In today’s pummeled marketplace, the last thing on many building owners’ minds is whether their building is “intelligent.” Right now, the smartest buildings are the ones that attract and retain tenants through exceptional operations at reasonable costs as property professionals strive to enhance their market value in a deepening recession.
The other side of that argument, though, contends that high performance buildings will always be attractive in the marketplace and will be the first place tenants will look once the economy and the industry recovers. Integrated building systems bridge the gap between the disparate functions of a building — security, fire/life safety, elevators, HVAC, energy management, etc. — through a central monitoring system. And while there may not be as many tenants willing to pay a premium to work in a fully integrated building with Wi-Fi on every floor, they still expect a certain level of comfort and performance from their 9 to 5 “home.”
For owners of existing building who may not be ready or able to run the full gamut of integration, a smart area to invest in could be energy efficiency retrofits, especially since new deliveries in energy performance contracting (EPC) are breaking down the complexities inherent in traditional EPC models. In January BOMA International and the Clinton Climate Initiative (CCI) released the BOMA Energy Retrofit Program (BEPC), which removes many of the traditional barriers to investment in energy efficiency and allows owners to make more sophisticated operational improvements.
In creating the BEPC model, many key aspects of the energy efficiency retrofit process were vetted by top energy service companies (ESCO) and real estate companies to streamline the project development. Trane was one of several ESCOs that helped deliver that model. Scott Lenger, director of commercial real estate & lodging markets with Trane, believes this new model could significantly reduce the historically lengthy time it takes to go through the EPC process. “The typical plan/spec/bid process can take approximately 36 months from identifying the opportunity to commencing the work,” says Lenger. “By implementing the BEPC model, the process will take approximately 12 months, resulting in the owner realizing savings earlier.”
The BEPC model can help owners integrate their building systems for maximum energy efficiency in a comprehensive way. Lenger explains that energy modeling can be applied to simulate building systems interactions and how they affect energy performance to provide data to compare a building’s annual design energy cost with the energy cost budget to target energy efficient design initiatives. “By taking a comprehensive approach to the building, it’s important to understand how different systems such as HVAC, building automation systems, lighting, lighting controls, integration of control systems, roofing, glazing, operational procedures (maintenance, janitorial) and water conservation, would work within the building to help determine the best approach for reducing energy usage,” say Lenger.
“New School” Energy Performance Contracting through BEPC
While energy performance contracting has been offered by ESCOs for more than two decades as a self-financing mechanism to pay for energy efficiency retrofits and capital improvements, the complexity of the contracts and long timelines have impeded their widespread use in private commercial buildings. Another deterrent was that lenders historically required a lien or a personal guarantee from the owner.
BOMA International and the Clinton Climate Initiative launched the BOMA Energy Performance Contracting (BEPC) model toolkit in early January with new benefits that are significant compared to previous energy performance contracting. Through the BEPC Model
- The owner controls the process and specifies all project criteria, streamlining project development.
- The standardized model minimizes costs, including up-front legal costs, man-hours, project management and component costs.
- The template documents are easily edited to incorporate specific goals and objectives.
- An industry-vetted model means high confidence in project implementation without having to be an expert in performance guarantees or energy efficiency.
- The potential for commercial real estate firms to self-finance, using the energy savings produced by the retrofit to reduce operating costs even after amortizing the cost of the improvement.
- Building performance is assured through a performance guarantee by the energy service company, guaranteeing performance throughout the life of the agreement.
View the BEPC toolkit and template documents at www.boma.org.
Removing Barriers, Guaranteeing Savings
One of the biggest barriers of traditional EPCs is financing. The BEPC toolkit streamlines this process by creating a standard model whereby capital investments that improve buildings’ financial and environmental performance are paid for from the energy and operational savings created by the improvements. Through the BEPC model, CCI has worked with a number of financial institutions to find new ways to finance energy efficiency projects, whether through an existing mechanism or a new methodology. “We connect owners with the financing bodies who finance at commercial rates,” explains Arah Schuur, director of CCI’s building retrofit program. “With projects that have significant barriers to entry, we work with financial institutions to come up with new ways to solve those problems.”
Retrofitting through EPCs has been used for years in Europe, as well as in municipalities, schools, universities and hospital systems and Schuur is hopeful that the new model will find success in the U.S. office sector. “The reason we started with the EPC model for the BOMA-CCI partnership is because it allows the building owners to specify the requirements for the project—be they financial, energy or green requirements—and the ESCOs design the project around those requirements,” says Schuur. “It’s a novel contracting model that really allows the building owner to decide what they want to achieve.”
Honeywell Building Solutions is another ESCO that worked with BOMA and CCI on the BEPC model. Mike Taylor, vice president of sales, Clinton Climate Initiative, with Honeywell emphasizes the importance of the partnership between the ESCO and the client. “Performance contracting is a very well defined process, and a critical component of that is understanding what the building owner or operator is trying to accomplish.” This mutual understanding and agreement on requirements is essential for ESCOs like Honeywell because they guarantee the energy performance from the improvements from both the operations and economic side. To that end, ESCOs develop measurement verification programs that help the customer agree upfront to the way the savings are going to be measured so there’s no disagreement about whether the savings take place or not. Says Taylor, “If you’re going to ensure economic performance of retrofits, it’s critical to have a good measurement verification plan in place so nobody is disappointed. If the savings aren’t achieved, the ESCO can be held accountable for writing a check to make the budget hole for the guarantee.”
Johnson Controls also worked with BOMA and CCI on the BEPC model. Peter White, director of Clinton Climate Initiative Building Efficiency with Johnston Controls, also stresses the importance of constant communication with the client during the EPC process. “We work with customers to determine the balance between cost and risk on what they want to do for their performance guarantee and we customize the approach to their needs,” says White. Johnson Controls also helps customers look beyond pure energy efficiency to renewable energy production to see it it’s a fit for their organization. “If someone wants to consider solar or cogeneration in addition to doing their energy efficiency through lighting and HVAC modifications, we can look at all those options to help the customer reduce cost in a more environmentally friendly way.”
The Right Time?
While there is understandable hesitancy in the marketplace right now to make any type of investment, a well positioned company that plans to hold onto a building for more than a few years could be making a smart investment by using the BEPC model to invest in energy efficient retrofits and improvements. Mike Kearney, senior director, US Energy Efficiency Services, Siemens Building Technologies, Inc., believes the timing is right. “Today, with budgets tightening and the continued focus on energy efficiency and sustainability, we see new opportunities for performance contracting in markets that have not traditionally utilized this process, especially those beyond the public sector,” says Kearney. As an ESCO, Siemens’ role is a design-build contractor, responsible for the turnkey installation of projects and the ongoing performance of the installed systems and solutions.
Former BOMA Chair and Executive Managing Director, National Property Management, USAA Real Estate Company Brenna S. Walraven, RPA, CPM, believes that while the lack of debt in the financial markets could deter some improvements in the near term, owners that are not overly leveraged and have some capital may have real opportunities. “The timing would seem good because you’re not out of pocket for any capital expenditures in creating a mechanism to lower your expenses, or you can at least break even with respect to energy savings that cover the loan cost in the short term and ultimately reduce operating expenses.”
It makes sense that some of the best candidates for EPCs, or any type of energy efficiency retrofit, are larger buildings that use a lot of energy as they can see the most significant energy savings. “If a building owner has a 50 or 60 rating on ENERGY STAR©, they might be able to get 30 or 40 percent energy savings and see a dramatic financial impact. And, keep in mind that the performance guarantee is the minimum threshold, our expectation is that they will actually do a lot better” says Walraven, who was one of the architects of the BEPC model, and whose company, USAA Real Estate, currently has two buildings in the BEPC pilot program.
While Walraven expect the bigger, more energy inefficient buildings to start cranking through the BEPC model first, there is still room for improvement (whether through EPCs or not) for even well performing building that make energy efficiency improvement and upgrades. Recently, a USAA-owned building in Chicago that serves as a federal facility for the FBI received the world’s first LEED EBOM Platinum rating. USAA Real Estate Director of Facilities Rick Pospisil, RPA, credits the installation and use of digital smart meters with taking a building that was already very energy efficient and improving it further. “Everyone was saying that the only way you can improve your energy efficiency is to track it,” says Pospisil. “You don’t know if your equipment is running the way it is supposed to or how much power it is using and unless you engage it.”
When the building was first ENERGY STAR (ES) rated it received a 78, fairly respectable given how much energy government buildings tend to use, but Pospisil and his crew were able to raise that rating to an 87 quickly through low-hanging energy efficiency strategies and recommissioning equipment for optimal performance. To see if they could improve their performance even more, 19 digital submeters were installed throughout the building to optimize their HVAC and other target control systems and to gauge how much power was being used. The end result was an impressive 95 ES rating. Pospisil credits the smart meters ability to track utility meter readings through an online platform tied into the building automation system as an important factor in the improved rating. “The online, smart system allowed us to trend changes and isolate specific equipment on a day-to-day basis rather than monthly,” says Pospisil.
Competitive Advantage
Beyond the energy savings and eventual payback, the most compelling reason for retrofitting through energy performance contracting or other means may be the competitive advantage it offers. Owners that take advantage of the BEPC program and other energy incentives could be in the best position to attract tenants who want to be in the highest performing buildings. Walraven helped spearhead the rollout of the BEPC model because she knew having a streamlined process in the market could only benefit her company and because more public and private tenants, as well as cities and corporations, are requiring high performing, certified buildings. “The opportunity in this market is that the first buildings that take advantage of these incentives and programs will have an advantage,” says Walraven. “They will be in a position to keep or acquire those key, high credit, high demand tenants.”
The building owner or manager who can balance the demands of efficient operations, cost savings and tenant needs will not only have a leg up in the current market but could see their asset values strengthen first as the economy improves, which just goes to show that behind every smart building, there are even smarter people.
