Heard at ULI Developing Green: Transwestern’s Green Retrofit Program

 

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Long time no post, I know.

After many weeks on planes, trains, kayaks, bicycles and of course, automobiles — my long road trip ended at the Urban Land Institute’s Developing Green Conference in Beverly Hills.

There, I presented on financing energy efficiency and heard from some of the leading professionals in green building investing today.

Some of you were following me on Twitter that day and this post expands on those tweets.

Transwestern Talks Green Retrofits

Transwestern Exec’s Allan Skadowski and Scott Tausk talked the way we like at conferences (straight) and often don’t get enough of, no matter how much we pay.  They spoke about Transwestern’s development of its existing building retrofit capabilities including successes and lessons learned.

There was no powerpoint, no slick corporate infomercial, giving their talk the authentic vibe we crave over here on the Green Journey.

Note that I’ve done my very best to make the short snippets below reflect the speakers statements as closely as possible.

• Why are they going green? They made it clear that their goals are to be perceived by peers as proactive – not being a leader in going green. They were also reacting to tenant concerns in market.
  Not wanting to spend too much money – keeping it a low cost program. Transwestern operates a value-add fund. The average hold period is 4-5 years for assets. They have about 65 buildings in their portfolio. Decisions made on the basis of marketing and long-term cost control.
• What do their investors think about greening buildings? Some of their investors don’t care; some investors have it as a factor (but don’t want to pay much for it); a few care heavily about presence of green initiatives on properties.
• Like certification? Thumbs up on LEED EB 2009; LEED online version 3 is much more robust. They are now big fans of volume certification – earn points on your existing buildings as you go instead of waiting for a building to achieve all its points before submittal for LEED certification.
• What was their process to study retrofitting and certification within their portfolio? They chose 25 bldgs to move through certification. They are still currently pursuing 18 buildings. Eight or nine going through the process.
• How much do they pay for certification? “We’re paying $0.17-$0.18/sf to get buildings certified.” Interesting is that they point out that their certification costs have gone down quite a bit as they’ve gained more experience with LEED-EB. Also stated that most of the buildings they certify already are within an easier range of certification — focus on low-hanging fruit. They admitted that they are not taking any “dogs” through the LEED-EB process now; they estimated it’d cost ~$2.00/sf to certify buildings with very low EnergyStar scores like 40.
• Results from their program? They’ve done a scrub on the utility costs of the buildings they’ve certified realizing a 2% savings in utility costs which include substantial utility rate increases. Occupancy on their certified buildings is up 20%.
• Any differences in the cost/value of LEED certification? They had all bldgs evaluated at the start of their program on the basis of the cost to achieve LEED-Silver/Gold /Platinum status.  They found no cost difference between certified and Silver levels. However, Gold cost much more than Silver.
• On the value of retrocommissioning: this is a ‘must’ in their view. They now advise their owners that retrocommissioning results in unlocking serious energy expense savings and that it shouldn’t be left out of any retrofitting initiative.
• How do they know their green retrofit efforts have been successful? Transwestern  has no firm measurement system in place.  However, they say they are seeing lots of positive anecdotal evidence within their operations supporting certification. They indicated that there are definitely leases that have been done due to properties being Certified or Silver. They specifically cited a property in Houston, where a prospective tenant required them to put their promise to get LEED-Silver on a building in the lease agreement (my note: lawyers in the audience were scribbling furiously at this point).
• Has anyone paid them more on the sale of a retrofitted building? Not exactly. “However, the presence of a bidder who expresses interests in the property because its green helped to drive up the price at the end of the day”.
• What increased rents have you experienced? None. Market conditions today are too unstable to look at certification as a premium bringer. Certification value comes more from being focused on operating expenses.
• Green Lease Language in play? No.
• Payback example? They said that they do not focus on paybacks as a decision-making tool (my note: compare this with notes above about only certifying buildings which can be done for very low costs - i.e. short payback). However, they did offer their experience of chiller replacements having a payback in 6-7 years. They also stressed that in areas with high utility rates, like Houston, California and the Northeast, the payback looks great. Other areas with lower utility rates (Midwest) will show longer paybacks for now. As cap-and-trade legislation rolls out in some form, they expect that increased electricity rates will make the payback analysis even better even in currently lower cost utility areas.
• Are you doing any separate analysis and monitoring of the carbon footprint of your portfolio? This was my question. The answer they gave was telling: “We try to get LEED-Silver certification. Whatever that translates to in carbon emissions is what it is.”

Transwestern is, IMHO, at the upper tier of the commercial real estate industry when it comes to greening their existing buildings, when measured on the basis of having gotten a program off the ground and learning how to implement LEED and EnergyStar to their and their properties’ benefit.

They deserve props for their initiative and accomplishing much more than most other real estate platforms in our industry (at this moment in time). Yet, by their own admission, they don’t want to be known as leaders, just “proactive” — so I can’t archive this story under “industry pacesetters“, alongside other groups who both demonstrate competence and broader community stewardship greening their portfolios. Too bad that they equate leadership with “spending too much money”.

What do you think? Am I (un-)fair in my assessment?