The Impact of Energy on the Future of Real Estate

The Impact of Energy
on the Future of
Real Estate
Thursday
October 14, 2010
11:15 a.m. – 12:30 p.m.
Jim Tinson
Chief Executive Officer
Hart Howerton
Moderator

The Impact of Energy on the Future of Real Estate
ULI Fall Conference, Washington, DC Oct 14, 2010

Introduction of Panelists
William Miller, Ph.D. Senior Advisor
Better Buildings Initiative
SENTECH/US, Department of Energy
Steve Gossett, Jr. Vice President
Transcend Equity
Kevin Kampschroer Federal Director
Office of Federal High Performance Green Building
General Services Administration
Wes Frye Director
Sustainable Energy, Internet Business Solutions
Cisco Systems

Building Technologies Program
William Miller, Ph.D.
Senior Advisor
Better Buildings Initiative
SENTECH/U.S.
Department of Energy
Panelist

How Does DOE/EERE/BTP Connect with Real Estate?
As Selective View
Department of Energy (DOE)
Office of Energy Efficiency and Renewable Energy (EERE)
“The Office of Energy Efficiency and Renewable Energy (EERE) invests in clean energy
technologies that strengthen the economy, protect the environment, and reduce dependence on
foreign oil”
Building Technologies Program (BTP) Pursues Better Energy Use
Commercial, Residential, Federal Codes and Standards, Emerging Technologies
Buildings Energy Research: better windows/shell, advanced HVAC, lighting;
appliances
Deployment:
• Commercial Alliances
• Better Buildings
Tough Nut: valuing energy efficiency: tenants & finance
WHAT WILL WORK?

Fostering Technologies: Example - LED Lamps
LED Site (Parking Lot)
Lighting
High Efficiency Parking
Structure (Garage)
Lighting
LED Refrigerated
Case Lighting

• 56 member companies
• 4.54 billion sq. ft.*
Commercial Real Estate Energy Alliance (CREEA)
• Includes only those members who reported
square footage as of July 2010.
Open to:
• Real estate owners/operators
• Real estate investors
• Real estate service providers
and industry groups
http://www1.eere.energy.gov/building
s/alliances/commercial_real_estate.ht
ml
Goals:
• Access to advanced technologies from DOE/national labs
• Share successful, evidence-based strategies for
integrating advanced, high-performance technologies
• Serve as a consistent voice to manufacturers on the
collective demand for highly efficient products
• Provide greater consistency in energy-efficiency program
design and delivery
• Help DOE shape the future of technology research
• Validate the commercial real estate sector's energy- and
carbon-reduction efforts
• Increase commercial real estate's energy efficiency
• Lower technologies’ cost of and overcome regulatory
barriers.

BetterBuildings Program
BetterBuildings emphasizes retrofits for single and multifamily residential
buildings, but is also piloting programs targeted at low income
neighborhoods, small businesses, commercial buildings, farms, and
historic buildings.
Projected Results:
185,000 retrofit buildings by June 2013 (majority residential)
Retrofits of at least 15% energy savings; some more than 30%
Significant data collection to determine effective technologies, measures, approaches
Capture and dissemination of approaches that demonstrate proven
models, strategies, financing options, and tools that could be
applied nationwide in self-sustaining retrofit programs (without
federal money).

BetterBuildings Program
Program Vision:
To create a self-sustaining market for building energy efficiency retrofits that results
in economic, environmental, and energy benefits across the United States.
Grants Recently Awarded:
Between May and August 2010, DOE awarded $486 million in three-year grants to 35 local
and state governments:
Awards range from $1.5 million to $40 million each
Through sub-awards, will be reaching more than 50 communities
DOE has been providing extensive assistance to help grantees establish
financing programs that will leverage federal dollars at least 5:1.
Grant Programs:
Communities have innovative plans that use high-quality retrofits to achieve significant
energy efficiency improvements and greenhouse gas reductions. Successful retrofit
program models could be replicated in communities throughout the nation.

Better Buildings

Steve Gossett, Jr.
Vice President
Transcend Equity
Panelist

ULI Fall Conference, Washington, DC
Image/Illustration/Plan
The Energy Retrofit Market in Commercial Real Estate
Commercial Real
Estate < 5% of
historical ESCo
activity
75% of activity in
Public sector
(trending toward
90% as of 2010)
Why?

Age of US Commercial Building Stock
70% of stock is
20 years old or
older
DOE data
suggests majority
of this stock is
inefficient
Consensus –
retrofit market
opportunity
exceeds $100 B
Data taken from DOE CBECS 2003

What is Holding Back the Market?
The “Split Incentive”
Who funds the cost of improvements?
Who gets the financial benefit of efficiency gains?
The “Leverage Barrier”
Lender restrictions on equipment finance
Lack of flexibility to “carve out” improvements from the real property
The “Real Estate Factor”
Does it encumber sale?
Does it impair my access to refinancing?

The Future of the Market
Beginning to realize that PACE doesn’t work as advertised
Credit enhancement is the public policy vehicle of choice
Loan Loss Reserves
Credit guarantee programs
National, State, and Local programs launching 2011
Multiple private equity funds being raised
Institutional capital are very interested
few proven investment vehicles or experienced fund managers
Market will evolve and mature significantly over the next five years

Kevin Kampschroer
Federal Director
Office of Federal High Performance Green Building
General Services Administration
Panelist

Myopia Is Rampant
Risk That Is Not Evaluated is Significant
Risk of Future Market Value
Risk of Future Vacancy rate
Risk of Wild Swings in Operating Costs
Risk of Market Obsolescence
Greenhouse Gas Accounting for Leased Assets
Commercial Building Energy Efficiency is Virtually Unchanged from
1980!
Opportunities Abound

Real Disclosure

What is wrong with this picture?

Source: Report to Congress on Server and Data Center Energy Efficiency Public Law 109-431” US EPA, August 2, 2007
Green Grid -
DOE Energy
Savings Goal

Holistic Thinking—It’s Not About the Building

Building Owners and Managers Association’s 2005 Experience Exchange Report (BOMA EER).
Energy Opportunity – Commercial Offices
On a 500K Sq Ft property this equates to
a saving of $200K per Annum
On a 500K Sq Ft property this equates to
a saving of $200K per Annum
© 2010 Cisco Systems, Inc. All rights reserved.

Levers for Energy Saving
Connect to existing
legacy Building
Control Systems to
enable further
monitoring and
control and
Recommissioning
Connect to existing
legacy Building
Control Systems to
enable further
monitoring and
control and
Recommissioning
Connect to
Building
Management
Systems (Monitor
& Control)
Connect to
Building
Management
Systems (Monitor
& Control)
Implement 30 Min
Automatic Meter
Readings throughout the
Property Portfolio,
connected via LAN/WAN
Monitored through
Dashboards
Implement 30 Min
Automatic Meter
Readings throughout the
Property Portfolio,
connected via LAN/WAN
Monitored through
Dashboards
Monitor
Electricity Usage
Across Portfolio
Monitor
Electricity Usage
Across Portfolio
Through known Electricity
consumption cut a deal
with the Utility Supplier –
based on reduction in Peak
Demands across portfolio
Through known Electricity
consumption cut a deal
with the Utility Supplier –
based on reduction in Peak
Demands across portfolio
Negotiate Tariff
with Electricity
Supplier – Known
Peak Demand
Negotiate Tariff
with Electricity
Supplier – Known
Peak Demand
Greater Awareness of
Energy, Carbon
Emissions and
Sustainability through
Dashboards, Digital
Signage, Newsletters,
RSS, Email, etc
Greater Awareness of
Energy, Carbon
Emissions and
Sustainability through
Dashboards, Digital
Signage, Newsletters,
RSS, Email, etc
From Real-time
Information
Influence /
Employee Tenant
Behavior
From Real-time
Information
Influence /
Employee Tenant
Behavior
Control enterprise wide
Time Schedules, change
Set points across multiple
buildings, reduce energy
consumption based on
Maximum Demand Rules
Control enterprise wide
Time Schedules, change
Set points across multiple
buildings, reduce energy
consumption based on
Maximum Demand Rules
Implement
Maximum
Demand
Routines
Implement
Maximum
Demand
Routines

Monitoring Electricity Usage at Cisco Campus

Recommissioning: Water Temp vs. Chiller Activity
44 degree Chilled water
supply
CHWS systems appears
normal
Water Temp
Appears Normal
Chiller cycling
275 KW Delta
Equipment Being Stressed
& Wasted Energy

State of Missouri Recommissioning:
Retrofit 100 Buildings,16 million sq. feet
• One Time Cost - $1.10 per sq. ft.
• Guaranteed Annual Savings
- Energy - $.17 per sq. ft.
- Operations - $.40 per sq. ft.
• Energy Simple Pay Back in 6.5 Years
• Total Pay Back in 1.9 Years
18% Cut in
Energy Cost in
Year 1

Inter-Dormitory Competition:
• Average 32% cut energy use
• Two dorms cut energy use 56%
• $5,100 energy savings
• Reduced emissions by:
- 150,000 lbs of CO2
- 1,400 lbs of SO2
- 500 lbs of NOx
Changing Tenant Behavior – Oberlin College

Dampers
Cameras
Air
Filters
Indoor
Air Quality
Services
Air Handling
Unit Controllers
Cooling
Coils Fans
Access
Management
Controllers
Exhaust
Fans
Smoke
Detectors Cooling
Towers
Elevators
Zone
Control
Panels
Heating
Units
Halon
System VAV
Units
Diffusers
Cameras
Intrusion
Detectors
Card
Readers
Chemical
Water Control
Chillers &
Boilers
Pumps
Operators
Station
Fire Alarm
Panels
Thermostats/
HumidistatsParking
Garage
Water Systems
Vending
Machines
Electric,
Gas,
Heating
Computer Room
Air Handlers
Lighting
SolarPV
Rack/Server IDF PDU
What’s the Problem? Many Sources of Valuable Data

Life-Cycle Design & Cost Implications
IT Network Design
Current Entry
Too Late !
IT Network Design
Current Entry
Too Late !
Building and
Workplace Design
Current Entry
Building and
Workplace Design
Current Entry
Integrated Building,
Workplace & IT Design
Proposed Entry
Integrated Building,
Workplace & IT Design
Proposed Entry
Cost of Design
Change
Cost of Design
Change
Effort
Ability to Impact
Cost and Functional
Capabilities
Ability to Impact
Cost and Functional
Capabilities
25–30 Years
Operation
75%
Lifecycle
Cost
ConstructionDesign
25%
Strategy

Google Intelligent Middleware IBS
Automated Logic (ALC) via
BACnet/IP and SOAP
Johnson Metasys N1 protocol
Trane Tracer Summit BCU via
BACnet/IP
Trane Intellipaks and Voyagers via
Trane native Com4
Siemens Apogee via BACnet/IP
APC UPS systems via SNMP
Custom WXT weather station via
Modbus RTU
Cat Power generators via Cat CCM
Utility power meters, Cutler
Hammer power meters and large
load sub-meters via Modbus RTU
Power inverters for 1.9 MW
Photovoltaic system via Modbus
RTU
Numerous wired and wireless
lighting control solutions
Additional integration is in the
planning and development stages.

Discussion, Questions & Answers

The Impact of Energy on the Future of Real Estate

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