The Building Advisor

This morning I was reviewing some articles in our local (Portland, Or) Business Journal.  One article in particular caught my eye as it begins to tell a story we’ve been predicting to our partners nationally.  Commercial building owners and investors are under extreme pressure and we’re just seeing the early stages of it.  Here are some excerpts:

“It takes a perfect storm to trigger the wave of foreclosures, receiverships and bankruptcies that washed across some of Portland’s most prominent offices in recent months.”

“Vacancy rates rose, income fell, financing disappeared and shifting capitalization rates drove down building values.”

“Every building reflects its own unique circumstances, but collectively, the wave of building-related news tells a chilling story of struggling business models, loan payments missed and owners wrestling with real estate that’s no longer worth what they paid, or owe.”

I have to believe that if we surveyed each and every Business Journal across the country, we would see similar articles detailing the pain being felt in commercial real estate markets.  There is nothing unique about what we are experiencing here in Portland.  Indeed as I travel across the country visiting with commercial ownership and management it is apparent that we are just experiencing the tip of the iceberg.
These people are scared.  Many of them came into the industry at the beginning of the boom and have never experienced anything like what we are going through now.  Steady demand for office space drove up rental rates which, in turn, drove up asset values.  Hardly the formula we’re seeing in to today’s market.  Instead, vacancy rates are hitting 20% in a lot of markets, asset values are plummeting as much as 40-50% and owners and managers are trying to get a handle on their operating costs, something many of them have never had to do before.

They understand that the only avenue they have for preserving their assets is a focus on operating cost cutting.  Constituting approximately 40% of the variable operating cost of a building, energy is the place they need to focus.  And with HVAC and lighting making up 70% of those operating costs, owners and managers can cut a lot of cost out of their model.  Interestingly enough, according to BOMA, owners could cut their utility costs by 10-30% without any capital investment.  By just working with their local HVAC Mechanical company, they could modify their current service agreement to include these incredible cost cutting services.  This overlooked service base could literally generate monthly cash savings for owners if owners would just ask for help ( or maybe contractors should point this out to their customers).

It’s not about windmills, cogeneration, or new fuel cell technology.  There’s gold in those buildings and the HVAC industry is poised to help owners mine some of it and help owners get back on solid financial footing.

Which comes first – energy savings or tenant comfort? This is a question we often hear when discussing control strategies. While energy savings and tenant comfort are both important considerations, the good news is that they often are not mutually exclusive. There are many control strategies capable of improving tenant comfort while achieving significatn energy savings. Moreover, the following strategies are relatively easy to understand and can be implemented with almost any type of HVAC system:

1. Close OA during night cycle and morning warm up
2. Turn fans off at night (unless heating called for)
3. Hot/Chilled water temp. reset with respect to OA temp.
4. Lock out exhaust fans locked at night
5. Reset SA temperature with respect to zone needing most heating/ cooling
6. Time clock control of equipment (e.g. boiler, pneumatic air, fans, etc.)
7. Economizer cycle
8. Optimum start/stop
9. Demand Limiting
10. Duty Cycle

Cap and Trade is coming in 2010 regardless of whether Congress passes the legislation, as the EPA is set to enact its Regulations under the Clean Air Act.  The question is do you know what the targets are? & How poised you are to help alleviate a building owner’s concern for rising electricity and fuel costs?

Based on emissions in 2005 here is a composite look at the overall reduction levels proposed by Congress.  The EPA regulation is likely to be a little more aggressive up front because this will reduce the lifetime costs associated with the energy reductions needed to combat climate change.

• by 2012, cut by 3 percent
• by 2020, cut by 17 percent (House) or 20 percent (Senate)
• by 2030, cut by 42 percent
• by 2050, cut by 83 percent.

For more info on Cap & Trade and how it actually works, go here: http://www.facilitiesnet.com/green/article/How-Cap-and-Trade-Regulations-Work-and-Who-May-Be-Affected–11359

Corporate real estate (CRE) executives are more willing to invest in the sustainability of the space they own, despite economic pressures, according to a CoreNet Global and Jones Lang LaSalle 2009 survey.

The key finding is that real estate executives still consider sustainability to be a critical business issue, especially when it comes to retrofits of the real estate they own.  But, it also shows that they are focused on cost savings in the short term.  Read the report and think about how you are helping to lower costs in the short term.  If you’re not reducing energy costs for your clients, that would be the best place to start.

Here’s an example of yet another type of organization that is working to improve the energy efficiency of an existing building stock.  The Downtown Development Authority of Ann Arbor, MI, is in the 2nd year of its Downtown Energy Saving Grant Program. In this program, participating companies receive a free energy audit from a city-approved contractor, worth anywhere from $2,000 to $5,000.  The auditor will identify list of improvements that would boost energy efficiency, and after consultation with the DDA, landlords then pick which energy efficiency improvements to make.  After the improvements are made, the DDA rebates half of the landlord’s cost, up to $20,000.

Do you know about other programs like this?  We’d like to hear about them.  And whoever you are in the food chain, whether a contractor who does energy audits or a building owner or manager, you can push for programs like this in your area.

Good discussion on a blog post at My FacilitiesNet about the maintenance profession being cool now.  The premise is that with the bigger-than-ever emphasis on energy efficiency in the buildings industry, partly due to the provisions in the economic stimulus, job opportunities are being created which will pull people to the maintenance, engineering and operations professions.    And also, knowing that you’ll be directly contributing to energy efficiency makes the job cooler.

What do you think?

AirAdvice has recently released an update to its BuildingAdvice technology for providing energy services in commercial buildings.  On the surface, it may not sound like a major update - it is a new report, called an Energy Savings Assessment, that can be run using the system.  What makes this a giant step forward is how the new report now enables a cost-cutting, highly valuable service to be provided as part of a service agreement or service relationship.

In the tumultuous economic environment of the commercial real estate industry, cost savings are king.  Rent cannot be raised.  Occupancy cannot be increased.  And credit, which is so crucial to the industry, is extremely tight.  Cash must be conserved.  And one of the largest cash outflows month-to-month is the utility bill.  Mechanical service contractors can lower this cash outflow by making changes that result in lower energy consumption.   And this can be done as part of ongoing, regular maintenance agreements.

But don’t call them regular maintenance agreements.  These are Energy Service Agreements.  And the whole point is to go beyond what’s normally provided in a maintenance agreement and focus on ways to reduce the amount of wasted energy in the building.  This is the basis for the program that AirAdvice released recently and why the new Energy Savings Assessment report was created.  It fits into a process for providing energy services to buildings, including benchmarking and energy assessments.

Read the press release about the new product and program.

An article in the New York Times highlights some of the best kept secrets of LEED certification.  While many people think that LEED certification is synonymous with energy efficiency, the article, looking at data from sources such as the New Building Institute, indicates that may not be the case.  Because building owners have a wide array of options for securing LEED points, including use of sustainable or recycled materials, proximity to bus stops, and installation of bike racks, oftentimes energy conservation measures may be overlooked or ignored.  Moreover, because energy use must be modeled to forecast usage in new construction, it is invariably wrong, and often by a significant margin.  The article’s conclusion?  A majority of LEED buildings tested would not even receive an Energy Star label.

Even if they do focus on energy points and install and commission sophisticated controls, if they are not monitored and maintained, controls and systems go out of balance.  A phenomenon known as energy drift sets in and energy is wasted over time.  Things like use of setbacks, lighting during occupied times and over-ventilation are a few examples.

Given the amount of money invested by building owners to secure this rating, it seems absurd that they wouldn’t at least be considered energy efficient.  I suspect there will be a backlash.  Hence the use of screws for mounting (and dismounting) plaques.

On the other hand, LEED EB (existing buildings) seems to be more focused on energy savings as a key component of achieving certification.  Indeed, mechanical contractors would be wise to ensure they understand how their services can help LEED consultants and building owners achieve points toward the LEED EB certification.  The good news for building owners is that many of these points can be “delivered” by a knowledgeable mechanical contractors without paying exorbitant premiums.

Oh, and one other thing…. Existing building energy models based on that building’s actual utility bills versus a theoretical model are far more accurate and can be used to accurately forecast savings from proposed energy conservation measures (ECMs).  Accurate forecasting will help to identify the ROI for each measure and help secure owner buy-in for retrofits.

SO LEED NC has some challenges in front of it as it relates to energy conservation.  LEED EB, as it relates to energy conservation, may be just what the doctor would prescribe for “ailing” building owners.

According to the recently published RICS-CPE Global Commercial Property Sustainability Survey, despite a global economic downturn, real estate owners are increasing their investments in sustainability.  Cutting energy costs was cited as the primary driver for these investments.

“The most important sustainability issue for clients is energy efficiency,” Simon Rubinsohn, RICS chief economist, told CPE. “More people are more focused on sustainability since the economic crisis, and energy has become the main driver; it has to do with the bottom line.”

It makes a lot of sense when you think about it.  We continue to see buildings that consistently could cut 15% off their energy utility bills just by implementing low cost/no cost energy conservation measures.  With ROIs of less than 6 months its kind of a no-brainer for owners.  Considering energy spending, on average, constitutes approximately 35% of building operating costs, this is significant.

From a sustainability stand point, not only are they able to cut energy consumption, but they are also able to reduce their carbon footprint.  With a climate bill winding its way through the Senate, many believe substantial financial incentives for carbon reduction in commercial buildings could make energy conservation even more financially appealing.

BOMA has been attempting to educate owners regarding these opportunities and it looks these ideas are being adopted.  When I talk with owners and managers most of them get it.  Often the main question is how to go about uncovering these opportunities in a cost effective manner.  Many of them just don’t know where to start.  I will outline how we’re suggesting owners proceed in a separate post.

In the meantime, its nice to see that sustainability is seen as a strategic initiative for most owners based on its ability to lower operating costs.  It’s not just good for the planet, it’s good for the bottom line.

View the article at Commercial Property News here.

Lighting controls, like any control system has the power to realize a significant amount of savings because you can control specific times when the lights can and cannot be used.  Lighting systems in buildings are typically designed to provide to much light for today’s needs, they usually do not take into account the use of natural daylight, and they are left on when no one is using them.  Lighting controls can address all of these wasteful issues and with reliable paybacks of less than 2 years in many cases.

The top 5 use of lighting controls are:

1. Scheduling automatically turns lights off or to dimmed levels based on the time of day.
2. Occupancy sensors turn the lights off when a room or space is vacant.
3. Daylight harvesting dims or shuts off lights when enough daylight is present to satisfy light levels.
4. Demand response/load shedding reduces light loads at peak electricity price times.
5. Personal light controls allows users to dim lights their preferred levels.