It’s a Bigger Deal than You Think, Part 3: Operations

Oct. 29, 2008

By Michele Lord 

As we tread through economic uncertainty, re-evaluate our underwriting standards and investment criteria, and scrutinize every line-item expense, going green is making the business case to enhance the economic bottom line, increase marketability, and mitigate risk. This is the final article in a series of three on how to incorporate sustainability into real estate decisions in three primary categories: location, physical attributes, and operational practices.

Never has it been so important to make sustainable choices as we operate our real estate. Fundamentally, sustainability is about becoming more efficient with the use of energy, water, and natural resources. It's about reducing cost by eliminating waste, conserving natural resources, and leveraging buying power to create a robust and sustainable secondary market for waste streams. It's about mitigating risk by managing toxins - both inside and outside the building - and positioning real estate for a carbon-constrained market. It's about improving the indoor environmental quality of buildings to enhance productivity and occupant well-being, whether in schools, hospitals, retail stores, or offices.

Clearly, we can't rely on the economy to carry us anymore - nor can we use government regulations as our guide. It's time for us to take full responsibility, both individually and collectively. To begin, we must make life-cycle choices. In other words, we must consider the full range of environmental damage and/or effect caused by our choices, from acquisition through disposition.

The Low-Hanging Fruit
As discussed in It's a Bigger Deal than You Think, Part 2: Physical Attributes, due-diligence efforts need to be expanded to include the energy-efficiency rating of an asset before we make a deal. Equally important is knowing the energy efficiency of the asset we currently own, service, manage, or lease. Once we know the ENERGY STAR® score of the asset or its EUI (Energy Utilization Index - annual energy consumption in British thermal units/total conditioned square feet), we must then set forth a plan to improve the building's energy efficiency. At a time when we need to tighten our belts without sacrificing tenant satisfaction or market share, identify the energy hogs that cut into your bottom line; in already-efficient buildings, increase cash flow and marketability via even greater energy efficiency.

Most LEED-EB O&M case studies conclude that the energy savings resulting from the re-commissioning process required by LEED not only pay for the cost to green and certify the asset, but continue to save money (pay dividends) in the utility line item. The payback is often in the first year, but may take up to 3 to 5 years, depending on the asset; however, it's all gravy beyond the payback, and it's good risk management as we move toward global de-carbonization.

Your best investment is having an independent third party re-commission the asset or conduct an ASHRAE Level II Energy Audit and, from that, set forth a plan to: A) implement no- and low-cost operational adjustments (this typically brings energy savings of anywhere from 7 percent to 28 percent, according to BOMA Intl.); B) develop an energy-awareness program for building occupants and educate, set goals, and measure the savings (BOMA Intl. reports that occupant behavior may result in energy savings of another 3.5 percent to 15.2 percent); and C) implement capital improvements considering payback, budget, and return constraints.

Water - We Can't Live without It
The next step is to measure the building's potable water consumption for each of its uses (plumbing, irrigation, cooling towers, food service, and other uses). This, too, can be tracked in EPA's ENERGY STAR Portfolio Manager. Once measured, develop strategies to reduce consumption. Create 1- to 3-year plans to change out fixtures (the porcelain and the mechanisms) to high efficiency (1.28-gpf water closets and pint or waterless urinals). Payback is usually achieved within 3 years. Changing out seasonal beds with native and adaptive plants will not only bring butterflies, but will also bring immediate savings. Identify landscaped areas that can be left to nature to return to their original habitat, and reduce landscape maintenance and irrigation costs. If you're replacing seasonal turf, try native grasses that take little or no irrigation, mowing, or chemicals. Capture rainwater from the roof or parking structures, and/or cooling tower condensate, and reuse it for irrigation. Some buildings are already required to capture runoff and treat it before sending it to the storm sewer - for immediate savings, use this water for irrigation.

Cities and states have varying rules about reusing rainwater, as well as a wide array of incentives for installing high-efficiency toilets and urinals, and for rain harvesting. Additionally, many water utilities will provide sewer charge credits or deducts for metering irrigation and cooling towers. Thoroughly investigate potential incentives, rebates, and regulations.

Waste - Don't Underestimate Your Buying Power
In its annual commercial building surveys, Atlanta-based Kingsley Associates began asking tenants about the importance of green practices. In 2007, 53 percent of tenants said that green operational practices were either "important" or "very important" to them. That percentage rose to 58 percent in 2008. When asked which green practice(s) their company was most interested in seeing implemented at their buildings, 72 percent of respondents in 2007, and 76 percent in 2008, said that recycling was most important, followed by energy conservation, at 56 percent.

Start thinking about waste disposal at acquisition. When negotiating purchasing contracts, address end-of-life recycling. By managing what comes into the building, and negotiating purchasing contracts that include disposal, you create opportunities to reduce costs and the building's environmental footprint, and can use your buying power to send a message to manufacturers, as well as drive the value of the building's waste.

Recycling consumables will reduce waste-disposal fees and generate revenue. Buy paper made with post-consumer recycled content. Market demand for post-consumer recycled content paper drives up the value of white paper waste. In essence, by buying recycled content, you're increasing the value of your waste in the secondary market.

As building operators, we often have sizable budgets. By fully leveraging our buying power, we can reduce the expense of our waste. When purchasing new ceiling tiles and carpet, buy not only recycled content, but also make sure the product is recyclable, and take the next step of addressing disposal/recycling costs at acquisition. Electronic manufacturers call these "take-back programs." Recycling construction waste is always good for the environment, but may not always be good for the bottom line. Depending on local tipping fees, diverting construction waste from interior fit-outs can either generate revenue or increase cost. Eliminate construction waste by designing with movable walls, and reduce the amount of carpet bought by buying carpet tiles. If we start thinking in terms of life-cycle costs, total costs will decrease. Why should the landlord or new tenant moving into second-generation space have to pay for the disposal cost of the prior tenant's fit-out? By making all parties responsible for their end-of-use waste, total waste will decrease.

Speaking of end-of-use waste, electronics warrant their own form of recycling due to the toxins they contain (lead, mercury, cadmium) and the opportunity to reuse/recycle certain elements (plastic, gold, silver, platinum, palladium, rhodium, copper, tin, lead, brass, and zinc). Retail-level e-waste recycling and take-back programs are often driven by state laws, such as those found in Minnesota, Connecticut, North Carolina, Oregon, Texas, and Washington. The EPA maintains an e-waste recycling website. Don't wait on laws to be passed in your state; save money by negotiating take-back clauses into your electronic purchases now.

If we consider end-of-life costs when making first-cost decisions, total costs will be reduced. Use your buying power to leverage the end-of-life disposal method and cost - reduce, reuse, and then recycle.

Air - It's Just the Stuff We Breathe
How does improved air quality impact the bottom line? It saves money. The studies on the improved productivity and health benefits of indoor air quality are well substantiated and beyond anecdotal. And, if you're a multi-tenant investment property, having green operational practices in place helps attract and retain tenants. Implementing integrated pest management, which involves using least-toxic chemicals, is better for occupants and the environment, and it's cost neutral. Occupants will greatly appreciate building management implementing a low-VOC policy. Low-VOC paints and adhesives don't carry a cost premium, and they eliminate toxic fumes from the building environment. Employing green-cleaning techniques and using Green Seal® or EcoLogo-certified products are better for the environment, aren't as harsh on building finishes, and improve indoor air quality, thus adding value to the bottom line.

Fundamentally, sustainability is about becoming more efficient. There's tremendous business value in becoming more efficient - not just with energy, but with all resources - by reducing costs, leveraging buying power, improving occupant well-being and satisfaction, and responsibly managing both the economic and environmental bottom line. All in all, it's a really good deal

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