Profitable Sustainability

Sustainability, LEED, San Francisco, Bay Area, Transwestern, CBRE, The Swig Co., McKinstry, Bay Area news, commercial real estate

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Firms take holistic approach in managing facilities and meeting stricter regulatory requirements.

THIS ARTICLE WAS PUBLISHED IN THE ‘Q’ – THE REGISTRY’S PRINT PUBLICATION – IN JULY 2014

By Robert Carlsen

[dropcap]M[/dropcap]eeting California’s stringent energy savings requirements for commercial buildings has become the main challenge for building management firms, and the challenge is about to get tougher with new state Title 24 lighting standards slated for July 1.

In addition to the California Public Utilities Commission’s requirement calling for a 60 percent to 80 percent statewide reduction in electrical lighting consumption by 2020, the California Energy Commission is requiring commercial building construction to reach to zero net energy compliance by 2030. Obviously, these laws are affecting the costs of operating a building as well as focusing on the total cost of ownership over time.

The latest Title 24 standards will also require many more retrofit projects to meet new construction standards for lighting than under the previous code. Energy management systems will now need to monitor lighting use via photo-sensors, occupancy sensors and multi-level lighting controls.

[pullquote_right]”The days of cost per square foot for construction, or utility cost per square foot, are long gone.” Tom Bowen, western regional director at McKinstry[/pullquote_right]The new regulations also require building buyers to amp up their study of energy usage data. The state energy commission said heating, cooling and lighting account for 57 percent of the total energy used in commercial buildings.

Building owners also need to re-examine their commitments to LEED certification for new construction or retrofits. “When facing LEED renewal after five years, owners are facing a return on investment dilemma while having to adhere to the new requirements,” said David Ford, senior vice president of the national building management firm Transwestern in San Francisco and treasurer of the Bay Area chapter of the Institute of Real Estate Management. “Should they raise rents? There are a lot of questions that have not been addressed before.”

CBRE’s technical services engineers are already providing building owners with detailed monthly energy audits, energy efficiency reviews and a preventative maintenance program, said Mary Wiese, managing director of the firm’s asset services division in San Francisco.

Finding people who can keep up with technological innovations and handle the evolving regulations and evolving codes is also a major challenge. One commercial real estate investor and building operator in San Francisco, The Swig Co. LLC, recently teamed up with high-tech tenant Project Frog, a component building company, to boost the sustainability of Swig’s 1920s-vintage building at 501 Second St.

Calling the project a “living laboratory,” the team set up a showcase in Project Frog’s 13,000-square-foot office to highlight some of the building’s unusual features, including a system from Lutron Electronics that maximizes interior daylight while minimizing the need for supplemental electric light. Other displays include information on the Comfy system, which allows occupants to interact with the building’s heating and air-conditioning system through the cloud, and Lantana Luminaires, an energy efficient LED lighting system designed by Project Frog.

Building management firms striving to keep up with onsite technological trends should definitely look at these kinds of partnerships, said Deborah Boyer, Swig’s senior vice president of asset management. “Collaborate with the best and brightest,” Boyer said. “In working with Project Frog, we were looking for points of connection in a landlord-tenant interchange relationship, and in this case it was a connection with sustainability.”

Which brings us to the relatively new concept of what the Institute of Real Estate Management terms “profitable sustainability.”

The value of considering the total cost of ownership is to “make design and construction choices that optimize the present value of all the costs incurred and all of the value delivered over the life of the facility asset,” said Tom Bowen, western regional director at McKinstry, a national full-service, design-build-operate-and-maintain firm specializing in energy and facility services.

That strategy is particularly important in areas where new construction could be limited and the building must be viewed as a contributing asset over time, Bowen said. “This holistic approach is taken by looking at ways to renovate existing facilities as well as meet increasingly demanding California regulatory requirements for buildings,” he added.

He said McKinstry’s clients are broadening their decision-making processes when building or renovating space since there are now financial, human and environmental factors that need to be considered. “The days of cost per square foot for construction, or utility cost per square foot, are long gone,” Bowen said.

Some of these financial factors include churn, return on investment, building revenue, operating cost, capital expenditure as well as human factors such as aesthetics, noise, satisfaction and productivity, while environmental factors include code compliance, waste, energy efficiency certification and renewables.

McKinstry’s game plan for total cost of ownership includes setting up an operational and financial model for the building and its owner’s business interests, then moving on to set up first costs, operational costs, future capital replacement costs, churn costs (due to occupant relocation and space use changes), LEED first costs and operations costs.

If it’s a new building, McKinstry generates benchmarks that provide context based on the owner’s other facilities. Bowen said that once design is complete, the tool can be used as the basis for developing an operating plan that optimizes operational choices for the selected design.

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