Energy efficiency remains the #1 green building priority among commercial office tenants, according to a new survey by GE Capital Real Estate. The survey of more than 2,220 office tenants in the U.S., Canada, France, Germany, Sweden, the UK, Spain, and Japan, confirms the importance of green building initiatives to tenants. While energy efficiency ranked first,  waste reduction programs and indoor air quality are next in importance. Tenants outside the US–Japan (59%), Sweden (52%), and Canada (52%)–rated green building practices at higher levels of importance than in the US. (43% of tenants).

For more information, see: http://www.gecapitalrealestate.com/en/success_stories/managing_our_portfolio/Commercial_Office_Tenants_Want_Green.html

“Sustainability” is actively influencing federal procurement practices, as seen by the activity of SR Inc Member, the U.S. GSA. A recent article noted the fact that by Fiscal 2011 the GSA wants 95% of its new procurements to meet its sustainability requirement.

Through both GOP and Democratic Administrations, the trend towards more sustainable procurement has only moved in one direction — and it is now accelerating.

With 62 billion in annual purchasing power (all within the U.S.) the GSA is determined to “move or make markets” towards greater sustainability.

Read the full article here.

SR Inc’s Facilities Working Group supports Sustainable Corporate Real Estate Roundtable (SCRER) Members whose real estate portfolios are primarily leased. SCRER Members and other leading organizations are increasingly seizing opportunities beyond “green” Tenant Improvements to implement advanced energy and resource management strategies across properties they do not own.

The growing focus on enhancing energy management in leased portfolios is enabled by:

1. Evolving technologies that are wireless, scalable and cost effective
2. Landlords’ increasing awareness that many tenants commitment to a more sustainable approach to business is reflected in the site selection of leased facilities.

SCRER Members recognize that corporate “sustainability” is a continuous process rather than a destination. Consequently Members strategically consider opportunities to embed sustainability practices at each phase of the lease lifecycle:

For this post we focus on a crucial step—Request for Proposal (RFP)—within the site selection phase of the lease life cycle and share distilled RFP guidance that SCRER Members have found useful.

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Kristian Peterson, SR Inc’s Director of Consulting, is the co-author of an IFMA white paper that is soon to be released. The white paper entitled the Economics of Sustainability in Commercial Real Estate is a practical, real-world study of the incentives and motivations of real estate managers to invest in energy efficiency retrofits. In the paper, Peterson explains why some investments are made over others and presents an economic framework to evaluate competing capital investment decisions, including deciding between energy efficiency upgrades and cosmetic improvements.

Peterson and co-author Ross Gammill interviewed decision-makers throughout the real estate management chain, including property managers, asset managers, portfolio managers, and institutional owners and investors. They explore primary and secondary drivers of investment decisions and present a financial model to compare competing alternative capital investments.

Among Peterson and Gammill’s findings:

• Commercial building owners often find the best return on investment in sustainable upgrades before a significant lease rollover;
• Public perception is a driving factor for many public companies considering energy efficiency improvements; and
• Owners are more likely to invest in energy efficient upgrades when tax incentives are in place.

The paper includes a case study on energy efficiency retrofits at the Empire State Building, where project managers aim to reduce energy use by 38 percent. The case study details the eight projects selected among dozens and describes how managers arrived at a 38 percent energy savings goal.

Relevant industry questions answered by Peterson & Gammill in the paper include:

• How does an energy efficiency improvement project get implemented?
• Who is the driver behind energy efficiency projects?
• What financial metrics are used to determine if a retrofit investment makes economic sense?
• How does a real estate manager choose among competing capital investments?

The paper (available here) provides a superb overview of the economic drivers of energy efficiency retrofits to help portfolio managers, asset managers, and building managers make the case to owners and investors that energy efficiency retrofits can increase NOI, thus increasing the bottom line. The full paper is available here on the SR Inc website. [URL: http://sustainround.com/documents/IFMA_EcoOfSustainability_WP_Final.pdf]

A few days ago Gov. Schwarzenegger announced CALGreen, a green building code for California that will mandate green building features and practices beginning January 1, 2011.

CALGreen affects residential as well as commercial buildings. All buildings will be required to

1. Reduce water consumption by 20%
2. Divert 50% of construction waste from landfills
3. Install materials that emit low amounts of indoor pollutants

The most demanding aspects of the code are for non-residential buildings in excess of 10,000 square feet. These buildings, in addition to the above, will need to:

1. Have major systems commissioned
2. Have indoor and outdoor water metered separately
3. Have moisture-sensing irrigation systems

With ASHRAE’s development of Standard 189.1 (ASHRAE Standard for High-Performance Green Buildings), many experts expect that building code authorities will increasingly include green building requirements into mandates. Another driver for green building codes is that using the LEED(R) Rating System as a mandate is not viable long-term.

This is not viable long-term for several reasons. Two such reasons are that (a) not all buildings will be able to maintain a LEED certification and (b) there are some antitrust issues currently associated with the LEED Rating System. The former issue is a result of the LEED for Existing Buildings (EB) certification which utilizes the ENERGY STAR Portfolio Manager rating of a building. Portfolio Manager scores buildings relative to the national building stock and therefore the building scores are dynamic (think of this like a person having to take the SATs each year — you would receive a different score each year even if you answered the questions the same because your score is based on the performance of your peers nationally).

CALGreen may be expected of one of the states that is often at the fore on environmental issues in public policy, but leading thinkers and practitioners in commercial real estate expect increased regulation even if it does not come from the federal level.

GreenBuild 2009 in Phoenix last week was an excellent conference.

A few things, quickly, that were appreciated by SR Inc. staff:

• The extent to which the waste stream from conference-goers is sorted
• Coolerado (www.coolerado.com)
• Al Gore’s opening speech (and the fact that we had dinner and drinks on the Diamondback’s field beforehand)
• The USGBC’s publication of LEED integration guides including the Green Office Guide and the forthcoming Paid-from-Savings Guide to Green Existing Buildings. (SR Inc. has additional guidance in each of these areas that incorporate what these guides provide and go beyond them.)
• The Siemens/WSJ event at which they displayed their Smart Chopper Motorcycle
• The session on ASHRAE’s new 189.1 standard and its potential for integration directly into building codes

The latest report from McKinsey, published earlier this year, offers an in depth analysis on how money spent on energy efficiency in this country can have a large effect on the future money spent on energy as well as an overall decrease of green house gas emissions (GHG). The McKinsey researchers found that if a scalable holistic approach is conducted it will yield gross energy savings of more than $1.2 trillion  and reduce end use energy consumption by 9.1 quadrillion (!) BTU’s by 2020. These reductions will also lead to the potential of abating up to 1.1 gigatons of GHG annually. All of these numbers are mammoth  because of the pure number of buildings (100 million) and devices (billions) involved.

How can this report positively effect the Members of SR Inc.? This is a global description of what the potential can be tapped through this overarching strategy to reduce energy use through the use of how a positive Net Present Value (NPV) stands up versus various discount rates that were used. Overall the report came up with five observations that may prove helpful as SR Inc. Members develop their own strategy to drive down energy use,increase energy efficiency and ultimately save their companies money in the short and long term. They are as follows”

1. Recognize energy efficiency as an important energy resource that can help meet future energy needs while the national concurrently develops new no-and low-carbon energy sources.
2. Formulate and launch at both national and regional levels an integrated portfolio of proven, piloted, and emerging approaches to unlock the full potential of energy efficiency.
3. Identify methods to provide the significant funding required by any plan to capture energy efficiency.
4. Forge greater alignment between utilities, regulators, government agencies, manufacturers, and energy consumers.
5. Foster innovation in the development and deployment of next-generation energy efficiency technologies to ensure ongoing productivity gains.

Our shared research model can help our Members start down the road of using these points to achieve greater sustainability for their real estate portolio and the real estate they reside in through our actionable best practices research, rebate and incentives reports as well as regulation updates. Please feel free to contact us on how we can help your company gain greater energy efficiency, save money on energy use and reduce GHG emissions all at the same time. We have a dedicated team devoted to servicing our Members to achieve these savings for large owners and users of real estate nationwide.

You can access a copy of the executive summary and the report in it’s entirety here:

http://www.mckinsey.com/clientservice/electricpowernaturalgas/us_energy_efficiency/

Please contact us with any questions you may have.

There have been many recently debated articles regarding the greening of corporate office space and whether or not there are enough green buildings in this country to make correlations to the overall effect green buildings has to energy and operational efficiency. Now there seems to be increasing interest among researchers on how much productivity is improved in green buildings vs. “brown” buildings and how that can be translated to a savings per square foot basis in corporate real estate. If correct it could be proven that productivity improvements have a large impact on the overall efficiency of a commercial building.

A recent study by Norm Miller, PhD of the University of California, San Diego and Dave Pogue, LEED AP who is the Director of Sustainability for CBRE titled “Green Buildings and Productivity” explores this question on how the productivity of employees improves through working in green buildings.

The researchers examined two measurements of productivity (sick days and self reported productivity change when the employees moved from a “brown” building to a green one) and surveyed 154 buildings containing over 2,000 tenants that were deemed green through an ENERGY STAR Label or LEED Certification (at any level). The 534 tenant responses were collected across the country and in suburban and central business districts.

The results of the study were significant for those tenants who claimed greater productivity with the following numbers:

Productivity Impact for Those Tenants Who Claimed Greater Productivity
Average Productivity Increase 4.88%
Average Salary (Note: There are other ways to measure this) $106,644
Average Impact Per Worker in Value Add $5,204
Net impact at 250 Sq Ft Per Worker Using Salary as Index (Note: Impact
could be more on marginal revenues than this) $20.82

When factoring in the number of reduced sick days the researchers developed this analysis of the net impact of the results on a square footage basis:

Productivity Impact of Fewer Sick Days Using Average Survey Results
Average Fewer Sick Days 2.88
Working Days Per Year 250
Average Salary $106,644
Average Impact Per Worker in Value Add $1,228.54
Net Impact at 250 Sq Ft Per Worker $4.91

The researchers also analyzed how increased productivity and reduced sick time can be analyzed on a Net Present Value (NPV) basis and these were the results:

Discounting $25/yr/sq. ft for 10 yrs. at 10%, based on the sum of the two benefits shown above and rounded and assuming a 10 yr differential for such benefits and a fairly conservative discount rate the received a present value of $153.61/ sq. ft..

Based on these results it would indicate that LEED and ENERGY STAR certified buildings and ones that have increased air quality and quantity lead to more productive and less sick workers. While the sample size may be too small to completely correlate the overall and exact impact there seems to be a decent chance to expect a positive result of having employees work in a green or energy efficient building. I look forward to reading more reports that analyze a greater number of green buildings as more become available in the market place.

You can access the report at the following link:

http://catcher.sandiego.edu/items/business/Productivity_paper_with_CBRE_and_USD_Aug_2009-Miller_Pogue.pdf

Please feel free to contact us at the Sustainability Roundtable Inc. to discuss this report and any others as we explore the impact green buildings and highly efficient buildings have on employee productivity going forward.

We have all been wondering when and how insurers would develop products that would cover building owners who develop or retrofit green buildings. Chris Cheatham reports on his blog about AIG’s product, AIGRMGreen Reputation Coverage.

As Cheatham says, “I have been clamoring for this type of insurance policy for awhile.  I thought it would take much longer to create.  This is an important first step to properly insuring owners, contractors and architects involved with projects seeking LEED certification.”

Check out the policy (it’s not that long) and let us and Cheatham know what you think.

Ron Pressman, President & CEO of GE Capital Real Estate, shares his insights on managing corporate real estate in a downturn. The National Real Estate Investor Online — which ran a headline article about Sustainability Roundtable, Inc. — shared Pressman’s white paper.

Pressman briefly outlines GE’s focus on the “basics” as they strive to create value in their portfolio. He notes that, despite the market, there is a “renewed emphasis on capital expenditures” that attract tenants. One capital expenditure that is attracting top tenants in the industry is a “green”, sustainable expenditure. Members of the Sustainable Corporate Real Estate Roundtable are finding ways to “green” their portfolios via both their capital and operating budgets in order to maintain the value of their portfolios and retain top tenants

Check out Pressman’s full white paper at: http://nreionline.com/research/nrei-ge-capital-real-estate.pdf.