Be a tenant and investment hero with these Empire State Building retrofit tips

Heard at ULI Fall 2009 session: “Green Retrofits: What is making this the wave of the future?”

I went in to this session thinking that I’d already heard all there was to know on the well-publicized Empire State Building (ESB) retrofit. I’m pleased to report that my assumption turned out to be wrong … this session was a thriller; a high-protein download with lots of how-to’s that practitioners can use to be a tenant hero and  improve value with a comprehensive energy efficiency retrofit strategy. A thorough reporting of all the great tips would be too long for this post, but I think you’ll be able to put these highlights to good use:

The Set-up: A Great Business Case

Anthony Malkin, of Malkin Holdings spoke on behalf of the ESB ownership. The other speakers were representatives of New York City, the Rocky Mountain Institute and Johnson Controls.

The Empire State Building was already going through a $550 million repositioning, managed by Jones Lang LaSalle, before the ownership began to consider an energy efficiency retrofit. Since capital was already available for retrofit, no outside financing was needed to pay for the retrofit investment.

The team reported that the retrofit added nearly $13 million in upfront costs, with calculated savings worth $4 million per annum, so, the overall retrofit metrics are great, with the team reporting strong economics:

• Building annual energy costs were $11 million p.a., or 88 kBtu/sf/yr.
• 38% annual reduction in energy usage is projected; almost double the industry average.
• 3.1 year payback vs average 10-20 years.

Top Energy Tip: Reduce Load and Use

The evaluation of an aging chiller showed that the retrofit team can’t only focus on ‘easy’ measures such as changing light bulbs to achieve energy savings. The better business case comes from investing opportunities to reduce the building’s energy load, in addition to use. In the case of the ESB,  $40mm was slated for new chillers in a cooling plant, but load reduction measures elsewhere eliminated need for new chillers (!)  Result: Existing chillers were retrofitted for $5mm.

Tenant Relations Hat-trick

Investment real estate is only as valuable as the bundle of leases that generate rental income. So, many owners are motivated to green and/or retrofit their buildings when they know that it will help them to keep existing and/or attract new tenants. The trick is to get tenants on board with doing their share to keep energy costs down. When discussing retrofit costs/benefits with tenants, the ESB team focuses on the three drivers of tenant occupancy costs: payroll, utilities and rent.

In the case of the ESB, tenant buy-in on retrofit measures was crucial, since analysis revealed that more than half of the energy conservation measures would take place in the tenant’s space.  The team discussed three interconnected programs they use to assist tenants with reducing energy within their suites. The bonus they discovered is that word of these programs has attracted the attention of brokers and prospective tenants that typically would not include the ESB within their search for new space, so now the building has become competitive with a larger universe of possible tenants than prior to the retrofit.

Here are the three key tenant-related programs:

1. Pre-built space: Vacant suites were pre-fitted to turn-key status for prospective tenants, containing many features which would aid tenants with maintaining energy reduction upon move-in.
2. Tenant design guidelines: For tenants that build out their own suites, the landlord’s design guidelines incorporate energy efficiency measures
3. Tenant energy management program:  The ESB team developed a special energy management guide to help tenants understand how they use energy; they also give the tenants reports about their energy usage within their space, telling them how their energy use compares with the building average.

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Friday Video: City-scale Sustainability in Curitiba, Brazil

Happy Friday!

I’m happy to pass along this great video — from the fabulous EcoCity blog — about how the Brazilian city of Curitiba has garnered world acclaim for its successful implementation so many city-wide sustainability solutions.

The video is a trailer for the actual DVD of a longer documentary about the town.

The documentary is getting rave reviews and being heavily advertised in the “alternative” theaters in my neighborhood.

This week has been a blur of meetings with lots of folks about a variety of practical, district and city-wide sustainability and finance initiatives.

Whether its power transmission, existing home retrofits or a master-planned development,  our partners are finding out that, in many cases, there can be lots of (stimulus) money and good will at the deal table, but there’s still a hairy problem to get the cooperation of the many financial players needed to make the whole deal work.

Seeing how the City of Curitiba managed to overcome barriers lets us go into the weekend knowing that practical solutions to scaling up and financing sustainable solutions are at hand.

Have a great weekend!

Photo credit: Flickr/Bruno Henrique Barruta Barreto

Friday Photo & Idea: Recycle E-waste for Your Tenants?

Most landlords we work with usually talk about the pressure to compete for and retain tenants when they explain why they are greening their buildings. And we see that the more successful landlords are those who go out of their way to find low or no-cost service offerings, which help their tenants to adopt sustainability practices within their own buildings.

Food for thought…helping tenants properly dispose of their e-waste can be one such practice that relieves them of a huge headache and is a big win for all involved.

Example in Photo: Japan

Yesterday while you were probably working away, Life Magazine caught this cool photo of workers at a Panasonic eco technology recycling facility in Kato, Hyogo Japan, processing e-waste.

In 2001, Japan enforced the Home Appliance Recycling Law (HARL), which calls for end-of-life home appliances to be recycled through the cooperation of consumers, retailers, and manufacturers.

At the Panasonic Eco Technology Recycling Facility Centre, approximately 700,000 home appliances such as televisions, air conditioners, washing machines and refrigerators are dismantled each year and 90% of these products are recycled [author's note: wow!].

I wonder what would happen for energy efficiency and community level sustainability, if more real estate developers and investors embedded direct e-waste recycling within their projects and/or neighborhoods? Some landlords here in San Francisco subcontract for this service to help their tenants. However, across the country and around the world, many overlook this particularly green opportunity.

There are lots of landlords that offer the multi-colored recycling office cans to their tenants, but leave tenants to deal with e-waste on their own.

That would be a great service offering for any asset class and market that eases tenants of a big burden and has real positive environmental impact.

Photo credit: Life.com

Property Tax Appeals: Old School Finance Tactics for Existing Green Buildings

Even in the  green economy, you can still go retro to maximize your project’s performance during an economic downturn.

When we deliver integrated financial services to sustainable real estate engagements, we don’t overlook the everyday financial strategies like property tax appeals because they can potentially deliver lots of value.

This type of assessment can be particularly valuable if the property has experienced increased vacancy and the owner is considering implementing a green retrofit program during the time when there are fewer tenants in the building — and is worried about whether the retrofit program will really pencil out. The reduction in property tax expense from a successful tax appeal is an additional boost to NOI over the other savings in operating expenses from going green, once the retro-commissioned building leases back up!

Here are links to two recent articles reminding landlords about the value of property tax reassessments during an economic downturn:

Item 1: Multifamily Guide has written their recommendation for landlords to obtain a property tax reassessment more regularly during an economic downturn.

Item 2: A recent Globe Street article advising landlords about obtaining a reduction in property taxes by claiming economic obsolescence.

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And here’s a related issue for another day… Of course, filing a property tax appeal due to economic obsolescence is one thing these days. It doesn’t happen to that many buildings as a percentage of the total building stock in any given market. But how will the property tax appeal business look in a few years when the number of green buildings in a given market increases substantially? Could a certain increase in the volume of economic obsolescence driven property tax appeals signal a tipping point towards a more defined “green premium” (or brown penalty) that everyone’s predicting?

Here’s a parting quote for your Friday:

“You don’t pay taxes — they take taxes.”

-Comedian Chris Rock

Solar Sonoma County Pushes Consortium Sustainability Financing District

We’ve said it before and we’ll say it again: sustainability financing districts are THE most innovative green finance solution out there. The whole AB811 snowball just keeps getting bigger.

Case in point: Solar Sonoma County’s creation of a solar financing program for all Sonoma County residents and businesses.  When the city of Sebastopol tried to create its own sustainability financing district, it was too small. Their upstart solution?  Put together a consortium of cities and groups to achieve the scale needed and create a county wide solar financing program. The creation of this program is still in the works, however the article documents the fact that they are gaining the most desired quality in today’s shaky capital markets: t-r-a-c-t-i-o-n!

We know from our own work that Sonoma County touts itself as America’s greenest county. Nearly every major city there has enacted green building ordinances in one form or another.

Our suggestion: They should change their name to “Smart Solar Sonoma County”.

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