Property Management
The Role of Energy Efficiency in Today"s Highly Competitive Commercial Real Estate Environment
[Note: To follow is an excerpt of an interview with Anthony J. Buonicore, Chairman and CEO of Buonicore Partners, LLC, publisher of the daily newsletter, Building Energy Performance News and a nationally recognized expert on energy and environmental issues as they impact property. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/011409.] Mosca: What is energy efficiency in today’s market? Buonicore: We are at what I call an energy nexus. It stems from global warming taking center stage, green buildings now becoming fashionable, and fuel and electricity costs continuing to spiral upwards. It’s an energy nexus because energy is at the heart of each. Energy efficiency is the major component of green buildings and the cost of energy is unquestionably at record high levels. It has been a challenge for real estate professionals and those servicing the industry to keep abreast of the myriad of energy related issues that can impact commercial real estate. Spiraling energy costs are already wreaking havoc on the operating costs of many buildings as we both know and more and more tenants are expressing serious concerns about escalating energy costs, which most often they pay. All of this activity and the pace at which it"s happening make it crucial to have a way to keep informed. Mosca: Is that why you created Building Energy Performance News (BEPN)? Buonicore: Yes, we started BEPN to fill this market niche. Our goal was to keep commercial real estate professionals, owners, and service providers informed about the most important building energy management news of the day and provide a platform to share experiences and learn from each other in what is clearly a highly dynamic market. We officially launched in April of last year and by December had more than 27,000 subscribers receiving the newsletter each and every day. Even more important to us is the open rate for the newsletter, which is remarkably high. It’s about 30 percent. We believe this reflects both the widespread interest in this market niche and certainly satisfaction with our coverage. Mosca: Is green cost efficient? Buonicore: Green used to be a boutique kind of a movement but it is now mainstream because it pays. Two studies talked about the advantages. The first, published last March by the CoStar group, focused on sustainable green buildings. Their conclusion was that they outperformed their non-green peers in occupancy, sale price, and rental rates. The second was more oriented toward energy savings and was conducted last year as well by the New Buildings Institute out in Washington State and they measured the performance of over 100 newly constructed LEED certified buildings. They had been occupied for at least one year and the measured energy savings were 28 percent over the non-certified buildings. While more study is still needed, the results of these studies certainly seem to substantiate that green buildings can save significant energy and command a premium valuation. Mosca: That seems to make perfect sense... Buonicore: When you increase energy efficiency, you lower energy costs and therefore reduce building operating costs. Remember, energy constitutes about a third of a building’s controllable operating expenses. Today, the only way a landlord, that I know, can really increase a building’s value is to increase the NOI (net operating income) and you can only do it in one or two ways, either increase the income i.e. increase the rent, which I don"t think is too easy to do in today’s tough real estate market or reduce operating costs, which is certainly much easier than raising rents. Energy savings projects reduce operating costs. Mosca: Can you tell us a little bit about the green buildings that exist today? Buonicore: There are about 2,000 buildings that are LEED certified commercial buildings. More than 16,000 are registered for LEED certification. In 2007, the registrations and certifications doubled compared to the previous six years and last year they doubled those of the previous seven years. There are about 4 1/2 million commercial buildings in the country. When you start adding up that we are dealing with maybe 25,000 that this green category right now, it is a relatively small number but it is growing exponentially. Mosca: My friends at the NAR just created a sustainable property designation. They have a green counsel themselves. The CCIM Institute focuses on green at conferences and events. We’ve had CCIMs on this show from across the country talking about increasing profitability with green. What do you think the potential of the green market is? Buonicore: I think it’s huge. Experts expect about 15 million new buildings to be built between now and 2015. These are commercial buildings with the potential for many of them to be green. Plus, the number of existing buildings dwarfs the number of new buildings and energy efficiency measures can be applied to every one of those existing buildings. McGraw-Hill construction came out with a report that said green construction is poised to triple within the next five years. They expect right now approximately 10 percent of commercial construction starts are going to green. A good friend of mine at the American Institute of Architects told me about a study that they did where half of all the architects surveyed reported clients asking for green building elements on their projects. Lastly, I work closely with Jones Lang LaSalle, and they had just done a survey of 400 corporate real estate executives and 70 percent of them use sustainability as a critical business issue for their real estate departments, 40 percent rated energy and sustainability as a major factor in their company’s location decisions, and 42 percent were willing to pay a premium to lease green space. Mosca: Do you think an “energy stimulus package” from the Obama Administration will be a reality in the near or immediate future? Buonicore: Absolutely. Energy efficiency can create jobs in addition to saving energy and saving money. Clearly the new administration is on top of it. His energy plan calls for about $150 billion of investment over 10 years. The U.S. Green Building Council is seeking $15 billion for green schools and a $75 million program for the creation of a green building loan fund. Obama clearly has this on his chart as a very, very important issue to help create jobs as well as reducing energy consumption, reducing our dependency on foreign oil, but also the trade groups are seeing that sense of openness to this whole area. It appears this is going to get a lot of action in the Obama administration. Mosca: What is your golden nugget for today? Buonicore: I have five small points that are really important for your listeners. The first is that the green building movement has gone mainstream and it’s here to stay. Energy efficiency is the most heavily weighted component of a building’s greenness. The second is the focus on green buildings is rapidly shifting from new buildings where it originally focused to existing buildings. The third is that the federal government and local and state governments will increasingly mandate green buildings for government and commercial buildings because they want to increase energy efficiency and reduce carbon dioxide emissions. Fourth, tenants are going to increasingly demand green space for their employee, which will drive commercial property owners to invest in green building retrofits. They have to maintain competitiveness and avoid their building going into obsolescence. The last is that energy costs undoubtedly will continue to escalate and reducing a building’s energy costs makes good business sense and whether it’s done voluntarily now or later as a result of tenant demand or government regulation, it is inevitable in my opinion that it will be done.RES Course Provider commented:
I agree with you that Commercial Real estate is very mush competitive so I think expert advice is must to get success into it.
24.03.2012