. From May 2002 to May 2003, East West Partners successfully diverted an estimated 12.5 tons of material from landfill. These efforts to ‘remove the concept of waste’ from their company vocabulary saved East West Partners thousands of dollars.”Andrea Larson, East West Partners: Sustainable Business Strategy in Real Estate and Ski Resorts, UVA-ENT-0093 (Charlottesville: Darden Business Publishing, University of Virginia, October 21, 2008).
Under Revere’s direction, EWP achieved Audubon International’s Gold Level certification for the Gray’s Crossing Golf Course. Only three other golf courses in the nation had achieved this status for exceptional environmental sensitivity in the design and operations of both the facility and the community that surrounds it. Working with Revere and EWP’s hand-picked contractors, the Audubon sustainable development experts were sufficiently impressed by the company’s sincere efforts on sustainability as a strategic theme that they offered to work with EWP to make the redevelopment of a second course, the Old Greenwood Golf Course, a Gold Level project as well. Sustainable design principles applied to golf courses created significant cost and environmental savings, requiring only 50 percent as much water and fertilizer as conventional courses. Typical of the myriad implementation choices made across Revere’s projects, cost savings, allocation of precious water to better purposes, and a halving of synthetic chemical use merged in what was ultimately seen as just good business.