When window shopping, we look at items out of our price range, thinking about possibilities. We fantasize about what we could do with this or that. Then we go back to business as usual, what-if scenarios relegated to wishful thinking.
If what we want stops being a luxury, and through external pressures becomes a necessity, we always seem to find a way to achieve what was once deemed unattainable. It is a tribute to our capability and resourcefulness that nothing is out of reach. Once we set our minds to it, any window can be opened.
Thus it is with sustainability. The buzz is getting louder, the movement is apace. Yet, there are facility managers who either lease their buildings or are part of a multi-tenant facility who feel unable to address this issue. They have limited control over those areas that can make the most dramatic improvements in building operations—energy, water usage and janitorial services. This needs to be rectified, as necessity is now dictating action. If spaced is being leased, it’s time to have a conversation with the landlord. They need to understand the needs and benefits of healthy, efficient buildings and how this would be invaluable to both the facility manager, the tenants and to them. It would be a purse-to-purse discussion making a business case that will help to green buildings. As more properties are taking this route, relevant arguments and the right facts are now readily available.
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Three approaches to grab attention
When it comes to talking with building owners and/or property managers, we need to take the same approach as if we were trying to convince upper management. Business people tend to think in terms of corporate values and they translate these values to their own situation. So if we want to get the landlords’ attention, we need to talk in dollars and cents. It’s an interesting dichotomy to say that money talks, yet talk is really inexpensive.
For instance, tell the landlords that it has been shown that sustainable buildings create greater revenue through top-of-the-market rents with a faster lease-up relative to market; that they would experience lower releasing expenses due to higher tenant retention and lower loan default risk due to the financial stability of tenants. Energy efficiency would provide lower operating costs and lower exposure to volatile energy costs. Sustainability would lead to lower replacement reserves and reduced maintenance.
Mention that they also risk the consequences of a sharply shrinking demand for traditional property that will become increasingly obsolete over time, in comparison to sustainable buildings. If we can show a success rate in our buildings, then the lessons learned might even help Class B buildings with “good bones” to be repositioned to Class A status. Talk about tenant retention and attraction—that might get their attention.
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Idealistic approach
There are three basic arguments that you can bring to the table to convince your landlord to help make a building more sustainable. The first would be to appeal to their corporate responsibility.
According to a CoreNet Global survey, the general perception in the real estate community is that the industry is not doing enough to advance sustainability. Yet there are studies that show clear-cut benefits to building owners. Those business people that embrace this change create more than just dollars for their company. They would project a positive public image—benefiting from the halo effect that is derived from sustainable actions. This paves the road for the rest of the industry to follow.
It’s good for investment purposes. Dow Jones now offers a Sustainability Index that highlights those companies with strong stances concerning the environment. Sometimes, when investors are looking for the right stock to purchase, a company’s statement on sustainable practices is the deciding factor.
Responsible Property Investment (RPI) is a term that captures all the ways that investors can find and create value through improving the economic, social and environmental profile of their investments. RPI advocates triple bottom line benefits in a balanced scorecard approach.
RPI is becoming especially common with public pension funds—which account for a large share of real estate ownership in the country. Two of the largest and most widely respected pension funds in the U.S.—CALPERS (California Public Employees Retirement System) and CALSTRS (California State Teachers Retirement System)—have promulgated guidelines advocating green policies in a program entitled Green Wave. Their capital is only going into green properties—landlords should be made aware of this.
RPI is not philanthropy—it is a discipline that allows real estate professionals to better address risks and identify opportunities for long-term value creation. Their evaluation is focused on sustainable buildings.
Another factor a landlord should consider is that civic responsibility (doing the right thing) can quickly evolve into civil mandates. There is now legislation in California regarding waste stream management and recycling, carbon footprints and ENERGY STAR© evaluations. These are all strong arguments in favor of minimizing a building’s impact on the environment. Other states and countries are facing similar challenges that can be obviated through sound environmental practices as well.
Economic approach
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A second, more persuasive approach is to discuss the cost savings that can be realized through energy and water usage efficiency. This would serve both the landlord and tenant well—as cost savings would normally be reflected in lessened operating expenses, lowering common area maintenance (CAM) charges.
Depending on the current state of a building, energy efficiency could save up to 30 percent in utility costs. The installation of waterless urinals can save up to 44,000 gallons of water, per urinal, per year. Add some automation to convert restrooms to hands-free operations and a substantial amount of potable water can be saved and kept out of storm drains.
Sustainability also contributes to a healthier net operating income (NOI), which benefits the landlord.
As a real estate professional serving investment clients, a landlord should be very familiar with all of the methods of valuation of income properties. One of these is the calculation of NOI, as it is used with cap rate to determine the value of a property.
After determining the gross operating income (GOI) of the property (gross potential income – vacancy and credit loss = gross operating income), property owners can then measure the operating expenses of the property. This would include expenses for management, legal, accounting, insurance, janitorial, maintenance, supplies, taxes and utilities.
Subtracting the operating expenses from the gross operating income arrives at the net operating income. Using the example of a property with a GOI of US$50,000 and operating expenses of US$35,000, the net operating income would be: US$50,000 – US$35,000 = US$15,000 NOI. The lower the operating expenses, the higher the NOI. The more efficiently the building operates, the more profit it generates.
A landlord would also be interested in the State of California study on sustainability. It has shown that upfront costs of 0 percent to 2 percent supporting green design will result in a life cycle savings of 20 percent—more than 10 times the initial investment.
Studies also affirm that green buildings are shown to have higher valuations (approximately 10 percent) and higher sales prices of up to 15 percent to 25 percent. In addition, CoreNet Global reports that 90 percent of those surveyed consider sustainability a near-term critical business issue and 80 percent are willing to pay more for green real estate.
Nuts and bolts approach
When looking at the calculation for GOI, one of the values was vacancy. The third and most compelling argument has to do with building occupancy rates. After all, this is why landlords own buildings.
The green movement is consumer driven; the greater tangibility of today’s sustainable design features are driving tenants to demand green buildings. In fact, given the opportunity, tenants will migrate from brown buildings to green buildings. This trend is especially prevalent among large anchor tenants like IBM, Microsoft, Google, PNC, Toyota and financial institutions like Bank of America and Citigroup.
There are a number of reasons that tenants are starting to target green buildings—the corporate responsibility of engendering environmental practices; the economics of an energy efficient building and the proven productivity gains in a sustainable workplace.
This is where a green cleaning program enters the picture, ensuring clean indoor air. In most leased spaces—especially multi-tenant—janitorial services are selected by the property owners or property managers. It is imperative that the proper cleaning program is in place.
This is the reason that green cleaning is such a large part of the U.S. Green Building Council’s LEED® for Existing Buildings: Operations & Maintenance program introduced this year. It is understood that the environmental quality of the workplace is a critical component of employee health and productivity and that janitorial performance plays a large part in maintaining a clean building.
As a case in point, indoor air quality (IAQ) can be 20 to 100 times worse than outside air. The U.S. Occupational Safety and Health Administration estimates that poor indoor air quality affects 30-70 million people annually. In the workplace, allergic reactions to unhealthy IAQ account for more than 10 million workdays missed by employees each year. As a result, indoor pollution costs more than US$50 billion in the United States and Canada in health care expenses, absenteeism, lost production, employee migration and lost revenue.
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Enlightened tenants are extremely gratified at the positive benefits of sustainable buildings on absenteeism, productivity, employee morale and turnover. Thus, they are motivated to pay a premium for space yielding tangible productivity gains. Gains of 1 percent would be equivalent to reducing property costs by 10 percent.
According to a Monster.com survey of Canadian workers, 75 percent stated they would make a lateral movement to an employer in a green building. Seeing as the cost of replacing an employee is estimated at one year’s salary, it can be seen how such a statistic would make a difference when looking to lease space.
Looking toward the future, a study from MIT reports that students from more than 100 colleges and universities have participated in a graduation pledge, which reads “I pledge to explore and take into account the social and environmental consequences of any job I consider and will try to improve these aspects of any organization for which I work.”
These are the next generations of employees—the professionals who will be filling the void left by retiring baby boomers. Not only are they picking up the mantle of sustainability, they are running with it.
Employees drive businesses. If people are not offered sustainable buildings in which to work, they will go elsewhere. Thus, it is incumbent upon business owners to provide a healthy, proper work environment or they will lose talent. If property owners are not willing to provide such a workplace to companies, then they will lose tenants.
Driving sustainability performance
As the demands on facility management change, we find ourselves gravitating to the role of stewards. The basis of our charter is to take care of the people, places and things in the built environment. It is said that leaders in sustainability are those who choose to take actions as if the built and natural environment depend on it. The two missions sound pretty similar.
If that is the case, if the statements do reflect each other, then it is up to facility managers to increase the efficiency with which buildings and their sites use energy, water and materials. We have to look at ways to reduce building impacts on human health and the environment through the complete building lifecycle.
We can devise a system that will drive sustainability performance by making sustainable actions a part of everyone’s daily job responsibilities. We just have to reach the right people to get it done.
Talk doesn’t cost much and it all starts with talk. The benefits that can be reaped will provide an immediate return on our investment.
About the author
Bill Conley, CFM, CFMJ, LEED AP, IFMA Fellow, is the managing director, LEED/Sustainable Development Group for Pacific Building Care in Costa Mesa, Calif.
As well as being an IFMA Fellow, Conley is a recipient of the Distinguished Member of the Year Award and Distinguished Author Award of the International Facility Management Association (IFMA). He is a past president of the Orange County Chapter of IFMA and is president of the Facility Managers Consultant Council. He is a frequent contributor to the Facility Management Journal.
Conley was one of the organizers and executive committee members of the new Orange County Chapter of the U.S. Green Building Council (USGBC) and has achieved the credential of LEED© Accredited Professional through the USGBC.
His professional experience in facility management spans more than 30 years.
