Talkback on Transwestern’s Energy Efficiency Program

I didn’t want this week to end without acknowledging a couple of comments from Green Journey readers on last week’s post about Transwestern’s energy efficiency retrofit program.

Turns out that there were some who had differing opinions than I on whether Transwestern’s efforts were worthy of the industry pacesetter designation that we’re so fond of around here. They backed up their opinions with some fair points worth noting. I like authentic exchange, so I’m printing their comments here.

Alex Brennan, Cannon Equities wrote:

I did want to point out one objection, and that is your equation of low first cost to short payback.

The issue Transwestern (and most other building owners) have right now is that they have to operate within a pre-established budget.  Right now owners are seeing falling revenue as tenants vacate, downsize, or demand rent concessions, which leaves less money for capital improvements.  Because of this lack of liquid capital, they are targeting the low cost points.  Often times these low cost points do not provide ANY tangible increase to NOI, and therefor have the longest payback possible.

Often times the “dogs” that need the most work done (and thus the most upfront capital) will realize savings that far exceed the better run buildings, giving these improvements a shorter payback.  The problem is, the first costs (I know most LEED consultants hate to consider first costs, but it is a real and very valid concern for those of us having to come up with the cash within tightening budgets) are prohibitive in these scenarios.  One of the better options if this is the situation is to go to Pay on Performance type contracts and let the savings pay for the improvements over time (thus eliminating or reducing the first cost concern). I wonder if Transwestern considered this type of contracting before deciding to forgo the dogs?

Paul Maenner, JMW Development wrote:

You are slightly (but not by much) unfair to the guys at Transwestern.  At the end of the day, if sustainability initiatives don’t pencil, most developer/investors aren’t likely to adopt.  Keep in mind, when we attend conferences like this, the crowd is mostly self-selecting, all usually singing from the same hymnal.  We all think/believe that we ‘get it’…

With all of this said, the Transwestern guys are hard-boiled, old-school real estate types who are seeing the value (MAI speak) of sustainability.  That they have come this far is admirable and impressive.  I think you could classify them as Pacesetters in that they have come to their conclusions based on solid, no-nonsense, practical analysis and implementation.

So Now It’s My Turn

Ok, guys, I see your points — and they are fair. My comments about Transwestern were driven by them explicitly telling the ULI audience that they didn’t want to be leaders [at energy efficiency retrofitting], which was frankly disappointing — commercial real estate, particularly value-add investing with its famous short-term horizon, needs lots of leadership around energy efficiency right now. Add to that the impression I got, that they seemed intensely focused on fulfilling the LEED-Silver checklist, but not particularly able to talk about sustainability efforts in any dimensions beyond that.

That said, they are in fact still ahead of the overwhelming majority of commercial real estate landlords when it comes to successfully applying portfolio wide energy efficiency programming, and that we would all be in a better place on energy efficiency if most landlords would just take the good advice they were dishing out at ULI last week.

Alex and Paul are right to bring up the realities of today’s value-added landlord and manager. And I think Green Journey readers like you should keep writing us to present that pragmatic perspective as they see fit.

Thanks to both of you for contributing.