Plugged-in To Savings

Utilities are an enormous expense in operating buildings. Whether it's lighting or heating and air conditioning, finding efficiencies to lower those energy costs is a priority for many property owners. By joining the U.S. Environmental Protection Agency's Energy Star Program, some owners have made substantial gains in reducing those costs.

Robert C. Accomando, first vice president asset management, Arden Realty Inc., and Doug Walker, president, Harwood Management Services, both recently honored by the EPA as the "2000 Buildings—Commercial Real Estate Owner of the Year," and Joe Summers, first vice president, Prentiss Property Services, and Timothy Jones, president, Mack-Cali Realty, tell us what they did to earn the Energy Star designation in their buildings and what it means to them.

Portfolio: Since increasing energy performance leads to lower energy costs, what energy-efficiency improvements do you plan to make (or have you made) in your properties?
Summers: Most properties have been retrofitted with efficient T8 and electronic lighting ballasts. It's about one-third of the costs associated with standard lighting. We're also looking at the areas of variable speed motor drives for equipment in the building that is constantly in use. Variable speed uses less energy and it also makes for less wear and tear on the motor itself. Energy management systems are a tremendous tool in adjusting what time lights and motors come on. Besides cutting down on hard costs, the way you operate saves money.

Useful Tools To help owners and managers evaluate energy performance and its financial benefits, The U.S. Environmental Protection Agency has developed two tools. The first is an Internet-based energy performance benchmarking tool that allows users to establish current energy use and set future energy targets. Buildings that benchmark their energy performance and score in the top 25 percent are encouraged to apply for the Energy Star label. Qualified buildings can display the Energy Star label to differentiate their property as 'high performance.' The second tool is QuikScope. Developed specifically for the multi-tenant commercial real estate industry this tool offers a unique business analysis that quantifies the financial implications of improved energy performance opportunities from the owner's perspective. QuikScope integrates complex financial and lease structure issues, holding periods, varying property exit strategies, and real estate market dynamics into a four-step process that measures current energy-related financial performance and sets performance goals. The output consists of executive-level financial reports showing the investment, energy savings, and incremental asset value increases achieved by a whole-building, energy-efficiency upgrade. For more information about the Energy Star Buildings program, call 1-888-STAR-YES or visit their web site at www.epa.gov/buildings/label.

Walker: The improvements that we have made include lighting (retrofit and new installations... bulbs, ballasts and reflectors), window film, variable frequency drives, higher efficiency mechanical, detailed control systems, sensors, power monitoring, aggressive load shedding controls and techniques, a full time energy manager, close attention to roofing materials as well as indoor air quality issues. In new construction we have been able to do more by including the upgrades and improvements on the front end of the process and including the work in the construction budget.
Accomando: In addition to using energy efficient lighting ballasts, tubes and fixtures we have also reduced the air conditioning loads in our buildings and corrected our mechanical systems accordingly. We revamped our computerized energy management systems that measure temperature and outside weather data to adjust interior temperatures automatically. We also converted some systems to 100 percent outside air capabilities. With these systems, if the temperature is 60 degrees outside we can cool the building with outside air without running the refrigeration.
Jones: We've made a variety of energy improvements. We've replaced light fixtures and reduced energy consumption costs. We've also added variable frequency drives in our HVAC systems. We like to do things that are good for the environment whenever they make good financial sense.

Portfolio: What is your strategy for facilitating these improvements?
Summers: We have an "in-house university" program where councils set-up programs and pass them on through the vice presidents of regions and our chief engineers. We also have a newsletter that we use to pass on useful information to our employees.
Walker: We have been working on these strategies for several years and we use internal education and meetings to continually inform our associates about the Energy Star program and our commitment to making our buildings as environmentally friendly as possible. We work closely with our architects and consultants to make sure they are on the same page with us in these efforts. I want everyone involved in the designing, planning and operating of our building to think about reducing waste and increasing efficiency. That way everyone comes out a winner.
Accomando: We've already implemented our program. We had a capital budget that the corporate people approved and then we went out and started reaping the benefits—for us and our tenants—of energy curtailment and lowering our operating expenses.
Jones: We continuously examine the operating systems in our buildings to try to figure out what we can do to improve them. We look at the components of our buildings on a micro-basis to continually improve their operations.

Portfolio: How does improved energy performance fit with your organizations strategy for making your portfolio more profitable?
Summers: Reduced operating costs is the bottom line for bringing in tenants. They want to know how well our building competes with the building next door.
Walker: As a management firm, we have been able to reduce our operating expenses, which in full service leases immediately impacts the owner by increasing the net operating income and the value of the property. It also lowers operating expenses for the tenants, while giving us some flexibility in rental structure. If necessary, we can lease at lower rates than our less energy efficient neighbors and still achieve the same or higher returns than they can at higher rates. Lowering of utility costs also frees up cash flow for other opportunities and leads to improved tenant retention because once tenants have received these cost savings they don't want to move. We have also greatly improved our ability to accurately bill tenants on full service leases for after hours use. This has become an additional revenue source that has greatly surpassed our expectation. The added benefit of this revenue stream along with the reduced costs makes costs of energy efficiency upgrades a non-issue.
Accomando: Energy efficiencies, along with additional customer or tenant services are key functions for our managerial personnel. We look always to save on the operating side and increase the services that we offer to our tenants such as telecom.
Jones: Energy efficiency is appealing to our tenants not only from the costs standpoint, but also because we're good environmental citizens.

Portfolio: Do you use the Energy Star energy analysis software tools to assist you in assessing which energy efficient improvements to make?
Summers: Yes. The ratings scale that comes through using Quikscope benchmaking tool helps to identify buildings that are not energy efficient. Quikscope gives us a good tool to evaluate where we have problems as well as the return on the investment if we decide we want to put in different lighting, speed drives, etc. It gives us a good benchmark to judge one building against another.
Walker: We use it to identify where a building is at any given time in its energy efficiency. We can take that benchmark and apply "what if" situations to the program and see what results each improvement may add to the equation. The information it provides for operations is even valuable if nothing can be done immediately.
Accomando: The Energy Star software compares your building against a cross-section of 4,000 facilities in the United States. You have to score a 75 or better to be accepted as an Energy Star building. This is the first time in my career that I found something that leveled the playing field to allow us to compete against a solid benchmark and get real information back from a program.
Jones: We have examined a number of buildings using the Energy Star software tools, and we're continuing to use those tools.

Portfolio: Part of EPA's strategy is marketing Energy Star Buildings to 'brand' participants. What is the value of this to your organization?
Summers: To people that invest in us as a REIT, its says we're good managers, we take care of our buildings and we have an interest in maintaining buildings at peak efficiency. If we take good care of our buildings, we'll be able to take care of tenants and they'll want to renew their leases. Renewed tenants mean less expense compared to retrofitting and re-leasing a vacant space.
Walker: It allows us to be known as an environmentally friendly developer, manager and owner/partner with our tenants in the success of their businesses. It increases the real dollar value of the property for the ownership structure and helps us reach our goal of being a value added provider.
Accomando: Many of our prospective tenants today are high tech companies that are interested in going somewhere energy efficient and environmentally friendly. The Energy Star designation goes a long way toward showing these prospective tenants that we can provide exactly what they need.
Jones: It's always a good thing to be recognized for doing something well, which Energy Star supplies. Our tenants recognize the value we can provide.