Accelerating the link between energy efficiency and the bottom line
This is a very exciting week for CMI. Our High Performance Demonstration Project, first described in this blog went public tonight. In style. The project was chosen as one of the leading commitments for the Clinton Global Initiative Annual Meeting in New York, and was presented on stage by President Clinton.
Our group of collaborators has grown since the launch of the project. Goldman Sachs has been joined by the Rockefeller Foundation in providing generous funding. Johnson Controls and Jones Lang LaSalle have been joined by YR&G in the group of main implementers. And the list of tenant and owner participants now reads, Jones Lang LaSalle, LinkedIn and Vornado.
There is a palpable sense of excitement around the project, and for a good reason. By now it is reasonably common knowledge that 40% of the nation’s energy is consumed in buildings, and energy efficiency retrofits are occupying an increasing amount of space in various printed pages. But the migration of the concept of energy efficiency from the sustainability arena to mainstream economic and financial decision making needs to be accelerated. For the future is clear: in 10 years no tenant will want to occupy an energy inefficient space, and no landlord will dare to offer one to any self-respecting tenant. Our project is seeking to shrink the number of years that we need to get to this new normal in real estate.
As I discussed in a previous post, many people are trying to accelerate the growth of the energy efficiency retrofit market. But there are two things that are unique about this project, approaches that have not been tried before. For starters, we are focusing on tenants, and using tenants to grow demand for whole building retrofits. We think that if building owners see their tenants demanding green buildings, they’ll invest in energy efficiency. Second, the expertise we have assembled in our project team covers every aspect of the market. Any bottleneck we run into, we’ll be able to address.
It is starting to happen. There is an increasing amount of data seeking to demonstrate gradual differentiation in financial asset performance, isolating energy efficiency and indoor environmental quality as a variable. These studies point to 5-8.5% rent premium in Energy Star and LEED certified buildings, respectively. Other studies argue there is an up to 26% resale premium attached to Energy Star certified buildings. Now, I am a bit skeptical here, to be honest. The data sets are still relatively small and there is a healthy amount of debate about the robustness of these numbers. I certainly hope they are true, and am obviously a fan, but more data and more time is needed to corroborate and accelerate the direction of this trend.
This is the key objective of our efforts. By participating in a portfolio of high-profile efficient build-out projects and by approaching the savings in a quantitative manner we are developing an open-source, best-in-kind blueprint for both implementation and financial measurement of the benefits of high performance build-outs. And we don’t stop there. By adopting a true life-cycle metric we go beyond a snapshot of performance. We measure the performance of the tenant spaces and / or the building across 10, even 15 years. In short, the goal is a long-term market shift.
What have we learned so far? Skanska, having moved into the Empire State Building in 2008, is our first finalized case study. The results are impressive. For example, by incorporating energy efficiency measures into their new leased space Skanska has reduced its electricity costs by 57% via measures with less than 5 year payback. Expressed differently, electricity bills went from $3.49 / sq ft in Skanska’s old space to $1.51 /sq ft in the newly fitted-out quarters. And this is ignoring additional benefits such as better work environment due to daylighting and better air quality, resulting in improved worker productivity and fewer absentee days. We hope to get to measuring these at a later stage of the project. Importantly, Skanska implemented its energy efficient build-out in the ESB which itself went through its high-profile core retrofit. The combination of both building core and tenant space is the sweet spot, allowing building owner and tenant to benefit from each other’s investments.
Bloomberg is another example. A leader in its sector for years, this visionary company is on the front foot in terms of energy efficiency as well. It has installed an impressive set of measures in its existing facility, resulting in average ROI of 51.46%. Show me this kind of return anywhere in the current markets and I will bite your hand off! And now Bloomberg has joined our project via contributing its 400,000 sq. ft. expansion premises at 120 Park Ave. Again, it will be a fabulous opportunity to look at the measures that tenants can implement to achieve deep savings and improve the quality of their office space.
LinkedIn’s move into the Empire State Building is yet another great opportunity to look at the interplay of energy efficiency measures between the tenant space and the core of the building, achieving synergistic results. It represents a holistic approach to the task, maximizing the symbiotic relationship among individual measures: better daylighting reduces the ancillary generation of heat by artificial lights which in turn lowers the need to use air conditioning in the summer. Outsized results are at hand when approached this way.
We will have an excellent opportunity to delve deep into the weeds when JLL soon moves to 330 Madison Ave, a newly renovated building owned by Vornado. Here we will work with two of our existing project partners engaging in exactly what we want to document and measure: the integration of a high performance tenant build-out with a retrofit of base building systems. Stay tuned for no-doubt highly informative results.
These initiatives show that market actors are already realizing that there is a real business benefit to investing in efficiency and improved indoor environmental quality. In short, our project is meant to accelerate the advent of a real estate world where energy efficiency is one of the leading variables in landlords’ competition for tenants, and where tenants are energy-savvy, demanding the right space for their businesses. Today the goal is a 30-40% energy consumption reduction, say with a 10 year life cycle. In 10 years it will be even deeper. So that if we are to achieve the stated 80% economy-wide carbon reductions by 2050, we will have a carbon-neutral real estate sector as a key component by then, via 3 or 4 rounds of accelerating energy efficiency retrofits, starting today. CMI and our partners are right there in the mix, making it happen.
For more information and to see the partners discuss the project, please visit our website on the commitment at http://www.nrdc.org/business/CGI/