What about in this economy?

Prior to the recession, LEED-certified buildings enjoyed noticeably faster lease-up times and lower vacancy rates in addition to commanding higher rental premiums compared with their non-green peers.

However, currently, vacancy rates have remained relatively high for Class A LEED-certified buildings, with a national average of 37.6% compared with 25.8% for all Class A office.

Why?

Many of the new Class A office buildings that started development before the recession and came online after the economy had begun to weaken were LEED certified buildings. As a result of the economy, many new office buildings have struggled to attract tenants and have higher than average vacancy rates.

Miller then analyzed two sets of office buildings: pre-recession new builds (completed 2000-2005) and post 2005 new builds.

Pre-recession completed Class A LEED office buildings average $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. That’s a 10% rent premium!

In post 2005 completed buldings, the LEED certified buildings average $33.24 per square foot compared to $30.11 per square foot for all Class A office. Again, that’s over 10% rent premium!

However, the national vacancy rate for all Class A LEED office properties was 36.4% at the end of the first quarter of 2010, compared with 31.1% for all Class A multi-tenant office property. That makes it about a push in this economy, but as the economy strengthens that rental premium will pay big long-term dividends. Plus, annual operating expenses should be less in the LEED building, tilting the balance again to green.

Don’t forget that Green Squared promotes Green that makes cents! — (i) “green”, as in environmental sustainability, and (ii) “green”, as in cost savings. That’s Green²; that’s Green Squared!

The city of Houston announced a new initiative called the Green Office Challenge with the goal of getting property owners and managers across the city to reduce their energy consumption, water use and waste, as well as encourage more office tenants to do things like recycle, car pool and use eco-friendly products.

A key component of the initiative includes an energy-efficient loan program that would provide an incentive to those concerned about the costs of going green. Later this fall, the city plans to offer low-cost loans to property owners and tenants, providing the money goes to reducing their energy usage. This will be part of Houston’s answer to some of the issues surrounding PACE financing. (See earlier blog article titled, “Four Texas cities eye PACE program”)

“People like the idea of doing energy-efficiency improvements, but they still get nervous about that upfront capital,” said Laura Spanjian, the mayor’s director of sustainability.

The details of the program are not yet finalized but it sounds as though the city will have about $7 million to make energy-efficiency loans at less than 3%.

Other Houston Greening Facts:
No. 8 in the nation in the number of LEED-certified buildings with 89
No. 6 in the nation in the number of Energy Star-rated buildings with 133

For more Houston green facts, see our notes from the recent Clean Air Through Energy Efficiency where Spanjian spoke.

Here are some of the highlights:

+ The City of Houston itself uses almost 500 million kilowatt hours of green power annually, which accounts for a third of all its consumption.

+ Green is not just for a small group of companies these days. Many companies now have Chief Sustainability Officers. The list of companies that use 100 percent renewable energy is enormous and includes companies that are vital to the Houston and Texas business community like Kohl’s, Whole Foods, and Dell Computers, to name a few.

+ It is easy to be greener by installing aerators, low-flow showerheads, T-5 or T-8 lights, variable frequency drives, and automation systems that have very short paybacks.

One caveat: the survey was of only 48 people who are in charge of sustainability for their companies. I think that sample size is too small. And, given these folks’ role in the organization, I am afraid their viewpoint is a bit slanted so to speak. But there are lessons to be learned.

My takeaways included:

+ “The green workforce is the general workforce.” – they believed that sustainability would be integrated into existing roles and job descriptions as a prerequisite for employability: Jobs in the future, respondents thought, will require people to bring a certain basic level of familiarity with sustainability issues and competence in skills related to sustainability to the table.

Interesting. I’ve never heard it put quite that way, but I agree with the premise wholeheartedly.

+ “Sustainable products can be competitive – with the right marketplace approach.”

Thumbs up from me.

+ “Sustainability’s bottom-line results might be better if you broaden your view of ROI.” – But to improve its performance, a company needs to do more than reap an immediate financial ROI on its sustainability initiatives. It also needs to consider managing risk, building its brand and reputation, complying with regulatory requirements, and investing in developing future products and services that will be viable in a world where sustainability plays a greater role in driving buying decisions.

There are definitely qualitative benefits that should be considered that are difficult to incllude in your CFO’s spreadsheet.

+ Primary owner of sustainability efforts? COO was 6%, Head of Environmental Health and Safety 6%, Board of Directors 4%, CFO 2%, other = 91%.

Two things: 1) It’s odd that Deloitte did not list Chief Sustainability Officer as one of the options (they were part of the others), and 2) quite obviously the multiple people selected as an owner leads to a lack of accountability, which is not good for results.

+ There is a clear lack of understanding between these sustainability owners and the ARRA funds that are available to them.

That’s bad news for policy makers and even worse news for those heading up these sustainability efforts. I would have guessed the sustainability folks would have been more aggressive in understanding the grants, tax credits, tax deductions, and rebates that are available to them and their projects.

+ Energy efficiency was the across-the-board winner as the most important environmental issue to the business.

EE rated 9 on a scale from 1 to 10 in importance and was the leader in every business sector. Wow, that’s impressive and surprising at the same time. Efficiency does not get near the publicity as other answers like alternative energy and transportation. Someone has been listening and reading this blog.

David Roth of gbNYC (Green Building in NYC) nails it with “What happened at 375 Hudson is a smashing success, but it’s also really nothing more than a pretty down-the-middle retrofit done well. It’s tough to imagine a better advertisement for green commercial retrofits than that.”

Roth continues, “This is common-sense stuff, not a revolutionary leap forward. It’s low-flow fixtures and improving fixtures, not slapping on some solar panels and hoisting a wind turbine. It is, in short, a basic green retrofit — one that happens to grade very highly in terms of LEED points and the sort of building performance metrics Energy Star measures, but not one that would be beyond the reach of most Manhattan office buildings. Which, in a way, is what makes it most extraordinary.”

Now you see why I said I love this story.

From the official press release, here are the main items which earned the LEED GOLD:

+ reduced electricity consumption by nearly 110,000 kWh per year by making changes to the HVAC and mechanical systems and installing variable frequency drives on the cooling tower fans;
+ reduced steam consumption by improving heat exchangers and making other HVAC improvements that reduced heating demand;
+ reduced annual water consumption by 1 million gallons by replacing original restroom fixtures with low flow aerators and new water closets;
+ adopted an expanded recycling program that encompassed not only office paper and waste, but batteries, electronic waste and construction debris;
+ implemented a building-wide Green Cleaning policy focusing on improving air quality and ensuring the purchase of sustainable cleaning and janitorial paper supplies.

That’s as basic as it gets…Down the middle of the fairway stuff…things that every building should do, whether they want a LEED plaque or not.

Golf clap for Tishman Speyer and main tenants Saatchi & Saatchi, Penguin Group, and Turner Construction.

Andy Smith, our Chief Engineering Officer, and Bobby Bragg, our President, will lead the discussion.

Here is the complete release: CREW DALLAS TO LEARN ABOUT GREENING EXISTING BUILDINGS.

Here is the skinny:

Topic: “Cost Effective Strategies for Greening Existing Buildings”
When: 11:30 a.m. to 1 p.m. on Wednesday, August 18
Where: Park City Club, 5956 Sherry Lane (Dallas, Texas)
Cost: $50 for pre-registered guests and $55 for walk-ins.

For more information, contact Kim Hopkins at 214/890-6490 or email khopkins@crew-dallas.org.

ABOUT CREW DALLAS

CREW Dallas (Commercial Real Estate Women) is comprised of more than 300 commercial real estate professionals affiliated nationally through membership in the CREW Network. Now celebrating its 30th Anniversary, the non-profit organization provides opportunities for networking, education, leadership development and civic/philanthropic involvement. CREW Dallas promotes the highest standards of ethics and integrity and seeks to positively influence the direction of Dallas. For more information, visit www.crew-dallas.org.

I love the notion that they are trying to aggregate data on the energy savings that are being retrofitted.

More interesting to me is the discussion further into the article that touches on what might be Deutsche Bank’s ultimate motivation.

Mr. Hattem, who said Deutsche Bank would have no proprietary stake in the data, hopes that lenders will not only finance more retrofits as a result of the project, but also use the information to create a new securitizations market.

“The idea here is that if underwriters can determine a predictable savings from retrofits,” he said, “then they can create a financial instrument backed by these savings to sell on the open market.”

Now this type of thinking will jump start the retrofit business as capital for the improvement projects has always been the biggest impediment.

I also found this quote from a project manager at the New York State Energy Research and Development Authority and a member of the advisory committee spot on:

“There is an almost universal lack of understanding of building energy usage,” said Luke Falk.

I agree wholeheartedly, Luke. More building owners and managers need to wrap their heads around that usage and controlling the costs surrounding it.

Some of the more interesting findings about Generation Y (ages 15-29, your youngest workers who also account for 25% of the population):

98% aspire to work in a greener office

67% want their workplace to be environmentally friendly

70% want to have recycling bins – frankly I would have expected this to be higher.

47% want solar panels on site – this surprises me

This is the group that will dominate the workforce for the next 40 years. They are already almost a quarter of the workforce.

What is your workplace doing to meet these demands?

Plus, several cities including Houston and Colorado Springs, are in the process of raising water rates as much as 50%, so those paybacks will likely shorten even further.

GreenerBuildings.com ran a great article on water last month that is worth the read.

To highlight some great points:

1. Fix all leaks and install water-saving flow restrictor aerators in faucets and showers.
2. Retrofit existing toilets with flushkits for greater efficiency or for dual-flush capability.
3. Upgrade irrigation controls.
4. Retrofit irrigation system with controls that incorporate smart technology on a plug-and-play basis.
5. Replace toilets with higher efficiency fixtures. Consider dual-flush models.
6. Install low-flow or waterless urinals.
7. Install low-flow, sensor-activated faucets in restrooms.
8. Outdoors, change the way you water with a drip irrigation system
9. Change what you water.

Great stuff.

The American Society of Heating, Refrigerating, and Air-Conditioning Engineers, commonly known as “ASHRAE” has classified Energy Auditing into three distinct groups. ASHRAE Level 1 Energy Audit is the simplest and least time consuming while ASHRAE Level 3 Energy Audit requires a more stringent and time consuming process. Each Energy Audit Level should be consider based on the owner’s expectations, building systems and cost.

ASHRAE Level 1 Energy Audit (Walk-through Analysis) Scope includes:
+ A one-day walk through of the building systems to get a “rough estimate” of how efficient the building operates.
+ Analysis of energy bills. How is electricity, gas and water charged?
+ Detect “low-hanging fruit”, simple, low-cost/no-cost fixes.
+ Suggest other systems that require further analysis. (Further analysis is not included)

This is the LEED O&M EA prerequisite 1: Energy Efficiency Best Management Practices­Planning, Documentation, and Opportunity Assessment.

ASHRAE Level 2 Energy Audit (Energy Survey and Analysis) Scope includes:

+ An ASHRAE Level 1 Energy Audit Scope plus
+ More detailed energy calculations and financial analysis of proposed energy conservation opportunities. (Spreadsheet calculations for each energy conservation opportunity)
+ Recommendations consider the owner’s operations and maintenance, constraints, and economic criteria.
+ Breakout Each Energy Conservation Opportunity as separate studies. Analyze the amount saved, cost and pay back period for each opportunity.

This earns 2 points under LEED EB EA credit 2.1: Existing Building Commissioning­Investigation and Analysis Option B.

ASHRAE Level 3 Energy Audit (Detailed Analysis of Capital Intensive Modification) Scope includes:
+ An ASHRAE Level 2 Energy Audit Scope plus
+ A further expansion of the previous levels of energy calculations (Energy Model) or extensive data collection (Pre-retrofit Measurement & Verification)
+ The report includes detailed cost and savings information with a high-level of confidence, sufficient for major capital investment decisions as well as a time-line for implementation of each recommendation.