DALLAS (October 26, 2016) — A program to help commercial building tenants cut energy consumption and lower energy costs was announced today by the Urban Land Institute (ULI). Called the Tenant Energy Optimization Program, it is a process that integrates energy efficiency into tenant space design and construction and delivers significant investment returns through energy conservation.
Tenant spaces generally account for more than half of a building’s total energy consumption, making the program essential to improving the environmental performance of buildings. The program connects tenants, building owners, real estate brokers, project managers, architects, and engineers to create energy-efficient workplaces using practices that are proven, replicable, measurable and scalable.
The program, initiated by ULI leader Anthony E. Malkin, chairman, president and chief executive officer of the Empire State Realty Trust Inc., originated as an effort to reduce tenant energy use in the Empire State Building as part of a major “greening” makeover of the iconic skyscraper. With Malkin’s support, ten tenants in the Empire State Building and in other locations adopted the process, including Shutterstock, Inc.; LinkedIn Corp.; Bloomberg LP; The Estee Lauder Companies; and Cushman and Wakefield, Inc. In the ten pilot projects, tenants have experienced energy savings of 30 percent to 50 percent; payback on their investment in as little as three to five years; and an average annual internal return rate of 25 percent.
ULI’s Center for Sustainability has assumed management of the program with plans to expand it to many more commercial spaces in the United States and, potentially around the globe. The program builds on the work of ULI’s Greenprint Center for Building Performance, whose members are improving the environment through real estate practices that lower the energy consumption and carbon emissions of commercial properties while demonstrating the correlation with increased property values.
The potential of the Tenant Energy Optimization Program was discussed today at ULI’s 2016 Fall Meeting in Dallas by Malkin and ULI Global Chief Executive Officer Patrick L. Phillips; Ray Quartararo, head of global planning, design and construction within Global Real Estate at JPMorgan Chase; and Todd Schwartz, Americas president of account management and operations in Cushman & Wakefield’s Global Occupier Services Group.
“Our investment committee has taken this issue to the highest level in our investment decision-making by incorporating it into our investment beliefs and is addressing it in our effort to maximize the values of our assets while we also reduce risk,” said Eric Schlenker, portfolio manager at Sacramento-based CalPERS which took part in the effort. “We are proud to support ULI’s thought leadership in the area as they demonstrate the economic benefits of energy conservation for tenants and real estate investors. Having valid data to measure these results is key for us and our decision making. The data has to be there, and has to be applied carefully to appropriate situations.”
“The program’s step-by-step process is an effective way for companies to cut their energy costs and boost their bottom line while achieving corporate goals related to sustainable, energy-efficient workplaces,” Malkin said. “It enhances their ability to attract, retain and motivate workers who are healthier, happier, and more productive.”
One advantage the program provides is scalability; whether a tenant is leasing 2,500 or 250,000 square feet, the process can help improve the space’s energy efficiency, and reduce operational costs and energy consumption to generate greater financial returns. Another advantage is replicability — tenants and service providers who have gone through the process are expanding it to other parts of their portfolio and introducing the process to others.
“This program has enormous promise because the benefits experienced in one space in one building could ultimately become the norm for properties around the globe,” Phillips said. “It delivers because it emphasizes collaboration between tenants, building owners and service providers. The program reflects the best of ULI — bringing together professionals from a variety of real estate disciplines to improve the built environment.”
The process involves tenants working with service providers and building owners to select energy- efficient space and a set of energy performance measures to customize a plan that best meets their energy savings and budget goals.
The process consists of ten steps that involve selecting a team and office space, setting energy performance goals, modeling energy reduction options, calculating projected financial returns, making final decisions about implementation, developing a post-occupancy plan, building out the space, executing the post-occupancy plan and communicating results.
Through measurement and verification, tenants are able to demonstrate energy and financial savings. This is reflected in the positive results already documented by the ten companies using the process:
- Cushman & Wakefield, Inc., One World Trade Center, New York City – Over the term of Cushman and Wakefield’s ten-year lease, the process is projected to provide energy cost savings of nearly $88,000; a nearly 360-percent return on the investment (ROI); and an internal rate of return (IRR) of nearly 80 percent. The projected time to realize payback: Under two years.
- Bloomberg LP, 120 Park Avenue, New York City – Ten-year lease; energy cost savings of nearly $174,000, a 140-percent ROI; and an IRR nearly 45 percent. Time to payback: Under three years.
- The Estee Lauder Companies, 110 East 59th Street, New York City — Six-year lease; energy costs savings of nearly $16,000; a 42-percent ROI; and an IRR of more than 19 percent. Time to payback: Under four years.
- COTY, Inc., Empire State Building – Seventeen-year lease; energy costs savings of more than $716,000; a nearly 330-percent ROI; and an IRR of 44 percent. Time to payback: Under three years.
- Global Brands Group Holding Ltd., Empire State Building – Fifteen-year lease; energy cost savings of more than $438,000; a 126-percent ROI; and an IRR of nearly 21 percent. Time to payback: Under five years.
- LinkedIn Corp., Empire State Building – Ten-year lease; energy costs savings of more than $153,000; a 23-percent ROI; and an IRR of more than 10 percent. Time to payback: Under six-and-a-half years.
- New York State Energy Research and Development Authority, 1359 Broadway, New York City – Fourteen-year lease; energy cost savings of more than $188,000; 179-percent ROI; and an IRR of nearly 31 percent. Time to payback: less than four years.
- Reed Smith LLP, Three Logan Square, Philadelphia — Sixteen-year lease; energy costs savings of more than $1.1 million; 410-percent ROI; and an IRR of 57 percent. Time to payback: just over two years.
- Shutterstock, Inc., Empire State Building – Eleven-year lease; energy costs savings of nearly $370,000; a 40-percent ROI; and an annualized IRR of nearly 13 percent. Time to payback: about six years.
- TPG Architecture LLP, 31 Penn Plaza, New York City — Eleven-year lease; energy cost savings of nearly $275,400; a 162-percent ROI; and an IRR of nearly 34 percent. Time to payback: just over three years.
Funding to develop the Tenant Energy Optimization Program was generously provided by the Goldman Sachs Center for Environmental Markets, John and Amy Griffin, the Helmsley Charitable Trust, the Natural Resources Defense Council, the Malkin Fund, the SL 2012 Fund, the Ripple Foundation, the Robertson Foundation, and the Rockefeller Foundation. For more information on the program, visitTenantEnergy.uli.org.