Energy Optimization Program Bases Savings, Benefits on Research

DALLAS—Commercial real estate tenant spaces generally account for more than half of a building's total energy consumption, which provides the basis for the program's projected cost savings for tenants and improved environmental performance of buildings. A research-based energy optimization program promising dramatic cost savings and benefits to commercial tenants and property owners debuted at ULI's Fall Meeting, GlobeSt.com learns in this exclusive.

“Energy-conservation efforts have long been a crux of smart ownership, operation and investment, and this tenant energy optimization program is a great next step in providing real impact and benefit for tenants, and for owners and developers,” said ULI convention attendee Greg Martin, partner and national real estate practice leader, Moss Adams.

Born of the early work in transforming the Empire State Building from just another iconic skyscraper to one of the most energy-efficient buildings of its kind, the tenant energy optimization program debuted to the 6,000-attendee convention with a list of 10 successful case studies. Its research-based toolkit is viewed as a potential game changer to integrate energy efficiency into tenant space design and construction, using practices that are proven, replicable, measurable and scalable.

“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,” said ULI leader Anthony E. Malkin, CEO of the Empire State Realty Trust Inc., who led the effort to reduce tenant energy use in the Empire State Building, and the tenant energy optimization program. “It enhances their ability to attract, retain and motivate workers who are healthier, happier and more productive.”

A cross-section of the case studies demonstrate the range of results:

Bloomberg LP, 120 Park Ave., New York City: A 10-year lease, energy cost savings of nearly $174,000, a 140% ROI, an IRR of nearly 45%, with time to payback under three years.

The Estee Lauder Companies, 110 East 59th St., New York City: A six-year lease, energy cost savings of nearly $16,000, a 42% ROI, an IRR of more than 19% with time to payback under four years.

COTY Inc., Empire State Building: A 17-year lease, energy cost savings of more than $716,000, a nearly 330% ROI, an IRR of 44% with time to payback under three years.

Reed Smith LLP, Three Logan Square, Philadelphia: A 16-year lease, energy cost savings of more than $1.1 million, 410% ROI, an IRR of 57% with time to payback slightly more than two years.

LinkedIn Corp., Empire State Building: A 10-year lease, energy cost savings of more than $153,000, a 23% ROI, an IRR of more than 10% with time to payback less than six-and-a-half years.

Cushman & Wakefield Inc., One World Trade Center, New York City: During the term of Cushman and Wakefield's 10-year lease, the process is projected to provide energy cost savings of nearly $88,000, a nearly 360% ROI, and an IRR of nearly 80% with a projected time to realize payback of less than two years.

“After the demonstrated success in New York, we are implementing the program in our new Chicago headquarters,” press conference panelist Todd Schwartz, Americas president in Cushman & Wakefield's global occupier services group, said. “And our client, LinkedIn, is pursuing the program because they see this kind of commitment as critical to their operations, to their employees and their communities. It's pretty clear to us that it will work, for us and for clients.”

Among the key differentiators of the program from other building energy programs, according to the announcement, is its pre-lease, construction and post-construction phases, and its connection between tenants, building owners, real estate brokers, project managers, architects and engineers.

“Among the advantages of the program is that it is scalable, measurable and replicable. 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,” Malkin told ULI attendees.

Funding to develop the tenant energy optimization program was from 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.

“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,” according to press conference panelist Eric Schlenker, portfolio manager at CalPERS in Sacramento. “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.”

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Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.