Portfolio property owners own most commercial buildings, and are facing unprecedented pressure from the market to upgrade their building stock to be more intelligent, comfortable and environmentally sustainable. Yet, most building energy retrofits miss the distinct needs of their owners, according to the Rocky Mountain Institute (RMI). The diverse nature of commercial buildings, combined with a proliferation of emerging technology and consequent performance and financial uncertainty, make simple energy optimization initiatives – which could greatly reduce energy use and improve building value – challenging to evaluate and costly to access. But by using a new toolset encompassing tested and proven best practices, portfolio owners can overcome these challenges and reap savings, RMI says.
Are Better Buildings Really Better?
The financial pressures facing property owners is very real. Buildings that realize their energy reduction targets identified have seen a 2% to 20% rental premium for their high-performance buildings. And low-emission funds outperform the market, making such building groups more attractive to investors.
Over the past two years, RMI has been developing tools and processes specifically for portfolio owners. The tools and processes have proven themselves with positive savings, via hands-on testing with organizations including Morgan Stanley and REI. Results from evaluating REI’s portfolio-wide deep energy retrofit indicated a four-year payback and 39% energy savings.
Analysis of Morgan Stanley’s Lafayette Tower, already heralded as one of Washington, DC’s most efficient buildings, revealed 15% energy cost-savings potential, with projects that could achieve a 13% rate of return for the owner, and 47% for the tenants.
Tough to Take On
Despite the rewards of energy retrofits, building owners face challenges in making them happen. Constantly changing technology – and the difficulty of quantifying savings from such new technology – lead to uncertainty in terms of evaluating the potential failure or success of such projects.
These challenges contribute to a slow adoption rate in terms of smart building technology and energy retrofits. But by taking a streamlined, portfolio-based approach to building performance optimization, commercial portfolio owners will be able to treat energy as an investable asset in the portfolio. In fact, says RMI, such an approach will allow commercial building owners and investors to capture their share of a $290 billion net-present-value opportunity that has so far been untapped by more traditional, building-by-building retrofit approaches..
Report & Toolset May Help
The RMI Capturing Value through Portfolio Energy Optimization report outlines the best practices that it developed through engagements with four clients. Additionally, RMI has built a new software toolset to “aid portfolio property owners seeking rigorous financial analysis on a holistic set of energy opportunities across their portfolios,” the organization says.
The report details the learnings gleaned from working with Morgan Stanley, REI, the City of Chicago, and Sanus Connect Inc.
The report includes a detailed outline for implementing these six best practices:
- Evaluate all potential investments using a common and holistic methodology;
- Prioritize investments by project economics instead of energy savings;
- Optimize cash flows over time;
- Leverage portfolio benefits;
- Enable continuity with ongoing work;
- Don’t shy away from data.