Facing pressure to manage costs, risks and energy consumption, commercial building owners and investors are exploring how smart building technologies can help a company’s triple bottom line—people, planet, profits.

Five key trends are making smart buildings a “no-brainer” for commercial property owners and investors, according to Jones Lang LaSalle’s latest report, The Changing Face of Smart Buildings: The Op-Ex Advantage. “Commercial and public property owners are looking to smart building technology to boost operational efficiency, achieve energy savings, improve capital planning and reduce their carbon footprints,” says Dan Probst, JLL’s chairman of Energy and Sustainability Services. “These advantages, combined with tenant preferences for smart building features, provide a competitive edge for owners and investors.”

Five Reasons For Smart Building Investment

The report, which details the landscape for smart building technology, identifies five major trends:

1. Rapid Return On Investment
Smart building technology investments typically pay for themselves within one or two years by delivering energy savings and other operational efficiencies. Also driving the fast payback is the low cost of automated building technology, which has fallen as adaptation has increased. For example, intelligent lighting components that cost $120 four years ago today sell for just $50. Procter & Gamble’s building management pilot program, for example, generated a positive return on investment in just three months.

2. Operating-Expense Advantage
Relative to other energy-related building upgrades, smart building technology requires little upfront capital expenditure (cap-ex), while delivering significantly reduced operational expenditures (op-ex). Using automated systems, smart buildings generally cost less to operate  than buildings operating solely on legacy systems, therefore offering a long-term op-ex advantage. By combining smart building systems and data analytics with facilities management, a smart building management system can detect and resolve building issues before equipment failures and capital expenditures ensue. Additionally, operational and energy savings begin shortly after the smart building management system is implemented.

3. Marketing Mileage
As reported in JLL’s October 2012 “Global Sustainability Perspective,” numerous studies and surveys have demonstrated that tenants and their advisors increasingly expect smart building features such as zoned HVAC, sophisticated equipment maintenance alert systems, advanced security systems and “green” buildings. Like a new lobby or elevator bank, an improvement in sustainability makes an office building more desirable to tenants. These benefits can justify collecting higher rent and can increase competitive advantage and occupancy rates. And when the building is sold, sustainable investments can be recouped in an increased sales price. In fact, a 2011 study by Eichholtz, Kok and Quigley indicated the premium for LEED-certified or ENERGY STAR-labeled buildings is approximately 13%.

4. Energy Savings
Smart building technology can generate energy savings of 8% to 15% annually almost immediately after deployment, with the potential for incremental improvements over time. A 2012 report by the Rockefeller Foundation and Deutsche Bank Group’s DB Climate Change Advisors estimates that $289 billion in building efficiency investment would produce savings in excess of $1 trillion in the US alone, with every dollar invested in energy efficiency producing three dollars of operational savings.

5. Improved Corporate Social Responsibility Profile
Redirecting energy spend to building efficiency has allowed some corporate decision-makers to gain the reputational advantages of doing the right thing by the environment while also gaining significant performance and productivity improvements. Another benefit is a smart building system’s ability to measure and report greenhouse gas emissions. Some owners feed building emissions data to multiple benchmarking organizations, such as Greenprint and GRESB, as well as to Ceres and similar third-party reporting organizations, and smart systems can roll up the information from across a portfolio.

 

Source: GlobeSt

The most recent initiative makes it a goal for the costs of solar to continue their trend downward to meet those of conventionally generated electricity by the end of this decade.

This comes with the announcement by the White House reinvigorating solar energy through the Department of Energy’s SunShot initiative.  These goals don’t only come from government offices.  Laboratories too are leading the way. Technological advances are helping along the trend, as silicon may be able to be replaced as the main ingredient in solar panel construction.  A recent discovery that a light-absorbing material known for a century may work in solar panels and dramatically increase their efficiency has the industry talking.  Thanks to the combined developments, the cost per watt of solar-generated electricity may fall to the 10-20 cents per watt range where fossil fuel-generated electricity resides.

All that said, the opportunity for commercial space users to take advantage of these new technologies and for commercial landlords to convert their properties into energy-producing ones remains mired in the financial barriers and customs of an industry that views (and pays for) property improvements for multi-tenant buildings in very specific ways.  To answer the question of how the costs and benefits of solar improvements are apportioned usually needs to begin with how such improvements are paid for.

One California company says they have used real estate legal forms to address this problem. Working with a leading law firm, EPR Squared, a real estate firm specializes in cracking the tough problem of opening commercial rooftops to solar.  In solar improvement,  as with most other features of commercial property usage, the all-important capital source is the third party financier.  But the territory is new and forms and deals have little precedent to work with.  Establishing revenue flows on a tenant or space subdivision basis to cover construction costs and to apportion energy-generation benefit requires a new kind of real estate deal. EPR Squared says they’ve constructed such a boilerplate.

According to real estate research firm data cited by Energy Producing Retail Realty, Inc. Founder/CEO, Chris Pawlik, 90 percent to 95 percent of commercial building rooftops remain essentially beyond the reach of third-party financing, “When you have a commercial building with multiple tenants,” Pawlik said, third parties “can’t technically finance those unless the owner takes it on, and commercial owners won’t do that.”

Third-party financiers, he explained, “can get an agreement signed or financing in place because they have the credit of the off-taker that takes care of the risk.” With a twenty-year commitment, third-party financiers have certainty that their loan will repaid. But, Pawlik said, “owners typically own properties five to seven years and tenants are typically in properties five to ten years. You can’t have a ten- to twenty-year agreement in situations like that.”

EPR Squared’s idea is to create a real estate interest on the property and have it be a separate interest from the improvements and from the land. It is similar to agreements with property owners for cell tower and billboards, though, Pawlik stressed, the solar legal structure is not identical. DLA Piper, which Pawlik called “the gold-standard, top-tier law firm” for commercial real estate, “has finalized the form documents we need to take to the owners to show them how this structure would work.”

EPR2 has “a dozen or so deals in the pipeline with groups that have either portfolios of properties or single properties,” Pawlik said. The first deal, he explained, must be one that demonstrates to the 60,000 California real estate brokers, agents and mortgaging agents that “this is almost identical to a real estate transaction.” When they see commissions in it for themselves, he said, “we can really scale the idea and bring it to a size at which pension funds and insurance companies will start looking at it.”

 

Source: Commercial Source