Leading Real Estate Organizations Commit to Collaborative Action Plan for Green Leases

At Octus, we believe the missing piece to solving the commercial real estate energy efficiency puzzle is the alignment of economic incentives. CRE investors, owners and managers face a financial paradox: They recognize the value of making their buildings more efficient (increase asset values, boost NOI, raise lease rates, bolster occupancy), but if they're not paying the utility bill -- and if cash is short -- it's oftentimes difficult to make the investment.

Jones Lang LaSalle and a host of real estate investment and corporate leaders get it. To wit, they have aligned and committed to a statement of principles and a Green Lease Action Plan to resolve the challenges of energy and sustainability in leased commercial office space. The first organizations to agree to the Green Lease Action Plan include Bank of America, Beacon Capital Partners, Deutsche Bank, JPMorgan Chase, LaSalle Investment Management (the investment arm of Jones Lang LaSalle), RREEF (the real estate investment management arm of Deutsche Bank) and Whirlpool Corporation. Here's a summary of their efforts, announced in a July 26, 2010 news release:

Collectively, these organizations own or occupy leased office space in excess of 350 million square feet.

This industry leadership move is launched in association with Greenprint Foundation, a worldwide alliance of real estate owners, investors and financial institutions committed to reducing carbon emissions across the global property industry. Several participants in the Green Lease Action Plan are also founding members of Greenprint Foundation, including Jones Lang LaSalle, which is facilitating the Plan and registration process for all participating organizations.

"The efficient use of energy and other resources in buildings requires joint action from property owners and occupiers, but there are disincentives that often prevent the two sides from investing in the necessary capital improvements," said Michael Jordan, Senior Vice President of Sustainability Strategy at Jones Lang LaSalle. "We're inviting organizations to join us in addressing these energy and environmental challenges, to create business value for owners and occupiers alike."

The built environment is responsible for up to 40 percent of energy use and greenhouse gas emissions in many countries. Jones Lang LaSalle estimates that many commercial buildings can reduce energy use and the associated greenhouse gas emissions by 40 percent without affecting tenants' comfort; however, much of the achievable savings requires upfront investment that is paid back over a period of several years. In a building with many tenants that may relocate, expand or contract their space over time, it is difficult for owners and individual tenants to make a strong business case for retrofits.

The initiative to remove barriers to energy efficiency and sustainability in leased office space is based on three guiding principles:

1. Landlords and tenants should agree to operate the buildings as sustainably as is commercially feasible.
2. The value of energy savings achieved through building efficiency improvements should be available to pay for the improvements
3. To the extent feasible, usage and demand for resources throughout the buildings should be measurable and transparent to both landlords and tenants.

In endorsing these principles, leading organizations agree to:

1. Establish green lease principles to influence owner/occupier agreements and act on these principles across the portfolio over time.
2. Require leasing agents who work on behalf of participating organizations to complete a basic orientation about sustainability, green lease principles, and ways to resolve barriers to sustainability in leases.
3. Establish/adopt green site selection criteria for tenants and consider these criteria for new space acquisition.
4. Establish a standard for landlords to communicate key energy and environmental ratings to tenants and to prospective tenants and deploy this process at 50 percent of their properties within three years.

"This is not about owners or tenants making financial sacrifices to enhance energy and sustainability in buildings—it's about creating economic incentives on both sides to create win-win scenarios economically and environmentally," said Charles B. Leitner III, Chief Executive Officer, Greenprint Foundation.

"We see a clear need for a dialogue between landlords and tenants to align costs and benefits of green office space," said Lee Utke, Director of Global Corporate Real Estate at Whirlpool Corp. "As more and more tenants and landlords recognize these issues and commit to working toward a solution globally as well as nationally, we will be able to make a stronger business case for improvements in buildings."

These leading tenants and landlords have committed to the Green Lease Action Plan as an important step toward resolving the challenges, and are taking direct action to implement these concepts in the properties they own, occupy and manage. "We hope to expand the group of owners and occupiers to sign on to these principles, and accelerate our collective progress in overcoming this challenge," Jordan said.

Energy Retrofits to Commercial Buildings: $41 Billion Annual Savings Opportunity

We posit often about how Octus Energy is serving an existing market. Specifically, it is a waste-ridden space -- lots of it. By many counts, there is approximately 80 billion square feet of commercial building space in the U.S. By all counts, nearly all (97%, by most estimates) buildings are inefficient -- they are consuming too much energy and wasting billions of dollars each year in excess energy costs. We believe the wasteful tide is shifting.

A recent Pike Research report, profiled here, quantifies the opportunity: If all commercial buildings in the United States were retrofitted to be more energy efficient, more than $41 billion in energy savings -- each year -- would be generated.

Pike's report, "Energy Efficiency Retrofits for Commercial and Public Buildings," puts it into perspective:

"The current financial crisis has had a significant dampening effect on property owners' investments in their properties. Financing for such projects is scarce, and the limited investment in building efficiency is not keeping pace with the growing national demand for energy," says Pike Research's managing director Clint Wheelock.

The report asserts that some major companies have invested in green updates for their properties, but it has yet to really catch on. Pike believes it's about to change and that energy retrofitting for commercial properties will become a strong growth market through 2014 and beyond.

"In addition to cost savings, energy retrofits are attractive for purposes of greenhouse gas reductions, energy independence, green branding, property valuation, and productivity," according to the Pike Research report.

New Math: The 80% Energy Efficiency Opportunity

Our mission at Octus Energy is straightforward: to significantly reduce energy expenses and increase cash flow for building owners, managers and occupants. When we do this, we generate a triple bottom-line return for our clients (aka, the Octus 3 Ps):

Profit: Energy costs are reduced immediately and perpetually; NOI, building values, occupancy, and lease rates are bolstered.
People: As building environments improve, employee, occupant and customer morale, satisfaction and productivity increase.
Planet: Significant reductions in the carbon impact of facilities.

And, we holster a few metrics to our mission: Commercial buildings in the U.S. spend an estimated $100 billion annually for electricity, solely for lighting and cooling. With in-the-market solutions, energy costs can be cut in half: $50 billion per year. And, we are not seeking to create a new market, but rather serve an existing market.

A recent study, portrayed by our comrades at The Building Advisor, blows our metrics through the roof. “Up to 80 percent of commercial building energy is going up in smoke,” said F. Noel Perry, founder of Next 10.

Next 10 has issued a new study, “Untapped Potential of Commercial Buildings: Energy Use and Emissions,” which suggests that energy use by commercial buildings could be reduced by up to 80 percent through energy efficiency measures, based on national averages. The full report is available here.

The San Francisco Chronicle’s blog, The Thin Green Line, chimes in:

“Indeed, an average building’s energy use can be cut by half just with low-cost, low-tech improvements to lighting and insulation.”

Next10's study points out that behavioral changes, or tenant use (adjusting lighting schedule, etc.) in commercial buildings can provide energy savings at very low costs. The Building Advisor: "It’s real, folks: there are cash saving things you can do for your building that don’t cost anything."

Piling on, GreenerBuildings: While there is an emphasis on energy efficiency in new construction, it is actually existing building stock that represents the biggest potential for energy reduction, yet remains largely unaddressed by state legislation.

Kohl's Efficiency Kick: $50 Million in Savings

Kermit the Frog once bemoaned, it's not easy being green. One of the world's largest retailers, Kohl's Department Stores, would disagree with our amphibian childhood friend.

As reported in GreenBiz, Kohl's has reached another milestone in its aggressive sustainability campaign: 500 stores in the retail chain have now earned the Energy Star label. Smart company, smart energy. Here's an encapsulation of the story:

The [Energy Star] designation, now borne by almost half the company's 1,089 stores, recognizes the sites for outstanding energy efficiency and building performance. To obtain the label, buildings must rank in the top 25 percent of the rating system set by the Energy Star program maintained by the U.S. Environmental Protection Agency and the Department of Energy.

In announcing the achievement yesterday, Kohl's said its energy efficiency efforts in the past four years have helped the company avoid $50 million in electricity cost and have boosted efficiency by more than 20 percent.

The firm marked its accomplishment by making a new commitment to green building: Starting next spring all newly constructed stores are to pursue "Designed to Earn the Energy Star" designations.

The recognition means the building has been designed for a level of energy efficiency that would merit an Energy Star label, and "Designed to Earn" sites must perform at that level for a year in order to qualify for an Energy Star label. So far, five Kohl's stores have been deemed "Designed to Earn the Energy Star" this year.

"We are building on our commitment to drive energy efficiency companywide as we continue to near our goal of being carbon neutral," said Ken Bonning, Kohl's executive vice president of store planning and logistics, in a statement yesterday.

In December, Kohl's set a goal of becoming carbon neutral by the end of this year. The target applies to the company's U.S. stores, distribution centers and corporate offices, which are to operate with net-zero greenhouse gas emissions by the close of 2010.

Boosting Commercial Building Energy Efficiency: Five Tips

We chug Kool-Aid with our comrades at The Building Advisor: Like those of us at Octus, they're immersed in the contemporaneous opportunity to immediately and perpetually slash energy use and costs in commercial, industrial and municipal buildings. Here's how our colleagues commenced a recent post:

So, you want to increase your commercial building’s energy efficiency. You’re finally convinced that efficiency is the first fuel, that 40% is too much for commercial buildings to suck out of the US’ total energy production, and that the benefits of increasing efficiency reach not only the environment but to your business’ bottom line.

Said differently, you've applied common sense, logic has prevailed, and you're ready to take action (but, perhaps, you're not prepared to crank the throttle on your energy efficiency investments). What to do? The Building Advisor proffers five get-it-done-now tips:

1. Curtail overventilation – The number one culprit in the fight against energy waste. Lucas Klesh wrote a comprehensive post on overventilation here, soon to be accessible on Sustainable Facility. He goes into detail on the value of a property functioning economizer and damper system.
2. Adjust lighting schedule – Does your lighting schedule match your tenant schedule? Matching the two more closely allows you to get the most out of the energy usage when you need it.
3. Eliminate competing HVAC systems – As crazy as it sounds, many buildings run heating and cooling systems simultaneously. What’s even richer is that mechanical service providers often aren’t aware that this is happening. Stop your building from fighting with itself and reap the benefits in your utility bills.
4. Re-evaluate HVAC when space configuration changes – Have you downsized your staff? Put up a wall or other internal partition in a large office area? If there are unoccupied areas of your property or changes in your space configurations, most likely your HVAC systems aren’t up to par for the changes made. Re-assess the space’s needs by evaluating control points and air distribution locations.
5. Take weekends off – Unless your office or commercial building is in full swing seven days a week, make sure you’re not running air conditioning when there’s no one there to benefit from it.

GE to Double Investment in Energy Efficiency

Companies big and small are upping the ante when it comes to investments in energy efficiency. For CRE owners and managers, it's logical: Increase their NOI and asset values, boost occupancy and lease rates, and enhance the quality of their properties. For companies like Cisco and General Electric (and Octus Energy, of course), the investment in smart energy efficiency products and services is even more straight forward: Pour resources into a hyper-growth market where customer demand and financial incentives are proliferating by the day.

Take GE: Last week the company reported its plan to invest $5 billion in energy efficient and environmentally oriented projects has been met a year ahead of schedule. GE also announced it is committed to spend an additional $10 billion by 2015.

Why? GE's investment in its "ecomagination" program is paying off. The company said revenue from these products and services increased 6 percent to $18 billion in 2009 and that it has reduced emissions of greenhouse gases blamed for global warming.

"We are doubling down to drive even faster impact and to deliver our contribution to a 21st century energy transformation," explained GE Chairman and CEO Jeffrey Immelt.

The company said revenue from a portfolio of 90 energy efficiency products and myriad services will grow at twice the rate of total company revenue in the next five years.

Bottom line: GE reported its $5 billion investment has generated revenue of $70 billion. Smart energy = smart investment = smart returns.