Energy Efficiency Boom to Halt Commercial Real Estate Swoon?

We've refrained herein from posturing about politics and energy policy. Why worry about what you can't control?, our (apathetic?) side contends. That said, at Octus we're acutely focused on existing incentives, tax credits and other catalysts that fortify our clients: commercial building owners and managers who invest in energy efficiency. And, a recent report, "The Imminent Commercial Real Estate Crisis and The CRE Solution," caught our eye. A few snippets:

• CRE transactions have dropped a staggering 90 percent since 2007. Between now and 2014, $1.4 trillion in CRE loans are coming due; more than half of these are currently underwater. Commercial property values have plummeted by more than 40 percent, and commercial vacancies rates continue to increase.
• Congress can simultaneously address the looming CRE crisis and crippling construction unemployment through The CRE Solution. This can be jumpstarted quickly by building upon the existing Energy Efficient Commercial Building Tax Deduction (26 U.S.C. 179(d)) from $1.80 per square foot to a range of $3 to $9 per square foot for new and existing commercial buildings meeting specific energy reduction targets.
• For each $6 billion of deferred CRE revenue, for example, The CRE Solution would generate $73.4 billion in new private spending, $15.9 billion in new federal tax revenue, and $5.25 billion in state and local government tax revenue, according to the report findings.
• The CRE Solution would decrease building sector energy consumption and greenhouse gas emissions, increase after-tax cash flow and property values, reduce loan defaults, and increase new CRE sales, desirability, and investment value.

The 14-page report can be viewed at architecture2030.org.

BOMA San Francisco Launches Commercial Property Energy Efficiency Program

A preponderance of activity and attention in the energy efficiency industry focuses on tangible, physical improvements to buildings and their equipment. Rightly so, given the energy savings and returns generated through the implementation of lighting, HVAC and energy management technologies. But, such activities are only part (albeit a primary piece) of the energy efficiency puzzle -- there's much to be learned, and many dollars to be saved, through thoughtful behavioral and operational practices.

Last month, the Building Owners and Managers Association (BOMA) of San Francisco announced they will coordinate delivery throughout California of the BOMA Energy Efficiency Program (BEEP), an innovative series that teaches commercial real estate professionals how to reduce energy consumption -- and related costs -- with proven, no- and low- cost strategies for optimizing equipment, people and practices. From BOMA's press release:

Nationwide, the commercial real estate industry spends approximately $24 billion annually on energy. Yet energy consumption represents the single, largest controllable operating expense for office buildings. BOMA anticipates BEEP will reduce energy consumption by as much as 30 percent in participating commercial properties

"If 2,000 Bay Area buildings adopt BEEP's best practices during the next three years, the resulting savings gained from reduced energy consumption will amount to $400 million," said BOMA SF Executive Vice President Marc Intermaggio. "The fact is a 30 percent reduction in energy consumption in the nation's commercial buildings, which equates to $7.2 billion, is readily achievable simply by improving building operating standards."

Click here to visit BOMA's BEEP site and learn more.

Energy Efficiency Investments Remain Strong

We chime often about the outstanding virtues of investing in energy efficiency: The ability to slash energy costs, increase property values, bolster occupancy and lease rates, improve workspace environments, and reduce carbon impacts. Add to this the return-on-investment generated by investing in energy efficiency improvements -- typically in the 30-to-50% range, oftentimes higher -- and it's no surprise that such investments are mushrooming.

A global survey of 2,882 companies (the Energy Efficiency Indicator) released by Johnson Controls last week validates and amplifies the emerging opportunity. "These survey results indicate the growing importance on having energy efficient buildings that are cost effective and sustainable," said Dave Myers, president, Building Efficiency, Johnson Controls. A few snippets:

• Energy price increases: More than two-thirds of companies surveyed expect energy prices to rise, and many have made or are considering efforts to cut operational costs with energy efficiency retrofits.
• Illuminating savings: Among companies that have conducted energy efficiency retrofits, 73% modified their lighting, 64% trained building superintendents to be more energy efficient, and about one-third made larger investments, including replacement of HVAC units and installing efficient glass.
• Money, money: The biggest factor in energy efficiency investment for these companies is that the investment pay for itself -- quickly -- within three years.
• Making it happen: Sixty-three percent of companies surveyed plan to make capital investments in energy efficiency and 70% plan operating budget expenditures in efficiency programs over the next 12 months. And, 85% plan to make efficiency a priority in their new construction and retrofit projects.

"Despite the recession, decision-makers have put efficiency high on their agendas for 2010, especially those in India and China," said Clay Nesler, vice president, Global Energy and Sustainability, Johnson Controls. "It's encouraging to see that the financial returns and environmental benefits of energy efficiency investments are recognized in all regions around the world."

$50 billion reasons energy efficiency works

The growth of energy efficiency has been hamstrung by its relative transparency, its invisible nature. Is it real? Does it work? A recent GreenerBuildings post authored by Evan Smith, Kickstarting the Green Economy with Building Energy Efficiency, lends credence -- $50 billion worth -- to the immediate and perpetual efficacy of energy efficiency.

Quick synopsis:

What isn't getting enough play in our green technology economy is work we can and need to undertake right away: A serious coordinated effort to deploy network-based portfolio-management energy efficiency strategies and measures across our buildings and fleet transportation systems as rapidly as possible.

Here's one specific area for consideration. United States commercial real estate (all buildings except residential housing and goods-producing industries like manufacturing, agriculture and construction) consumes energy at a substantial and growing rate. It will grow at two-thirds the rate of gross domestic product through 2025, according to the Annual Energy Outlook 2005 published by the U.S. Energy Information Agency. In 2003, the commercial building sector, which is made up of 4.9 million commercial buildings covering more than 71.6 billion square feet of floor space, consumed 17,548 trillion BTUs of energy. Estimating a conservative nominal energy cost of $10 per MMBTU, the energy bill for commercial buildings in the U.S. exceeds $175 billion annually.

What is absolutely criminal is that today, somewhere between 20 percent and 40 percent of that energy is wasted, even from buildings built within the last 10 years.

The translation of energy waste to money lost -- seemingly simple, certainly proven -- is a cognitive challenge. Utility rates go up. Buildings age and become increasingly inefficient. Property owners and managers pay their utility bill every month. They can't see the energy they're wasting, and the hole in their pocket expands. It's groundhogs' day, and hole gets deeper with each setting of the sun.

Simply stated:

Start with the $175 billion in annual energy costs for the U.S. commercial real estate. Conservatively, 30 percent is available to conserve. The savings potential therefore approximates $50 billion annually.

What to do? The article frames a common scenario for facility owners and managers, and proffers a sage suggestion amplifying the purpose and utility of Octus's Smart Energy Platform:

In most facilities, maintenance staff work on the most egregious failures when they detect them, but the reality is that maintenance only detects and addresses some fraction of failures. The energy performance of most buildings today, even new ones, relying on alert maintenance staff and manual controls, is well below optimal.

New approaches to smart building facilities portfolio management enables digital readouts on zones, nodes and systems within wired buildings that can tell maintenance the energy (and air quality, safety, carbon footprint, etc.) impact of each failure on a real-time basis. These readouts - like giving each building an MRI every 15 minutes - can help maintenance staff to rapidly staunch energy losses and conserve most of the energy loss potential identified. These technologies and approaches are available now.