by Jodi Summers
Let’s talk about this gifted generation of Americans – called Echo Boomers, due to the significant increase in birth rates during the 1980s and into the 1990s and / or Millennials because they came of age in the new millennium. They are well-educated, enterprising and have had the bejesus scared out of them by the recession. Success is important to them – thus their office needs are important.
Have you noticed the architecture at our own Silicon Beach? Cutting edge companies like Google, Yahoo and Red Bull offer a combination of interior and exterior workspace..the interior being punctuated by open floor plans. Individual offices with walls and doors are at a bare minimum.
“It’s not just the Googles of the world anymore—it’s law firms, big real estate firms and different kinds of companies,” observes Steven Heller, an attorney with Gilchrist & Rutter PC in Santa Monica. “More creative space is permeating out as traditional businesses understand the benefits to having offices with communal space. It can be more efficient for their business because there’s a lot more collaboration going on.”
“These changes raise a host of land use and leasing issues for the industry,” Heller continues, “Building investors and operators must evaluate lease provisions carefully so that they are calibrated to appropriately accommodate and adjust to the changing use of office space.”
Possible creative-space concern for building owners is when tenants become too creative and design the office in such a way that it could have limited appeal to future tenants. Would a jungle gym become a fixture?
And what of parking? Should it still be one parking space per 500 square feet of office?
More employees can fit into the open-office layout, offers attorney Elisa Paster, also with Gilchrist & Rutter PC. “One the one hand, more people occupying a single space creates a greater parking demand. But at the same time, parking burden is relieved by telecommuting, alternate work schedules and increased use of public transportation. Building operators need to act proactively to make sure these changing uses match with municipal requirements.”
Welcome to the next generation of office space.
by Jodi Summers
Environmentally conscious real estate leases faster and at better terms than traditional buildings, yet it is extremely difficult for property owners to finance green upgrades. A recent McGraw-Hill survey concluded that building owners looking for finances to pay for energy retrofits for their properties are often are forced to rely on their personal resources rather than outside funding.
Granted, there are some options green loans, but the routes are not traditional. The government and utility companies are doing their share to facilitate green loans. Out of the box choices may include ESCO (energy service company) financing, energy service agreements, government loan programs, PACE (property assessed clean energy) programs, and on-bill utility financing.
Richard L. Kauffman, senior advisor to the secretary, Department of Energy suggests that owners should be look to capital market investors, state bonds, local banks and government incentives to generate the necessary capital for individual green improvements to their existing commercial buildings.
If you want to try the traditional route, instead of asking the bank for a green loan, try rolling the cost of energy efficient improvements into a building retrofit or renovation. This is an easy way to sidestep lenders’ reluctance to loan on green improvements as a stand-alone investment.
The issue at hand many banks is that green lending is a new thing. They have yet to assimilate green loans in into their underwriting programs…which may require years of data for evaluating risk and assessing the long-term financial impact from green investments.
Research and statistics show that Energy Star and LEED-certified buildings can attract higher rents and generate increased demand from tenants < and that a green property can garner a better lease rates and higher sales price. Lenders aren’t persuaded by research. They want empirical data on risks, and actual cost vs. performance data, not just assurances of what a new technology is expected to deliver.
By Jodi Summers
Heads up to the accounting department > you may think your company has a green policy, but many businesses are missing key green financial opportunities. The reason? A lack of communication / collaboration between tax and sustainability departments.
Here’s the rub > 28% of tax directors believe their company has a sustainability strategy or is developing one, compared to 90% of CSOs recently surveyed by Ernst & Young LLP. Get on it before you CEO finds out. Think RSIO > Reduce, Switch, Innovate, Offset
“Reducing energy consumption and carbon emissions, switching to alternative energy and fuel sources, innovating for cleaner technologies and offsetting carbon emissions – all of these efforts have tax considerations,” said Paul Naumoff, Global and Americas Leader of Climate Change and Sustainability Services and CleanTech Tax Services. “Companies with tax departments that aren’t taking sustainability efforts into account are missing an opportunity.”
Apparently, many businesses are leaving green of money saving opportunities on the table. Only 16% of companies with an environmental sustainability strategy have their finance departments actively involved, according to the Ernst & Young survey titled “Working Together: Linking sustainability and tax to reduce the cost of implementing sustainability initiatives.” The survey featured responses from 223 senior executives at companies. Of the survey respondents, 19% were Chief Sustainability Officer (CSOs), while 81% were tax directors or their equivalent.
All cushy with their positions, employees are not keeping up to speed with state and local green incentives, as more than 37% of survey respondents are unaware of incentives for sustainability initiatives. Sure, more than 80% of finance department are aware of federal tax deductions for energy efficient buildings and incentives for renewable energy, but when it came to state tax credits and incentives, awareness levels hovered around 50%…and a meager 17% noted that their companies actually use available green incentives. In other words, companies are spending a lot more money than they need to spend.
Ernst & Young LLP notes that a company can effectively internally communicate sustainability initiatives and identify incentive opportunities throughout the organization by framing the discussion in broad categories:
· Reduce consumption of natural resources and carbon emissions.
- Switch to alternative energy and fuel sources.
- Innovate and develop new clean technology and less carbon-intensive or lower-emitting products and services to meet the demands of the transforming economy.
- Offset carbon emissions.
Opening up a corporate dialogue using RSIO framework allows companies to better identify incentives and tax credit opportunities related to their sustainability initiatives > improving their return on investment.
Some national examples of incentives include:
· Federal: IRC Section 179D: An energy efficiency tax deduction for commercial buildings can help reduce the cost of green building strategies and help building owners minimize energy consumption and improve energy efficiency.
- LEED Buildings: Businesses can make use of the framework provided by the Leadership in Energy and Environmental Design (LEED) to achieve specific environmental sustainability metrics in their building construction. LEED incentives are currently offered by 5 states, 18 counties and over 69 cities and towns. These include property tax abatements, income tax credits, and non-monetary benefits such as expedited permitting.
· Federal: IRC Section 45 & 48: For facilities that produce and sell electricity generated from certain renewable resources, Section 45 provides an annual credit per kilowatt hour of energy sold to an unrelated person or company for each of the first 10 years of operation of a renewable energy facility.
· Federal: The U.S. Department of Energy’s (DOE) Funding Opportunity Announcements: DOE provides grants for energy efficiency and renewable energy projects.
· Companies looking to invest in developing countries can leverage Clean Development Mechanisms (CDMs), which, as defined in the Kyoto Protocol, allow companies to invest in projects in developing countries that can be shown to measurably reduce greenhouse gas emissions. After a CDM project has been implemented, project participants receive Carbon Emission Reduction (CER) credits. Companies in industrialized countries can credit the CERs earned through their investments in CDM projects toward their emission targets, sell their CERs to buyers in other industrialized countries or trade them on global carbon markets.
In California, check with Sacramento and local governments to find benefits specific to our area. Sites like www.ey.com/climatechange are a recommended place to start.
The Los Angeles office real estate market is still unimpressive, but, believe it or not, we’ve got it better than most, thanks to our focus on green and technology.
“The energy and the tech-driven markets are the clear standouts right now. It has become a reoccurring theme that markets in Texas and California are leading the nation in most demand and rent growth metrics,” supports Kevin Thorpe, Cassidy Turley’s chief economist.
While San Francisco led the country in rent growth compared to a year-ago, Los Angeles ranked in the top 10 markets, along with San Jose, Seattle, Austin, Denver, Miami, Orlando and Raleigh, NC. Overall, the West region led the way with the largest amount of new net demand, followed by the South, then the Midwest and the Northeast, respectively. Nationwide, nearly one third of markets reporting an uptick in sales.
“We are at a point where there is healthy job creation, but over 50% of the jobs created in recent months using office space were temp jobs,” shares Thorpe. “These jobs don’t move the needle immediately for the office sector, but they do set the stage for much stronger demand numbers down the road.”
Export statistics note that U.S. office rents hit bottom at the end of 2010. But given that there are still high vacancy levels, lease rates are not expected to increase anytime soon. It’s anticipated that office asking will increase by approximately 1% this year.
“Overall, the first quarter presented a mixed bag of results and expectations for the rest of the year,” notes John Sikaitis, senior vice president of research at Jones Lang LaSalle. “While the recovery slowed during the quarter, it remains intact.”
Technology expansion and startup activity gained momentum in almost every market with prospects for growth. Additionally, energy-heavy markets posted some of the largest leases and witnessed sales momentum and speculative new construction.
“Looking ahead to the remainder of 2012, markets will continue to recover, and in some cases contract, at different rates of speed,” observes Sikaitis. “Overall rents across most markets will grow, but at slow and measured paces unless some significant cushion of technology or energy pockets exist.”
We evolve and we learn. When it comes to building efficiency, we are advancing at warp speed. The Department of Energy has revealed that buildings meeting the new 2010 energy efficiency standard will conserve 18.5% more energy than structures using the previous 2007 DOE standard. It’s like making the jump to hyperspace.
The DOE did some pretty serious study to come up with the new codes. For its findings, DOE simulated 16 representative building types in 15 U.S. climate locations. In addition, they analyzed the energy codes published by the American National Standards Institute/American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) and the Illuminating Engineering Society of North America.
The evolved 2010 standard covers a wide spectrum of the energy-related components and systems in buildings ranging from simple storage units to complex energy usage locations like hospitals and laboratories. The size of the structures also ranged from under 1,000 square feet to the largest buildings in the world.
States are expected to review Standard 90.1, Energy Standard for Buildings and update their building code to meet or exceed the energy efficiency of the new standard within two years. Certification statements by the states are due October 18, 2013.
California requires our state-developed commercial code the 2008 Building Energy Efficiency Standards, comprising Title 24, Parts 1 and 6, of the California Code of Regulations.
The DOE boasts that the newer version of the standard contains 19 positive impacts on energy efficiency. Among the modifications are new requirements for daylighting controls under skylights; increased use of heat recovery; cool roofs in hot climates; skylights and daylighting in some building types; reduced ventilation energy; supply air temperature reset for non-peak conditions; efficiency requirements for data centers; control of exterior lighting; and occupancy sensors for many specific applications.
Over a 20-year span, green buildings can $53 to $71 per square foot back on investment. LEED and Energy Star certified buildings achieve significantly higher rents, sale prices and occupancy rates as well as lower capitalization rates potentially reflecting lower investment risk…and green buildings make the world a better place.
We all need to live greener. Here are some innovative, inexpensive approaches to greening your real estate:
1. Start with a clean slate. Instead of reducing consumption, start with nothing and justify how much energy you actually need. Do you need to install a high-efficiency air conditioner or are you able to retrofit the building so effectively that it doesn’t need air conditioning? Limbo, limbo, limbo how low can you go should your approach to building energy performance.
2. Mind the Gaps. Air infiltration grows with time. Check the weather-stripping at doors and windows and seal those cracks. Don’t know where to start? Get a building energy audit (through your utility) with infrared imaging to show exactly where the heat is escaping. You will be surprised at what you see.
3. Simple task, big saving. Install light switches with built-in occupancy and/or daylight sensors in every room. Buy task lamps so employees have spot lighting as needed. Create a lighting landscape; you’ll realize you probably need only half the level of ambient lighting you’re using. And if your HVAC system isn’t programmed, that is a 21st century must-have for homes and commercial buildings.
4. Retro Fits. Retro-commissioning applies a quality assurance process “retroactively” – to an existing building. It consists of investigating how and why a building’s systems are operated and maintained and identifying ways to improve overall
5. Community Green. Support energy efficiency financing programs in your community, and chamber of commerce. New programs may include third-party businesses paying for efficiency upgrades through your property taxes (PACE) and “on bill” through your utility. Properties greened through these programs produce predictable, replicable and relatively low-risk value in energy efficiency.
6. Golden State. California is the Golden State, clear up the window clutter and let the sun shine in. Perhaps a little selective demolition to open up the work areas, improves the space plan, and let the sun shine in. An easy fix > a fresh coat of light-colored paint and replace those depressing yellowed ceiling panels. Watch your employees get more enthusiastic about coming to work.
7. Film your windows. Window films have transformed in the past decade. Gone are the tinted sun shades. New retrofit films are practically clear and achieve nearly 50% heat rejection – both inside and outside, depending on the season. Combine this with sealing and retrofitting your windows for exceptional performance.
8. Ducts + seals. We’re not talking wildlife here. Recent studies indicate that leaking ductwork is one of the primary construction defects in both commercial and residential buildings, with common repercussions resulting in 10-25% leakage in commercial buildings and ridiculously more in homes. Do yourself a fever and check existing ductwork for leakage. A number of terrific elastomeric products are available for addressing this.
9. Made in the shade. Add awnings, trees, green roofs. In Southern California we need to do what we can to cool our buildings. Indirect lighting is much more effective than the sun streaming through your afternoon energy.
10. Congratulate yourself. Human behavior has a huge impact on energy efficiency. Studies suggest people influence building energy consumption between 12-17%. Create a green team, install a real-time energy and water consumption display, monitor every aspect of the building’s performance and reward facilities staff for great management.
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