Water: The Third Utility (and an efficiency goldmine)

Increasingly, current and prospective Octus clients have inquired about how they can reduce their water and sewer bills. We have deployed a number of energy-centric solutions -- including industrial ozone washing machines for hotels and our proprietary Wickool evaporative cooling device for rooftop HVAC units -- that both reduce energy costs and conserve water. These solutions fill specific needs for specific customers, but there is a more grand and growing opportunity to help building owners conserve water and reduce costs.

Here's our general logic: The thirst (demand) for water is increasing, and the supply of water is decreasing. Conversely, demand for energy -- electricity, in particular -- is increasing, albeit at a slower rate, but the supply, with renewable generation proliferating, is increasing too. If you own or manage a property, you are not myopically concerned with reducing your energy or water use; you care about slashing your utility bills.

From Buildings.com:

Major advancements in the technology and reliability of water equipment in the last 10 years have made the investment in water conservation very cost effective. While water and sewer rates vary, the process is worth your time for a variety of reasons:

• Water conservation is an investment with attractive ROI potential.
• Water rates are increasing.
• Sewer rates are increasing dramatically due to higher EPA mandates on municipal sewer plant operators (100 percent to 400 percent over the past 10 years).
• Droughts are requiring water conservation for businesses, or you face major water cost increases. Atlanta required a 10-percent reduction or a charge of an extra 25 percent.
• Water conservation and sewer plant operations benefit from water conservation since it directly impacts billion-dollar capital investments to address peak loads (like electricity).
• Some cities have demand-side management (DSM) rebates to incentivize water-conservation investment.
• Fresh water is a major element in our lives and the viability of our communities and, ultimately, the earth.

The article highlights that the U.S. government alone owns or leases 500,000 buildings that use 350 million to 500 million gallons of water per day. Water-conservation efforts in federal buildings have produced savings of more than 30 percent with no cutbacks in operations or service levels. These water-conservation projects have included high-efficiency toilets (HETs), high-efficiency urinals (HEIs), and other improvements.

And, it's a threefold savings opportunity: When you reduce water consumption, your reduce sewer charges. (Sewer charges can be one-third to two times the cost of the water, depending on local rates.) When you reduce hot-water use in showers and clothes washing, you’re also reducing your natural gas or electricity bill since the volume of hot water needed has been reduced.

Furthermore, with the Octus/Five Star Bank Building Energy Savings project financing program, building owners can implement energy- and water-saving initiatives with no up-front or ongoing costs.

Commercial Building Energy Use: Start Your Disclosures

If you are a CRE professional in California, section 25402.10 of the California Public Resources Code is probably the last thing on your mind. If you lease, sell or finance commercial properties, come January 1, 2011, it will be top of mind. Specifically, the state will require disclosure of energy ratings and building performance. From the statute: An owner or operator of a nonresidential building shall disclose the [EPA's] Energy Star Portfolio Manager benchmarking data and ratings for the most recent twelve-month period to a prospective buyer, lessee of the entire building, or lender that would finance the entire building.

Last spring the California Energy Commission published a proposed schedule, which after January 1 will require disclosure for any nonresidential building that is solely occupied by the owner or that measures more than 50,000 square feet. Any nonresidential buildings that measure 10,000 to 50,000 square feet will be required to comply as of January 1, 2012, and those as small as 1,000 square feet must be compliant by July 1, 2012.

Analogous -- but obviously, with more depth and variables -- to automobile fuel efficiency stickers, as discussed below. For Octus Energy and other companies involved in generating energy savings and financing energy projects, it will further validate and quantify the value of a building's operating and energy efficiency.

Here's an in-depth look from California Lawyer:

A building's energy score must be accurately calculated, either on the EPA's Portfolio Manager website (www.energystar.gov) by a knowledgeable building owner, or by a third-party energy firm. Although the EPA provides helpful resources on its website (see the Tools and Resources tab), this can be complicated stuff. And because an inaccurate disclosure could create liability, some owners will opt to spend a modest amount of money for professional help.

The required disclosures can also create legal issues regarding tenants' privacy rights. A building owner or an energy disclosure professional is responsible for entering data regarding the tenants' energy consumption over the previous twelve months, along with building parameters such as hours of operation, computer usage, and thermal settings. For the landlord of a triple net leased building, this entails disclosing the tenant's energy bill, which raises potential confidentiality issues. At a minimum, counsel should be writing leases that specifically allow for this statutory disclosure; however, in the absence of a specially tailored clause, seek the tenants' cooperation in attempt to comply with the law.

Limitations of the EPA's online Portfolio Manager may prove problematic for some commercial buildings. For example, though office buildings can be rated quite easily, other facilities such as movie theaters, bowling alleys, and funeral homes are not specifically addressed by the free online software.

Despite imperfections, California's energy disclosure law is an important step forward. Commercial tenants, buyers, and lenders in this state will soon be comparing buildings based on their energy efficiency and, it is hoped, the market will reward more–energy efficient buildings.

So what should attorneys suggest to their clients who own buildings? They should first see if the online compliance resources will suit their purposes. If a more searching analysis is required, the clients can consider having their buildings surveyed by an energy engineer to understand their energy spending and how to reduce it. Indeed, some owners may wish to be more aggressive in the "green market," opting for a full-blown energy audit to identify ways to make a building more efficient.

Energy disclosures do more than comply with legal rules. They also can contribute to a smarter real estate market, just as the fuel efficiency stickers on new cars help educate consumers. And studying a building's energy use may lead to less consumption, higher net operating profits, and a healthier planet.

Well said. To learn more about EPA's Energy Star Portfolio Manager tool, click here.

Green premium? Not so, as it continues to pay to go green with commercial buildings

There's a lot of greenwash in the commercial real estate industry, fostered by pundits and proponents alike. Separating fact from fiction and reality from distortion is a challenge. Except, of course, when it comes to the facts.

Take a recent report from CoStar and the U.S. Green Building Council (USGBC): Green Premium Continues to Justify Implementation Costs for Building Owners. This one's good, and it's real.

A few snippets:

• The economic payback for building owners from 'going green' has been tested in the crucible of the worst economy since the Great Depression, and while the premiums in rental rates, faster lease-up times and lower vacancy associated with green buildings varies market to market, the corresponding increases in rental income, together with the resulting energy savings in operating the property, continue to justify the modest additional costs associated with going green in most markets.
• For tenants, a growing body of research continues to show that buildings with better air quality, natural lighting and variable temperature control yield greater productivity by employees. Also, separate metering and individual utility billing of tenants for their energy use encourages conservation and additional cost savings.
• One big change, however, has been the market shift in LEED certifications from new development. Today, much of the USGBC's certification activity has shifted to LEED for Existing Buildings (LEED-EB), which has seen certifications jump sharply from less than 15% of all certifications in early 2008 to more than 35% in second-quarter 2010.
• Class A LEED office buildings that completed construction before the recession hold a significant advantage over the national average for all Class A office buildings, with the LEED buildings averaging $28.50 per square foot in rent with an average vacancy rate of 6.5%, compared with $25.89 per square foot in average rent and an average vacancy of 10.7% for all Class A office stock.

Green is, well, green. At Octus Energy, we're acutely focused on the economic virtues of improving the operating efficiency of commercial buildings -- slash utility bills first which then drives building certifications (e.g., LEED and Energy Star).

"We do find that it does continue to pay to go green," CoStar Vice President of Analytics Norm Miller said. "In the long run buildings that do not include sustainable features run the very real risk of becoming obsolete. And it will likely be very risky to own buildings that do not have sustainable features in the future."

"We also know that tenants in green buildings enjoy higher levels of productivity and see a real benefit and value to having their employees in green buildings. Because there are still so few green buildings out there many tenants haven't experienced that impact yet. But we believe this will change in time as those markets become more educated and tenants begin to pursue the productivity benefits of green buildings," Miller said. "We expect rental premiums or energy savings to more than justify the added costs for energy saving green features like separate meters, motion detection light devices, or water savings devices."

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.