In a 200,000-square foot office building that pays $2 per square foot in energy, a 10% reduction in energy cost translates into $40,000 in additional net operating income. At an 8.0% cap rate, new-found NOI translates into $500,000 in increased asset value.
Our recent energy assessments, in 90 commercial buildings, have typically identified cost recovery opportunities ranging from 20% to 40%. Applying those findings to the preceding Energy Star example:
- A 20% reduction in energy cost translates into a $1.0 million increase in asset value.
- A 30% reduction translates into a $1.5 million increase in asset value.
Given this potential to translate wasted energy expense into new-found income and asset value, it seems odd that very few commercial real estate owners are investing in energy efficiency improvements.
Lack of Owner Initiative is Curious
With $750 billion in asset value “missing in action,” it is curious that very few property owners have taken steps to recover it.
A Deloitte survey, reSources 2012, found that 90% of companies surveyed had energy management goals; and more than two-thirds identified reducing energy cost as their primary motive. Yet, the survey also found that very few companies have made significant energy efficiency improvements.
Making a similar point, a recent McGraw-Hill Construction report notes that: “Despite the fact that retrofit activity remained active during the down economy, only a tiny portion of the U.S. building stock has been affected.” (Source: Business Case for Energy Efficient Building Retrofit and Renovation – 2011)
The obvious question is, “Why are commercial real estate owners reticent to reduce their energy bills?”
Energy Efficiency Is Mysterious
In working with property owners, we have found that lack of proactivity in recovering wasted energy expense is generally the result of three (incorrect) assumptions:
- Improving energy efficiency a complex, mysterious and unreliable process.
- Investing in energy efficiency is expensive.
- Investing in energy efficiency is risky business (due to overpromise and under delivery).
These assumptions are proving incorrect as owners and their facility managers are taking control of energy cost through a simple 5-Step process, enabled by cloud-based software.
Reducing Energy Expense is a Process
Reducing energy bills is not a one-time event (such as an “energy audit” or “energy assessment”). It is a process.
When owners and managers keep this process SIMPLE, by using self-guiding cloud-based software, they drive down energy cost with minimal (and sometimes no) capital investment.
A Simple Energy Cost-Reduction Process
1. Take Charge of Energy Bills
In most commercial properties energy bills are higher than necessary because no one is in charge of reducing them. No one is setting annual dollar or percentage cost reduction goals.
When owners take charge, by setting goals, energy cost savings happen.
2. Perform a Hands On Energy Assessment
The information provided by a hands-on commercial energy assessment is critical for making energy efficiency investment decisions.
Benchmark data from Energy Star or a “virtual” or “zero touch” energy audit may indicate whether a given building’s energy efficiency is “good, bad or ugly.” But, making sound investment decisions requires a hands-on audit.
3. Identify Alternative Solutions
To obtain the best ROI (return on investment), an owner needs to consider the costs and benefits of a full range of potential solutions.
Obtaining accurate cost and benefit information requires collaboration with local contractors.
4. Evaluate Costs and Benefits
Identifying the best energy efficiency investments, consistent with an owner’s budget and ROI objectives, requires comparing the costs and financial benefits of alternative solutions.
5. Prepare a Professional Recommendation
All of the work done in the preceding four steps is of little value if it is not reduced to a simple, professional recommendation. Cloud-based software makes summarizing the work done in Steps 1 – 4, and preparing a recommendation in Step 5, SIMPLE.
New Software Makes Energy Efficiency SIMPLE
The U.S. Department of Energy’s software guide provides a detailed description of new cloud-based software that makes reducing commercial energy bills SIMPLE: http://apps1.eere.energy.gov/buildings/tools_directory/software.cfm/ID=622/pagename=alpha_list_sub.
Dr. Bob Roth is CEO of BGZ, Inc., developers of EnergyActio software. EnergyActio is listed in the US Department of Energy Software Guide. EnergyActio is solving the energy audit conundrum by giving owners and tenants what they want . . . a hands-on investigation . . . a thorough evaluation of efficiency options . . . and a financial investment recommendation based on real project costs and energy cost-savings estimates (from local contractors who are willing to have their feet held to the fire). For more information, and to take a free test drive, visit www.EnergyActio.com, or contact Info@EnergyActio.com.