The Dollars and Sense of Green Buildings

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The Dollars and Sense of Green Buildings

• Ellen Sinreich
• President
• Green Edge, LLC
• www.greenedgellc.com

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Green Edge, LLC

• Green Leasing Toolkits
• Training Workshops
• Carbon Footprint Reduction
• Green Lease Development
• Regulatory Compliance
• LEED Advisory
• Strategic Green Planning

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Green is no longer a fad

• Green is going from boutique to better, from a
  choice to a necessity, from a fad to a strategy
  to win, from an insoluble problem to a great
  opportunity.
• Thomas Friedman, Hot, Flat, and Crowded

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The Dollars and Sense of Green Buildings

• The Decision to Go Green
• Cost/Benefit Analysis
• Regulatory Considerations
• How the Money Flows
• What is Actually Happening

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The Decision to Go Green

• STRATEGIC
• Should we invest?
• TACTICAL
• Which properties?
• Which attributes?
• Phasing?
• PROPERTY SPECIFIC
• Which features?
• Cost/Benefit analysis
• Payback analysis!

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Perspective Matters

• Investor/Landlord
• Long Term Hold Perspective Translate costs and
  benefits into financial performance
• Merchant Builder
• Short Term Hold Perspective Development
  timing/risk and ability to capture value of
  sustainable features
• Tenant
• User Perspective
• Operational benefits, enhanced enterprise value

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Green Building Wish List

• Commissioning
• High Efficiency HVAC/Lights
• Daylight Harvesting
• Energy Management Systems
• Low Flow Fixtures
• Smart Irrigation/Xeroscaping
• Stormwater Management
• Pervious Pavement/Shading
• Renewable Energy
• Solar
• Wind
• Geothermal

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Cost/Benefit Payback

• 1st Step Benchmark Understand Existing
  Costs/Benefits
• 2nd Step Understand New Costs
• 3rd Step Understand New Benefits
• 4th Step Determine Payback Period

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Green Building Costs

• Out of pocket capital costs
• In-house labor and time
• Risk of failure of new products Contractor
  availability experience
• Risk of increased operating costs

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Green Building Costs

• Energy cost reductions increase payback periods
• Tenant demand doesnt meet expectation
• Risk of changing investor/tenant sustainability
  requirements
• Risk of functional obsolescence

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Green Building Benefits

• Government and utility incentives
• Enhanced enterprise value
• Better ability to meet tenant demand
• Reduced resource consumption
• Reduced operating costs
• Improved building operations
• Reduced maintenance costs

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Green Building Benefits

• Lower turnover and vacancy rates
• Better ability to meet investor demand
• Lower cost of regulatory compliance
• Reduced exposure to cost volatility
• Improved financing
• Reduced exit/take out risk
• Higher NOI and asset value

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Incentives

• Federal / State / Local / Utility
• Grants
• Tax Abatements
• Tax Credits
• Increased Density
• Expedited
• Permitting

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Monetizing Incentives

• Lowes Home Improvement Austin Tx
• 40-70 more energy efficient
• 50 more water efficient
• Expedited permitting 3 vs 15 months
• Profits projected at 85,000 per day
• Total cost to build 2.85M
• How can YOU monetize the value of
• green?

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Federal Tax Deduction

• Available to building owners and tenants
• For investments in energy efficient commercial
  building 1.80/sf max deduction
• Must attain a 50 reduction in the total annual
  energy usage.
• Applies to
• Interior lighting systems
• Heating cooling, hot water
• The building envelope
• Can receive partial deduction

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How Does the Money Flow?

• The Retail Lease
• Determines who pays for green features
• Creates Landlord Tenant sustainability
  partnership
• The most important transactional document

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Cost Benefit Allocation

• Reward the party who bears the costs with
  benefits so there is an appropriate ROI and
  payback period
• Capital costs vs operating expenses
• Who pays?
• Who benefits?

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Remedy the split incentive disincentive

• Pass Through of Capital Expenditures
• Make sure capital expenditures that result in
  operating savings can be passed through to
  tenants. Where pass through is permitted
• Be specific about the types of cap ex qualifying
  as escalatable
• The amortization term should maximize incentives
  for investment if resource efficiency
• Measurement and verification considerations

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What is actually happening?

• The different levels of engagement
• No Cost
• We would have done it anyway
• Low Cost
• The low hanging fruit
• High Cost
• Capital Intensive

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Retailers with a green initiative

• Crate and Barrel
• Lululemon
• Walgreens
• Fresh and Easy (Tesco)
• Whole Foods
• GAP
• Limited
• Aveda
• REI
• Origins

• Wal-Mart
• Target
• Kohls
• J.C. Penney
• Best Buy
• Office Depot
• Starbucks
• PNC Bank, Wachovia, Citibank
• Home Depot

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Modells

• HVAC monitoring system installed in 133 big box
  stores
• Kept existing HVAC equipment
• Projected
• 7.4M Kwh reduced energy consumption
• 17 reduction in usage
• 840,000 annual savings based on 12 kwh cost of
  electricity in Northeast
• At these numbers what could Modells afford to
  spend on these upgrades????????

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Office Depot

• Invested 20M
• Energy management systems
• High efficiency HVAC equipment
• Lighting retrofit to T5 lighting
• Light sensors in all offices
• 71.8M kwh of renewable energy credits
• 2005-2006 Saved 65.9M kwh with a 4.5 increase
  in sf
• 2006 Saved 6.2M in energy costs

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Wal-Mart Daylight Harvesting

• 2007 2,000 supercenters / 334M sf
• Photometric photocell system
• Computer controlled daylight sensors
• Regulates store lighting levels
• Synchronized with skylights
• Dimmable T8 fluorescent lamps
• Cost of installation per store 200,000
• Projected annual savings 100,000

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Wal-Mart LED Lighting

• Parking Lot Lights Neighborhood Center
• COST Metal Halides 400W 200-450 per fixture
• vs LED 200W 1000-1500 per fixture
• BENEFITS
• 10 yr vs 2 yr service life
• 1 to 1 fixture ratio with opportunities to ?
  (37-33)
• 92 reduction in maintenance costs
• 65 reduction in site energy
• 67 reduction in energy costs 4,900 per year
• PAYBACK

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Wal-Mart LED Lighting

• Refrigerated Case Lighting
• Cost approx 40 per door fluorescent
• approx 250 per door LED
• Longer life 50,000 hrs vs 6,000 hrs
• 95 lower maintenance costs
• 50 more light/50 less watts
• 2000 Stores
• 10.4M ?annual energy cost (5,200 per store)
• 21-32M ? maintenance costs (10,500-16,000)
• Payback 3 years energy maintenance
  savings 6 years only energy savings

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Wal-Mart Water Conservation

• 2007 severe drought in southeast states
• 170 stores, 2000 toilets
• 3.5M toilet replacement cost
• 17 reduction in water use
• 3 year payback
• After payback over 1M annual increase in
  operating income
• Capitalize at 8 12.5M increase in value OR
• How much additional gross revenue for 1M
  increase in NOI?

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JC Penney

• 2000-2005 75M investment in EMS
• High efficiency HVAC Lighting retrofits
• Occupancy based controls
• Variable speed drive controls for fans and pumps
• Educational awareness training
• Per store energy costs 250,000 lower than comp
  stores
• Per store energy consumption reduced by 2 with
  5 increase in hours and 2.3 increase in size

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Owners have come a long way

• PROGRESS
• Regency Centers
• Simon Property Group
• General Growth Properties
• Trademark Property Company
• Forest City
• Macerich
• Melaver
• CBL Associates
• Glimcher

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Glimchers Goats No Joke!

• 100 goats used to clear a grassy area around a
  retention pond at SuperMall, Auburn, WA
• Cost 3,000 vs. 40,000 for traditional
  landscaping

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Regencys Baseline Greenlight Measures

• Smart irrigation and xeroscaping
• Low flow plumbing fixtures
• Low toxicity materials
• High efficiency HVAC Lighting
• Shield Parking Lot Lights
• Green cleaning
• Reflective cool roofing

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Conclusions

• Cost/Benefit Analyses and Payback Periods
• Benchmark and understand current costs
• Do the math and understand new costs
• Consider all costs, not just initial capital
  costs
• Quantify all benefits including non-monetary
• Keep your perspective in mind
• Translate cost/benefits into financial
  performance
• Determine the payback period
• THINK OUTSIDE THE BOX!

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THANK YOU

• ELLEN SINREICH
• PRESIDENT
• GREEN EDGE, LLC
• WWW.GREENEDGELLC.COM
• 212-828-3840