Existing Buildings Hold the Key

The new construction of high-performance green buildings gets the lion’s share of attention in the United States when building experts discuss building trends, solutions for climate change and the impact that diminishing natural resources have on building materials and operational costs.

It is existing buildings, however, that need to be at the heart of the conversation and action plan to reduce greenhouse gases, conserve natural resources and make buildings (and thus people) healthier while contributing to the company’s competitive advantage. Unlike new construction, existing buildings not only produce cost savings, but can create quantifiable sav­ings streams to fund this necessary transformation of the existing commercial building stock.

Why Buildings?

With all the attention being paid to vehicles, it is a surprise to many that buildings are the biggest pro­ducers of greenhouse gases. The U.S. Department of Energy reports that the commercial-built environment produces 48 percent of the nation’s greenhouse gases annually, while transportation produces 27 percent. Seventy-six percent of all electricity generated by power plants is used to operate buildings. While it is important that cleaner and more efficient transportation options meet the market’s demand, buildings require even more attention if energy costs and climate change are to be managed for the sake of the economy and the environ­ment, which impact us all sooner or later.

Why Existing Buildings?

The most recent data published by the U.S. Depart­ment of Energy reports that, as of 2003, existing buildings in the United States numbered 4.9 million, while new building projects totaled just 57,000. That means new construction each year only adds roughly 1 percent to the U.S. building stock. Since the aver­age commercial building in the United States has an estimated life of 40 years, even governmental regula­tions requiring that all new buildings be constructed to green specifications will not move the commercial building stock as a whole to cleaner and greener existence until well past 2048.

-Consume almost 40 percent of all energy.

-Use 12 percent of all freshwater and 88 percent of all potable water.

-Take up to 40 percent of the municipal solid waste stream.

-Use 40 percent of all wood and other raw materials.

-Exploit significant amounts of land at 2 acres per minute (19,000 square miles from 1982 to 1992).

Existing buildings’ collective environmental footprint is enormous. However, the benefit of reducing each indi­vidual building’s impact on the environment is coupled with the opportunity for the building owner to cut costs.

The Economic Incentive

The economic incentive behind greening existing build­ings is based on the revenue streams that can be gener­ated. For example, before getting started on a green building project, a real-time, life-cycle cost analysis of the building can be done that will show exactly where the project can create and deliver real efficiencies and dollar savings. Conventional wisdom suggests that the construction costs of a building will pale in contrast to the costs to operate a building during its existence.

Understanding that energy and operations account for approximately 75 percent of a building’s costs over its lifetime, whereas design and construction costs are 11 percent and financing is approximately 14 percent in that same time frame, it’s clear why existing buildings make perfect candidates for a green retrofit.

The process of retrofitting an existing building to make it a high-performance green building is the first step. Ensuring that the building is now operating as expected is the second, and arguably, the most critical step. In a typical office building, energy use accounts for 30 percent of operating costs, the largest single category of controllable costs. If you can upgrade equipment and day-to-day operations to reduce those costs, you not only save money, but you reduce the amount of green­house gases spewed by the local power plant, which in turn conserves a natural resource, such as coal.

Although high-performance green buildings have the reputation of costing more, they don’t have to be more costly. Data continues to be collected as to the costs of greening a building. Some products and services might be more expensive initially, but the savings over time are compelling.

Johnson Controls, an industry leader in retrofitting existing buildings and delivering efficiencies and dol­lar savings, has developed a guideline for the saving streams that can be generated from green existing buildings. Although these figures vary, depending on a building’s size, type, use and location, savings streams from 5 cents to 15 cents per square foot per year are not atypical.

After the 1 million-square-foot National Geographic building in Washington, D.C., was retrofitted in 2003, it recorded a savings of 60 cents per square foot, or a $600,000 savings annually.

After completing renovations in 2005, Johnson Controls delivered a savings of 75 cents per square foot on its own 440,000-square-foot downtown Mil­waukee facility, for an annual savings of $333,000.

Some savings streams can pay back in less than six months, such as recycling and other waste manage­ment practices. Water efficiencies can show paybacks in less than two years. Traditional energy and light­ing upgrades will pay back within two to 10 years; renewable energy technologies take longer, but those payback periods are decreasing as better technology is developed and incentives become more plentiful.

To most people, the business case for high performance green buildings has been made and is difficult to dispute. The questions that now need to be answered are: “How do you harvest these savings?” and, “How do you get it done?” Capital projects for most of the private sector have historically been undertaken by an investment of available cash or by borrowing the money. A third option that’s gaining popularity is performance contracting, specifically green performance contracting.

Public entities, including school districts and municipali­ties, have been using this model to improve their physi­cal assets for the past 25 years, because it allows them to plan for the long term. It is also the only way things can usually get accomplished, because of the laws that govern publicly funded projects and time limits for bud­get commitments. But now, more organizations outside the public sector are looking to green performance contracting to start greening their existing buildings.

Green Performance Contracting

Existing buildings can be turned into high-performance green buildings through green performance contract­ing, a mechanism to implement capital improvement projects funded through operational budgets. Projects are typically done with little or no upfront capital, and the costs and savings are guaranteed.

Traditional performance contracting addresses energy issues and nothing else. Although energy efficiency is critical in creating a high-performance building and will deliver a revenue stream to a building’s owner, it doesn’t address the entire footprint of a building. It only speaks to two-thirds of the potential savings in a building.

Green performance contracting installs the same energy-efficiency solutions as traditional performance contracting, but adds water efficiency, green housekeep­ing, renewable energy, waste management and green purchasing policies. Green performance contracting saves money through reduced energy use and lower facility operating costs. The savings then pay for the im­provements. Another benefit of a performance contract is that the savings are guaranteed and performance risk for the owner is eliminated. In addition, the building owner has cost predictability for the life of the contract.

Green performance contracting saves money through reduced energy use and lower facility operating costs. The savings then pay for the improvements.

Existing buildings’ collective environmental footprint is enormous. However, the benefit of reducing each indi­vidual building’s impact on the environment is coupled with the opportunity for the building owner to cut costs.

The Economic Incentive

The economic incentive behind greening existing build­ings is based on the revenue streams that can be gener­ated. For example, before getting started on a green building project, a real-time, life-cycle cost analysis of the building can be done that will show exactly where the project can create and deliver real efficiencies and dollar savings. Conventional wisdom suggests that the construction costs of a building will pale in contrast to the costs to operate a building during its existence.

Understanding that energy and operations account for approximately 75 percent of a building’s costs over its lifetime, whereas design and construction costs are 11 percent and financing is approximately 14 percent in that same time frame, it’s clear why existing buildings make perfect candidates for a green retrofit.

The process of retrofitting an existing building to make it a high-performance green building is the first step. Ensuring that the building is now operating as expected is the second, and arguably, the most critical step.

In a typical office building, energy use accounts for 30 percent of operating costs, the largest single category of controllable costs. If you can upgrade equipment and day-to-day operations to reduce those costs, you not only save money, but you reduce the amount of green­house gases spewed by the local power plant, which in turn conserves a natural resource, such as coal.

Although high-performance green buildings have the reputation of costing more, they don’t have to be more costly. Data continues to be collected as to the costs of greening a building. Some products and services might be more expensive initially, but the savings over time are compelling.

Johnson Controls, an industry leader in retrofitting existing buildings and delivering efficiencies and dol­lar savings, has developed a guideline for the saving streams that can be generated from green existing buildings. Although these figures vary, depending on a building’s size, type, use and location, savings streams from 5 cents to 15 cents per square foot per year are not atypical.

After the 1 million-square-foot National Geographic building in Washington, D.C., was retrofitted in 2003, it recorded a savings of 60 cents per square foot, or a $600,000 savings annually. After completing renovations in 2005, Johnson Controls delivered a savings of 75 cents per square foot on its own 440,000-square-foot downtown Mil­waukee facility, for an annual savings of $333,000.

Some savings streams can pay back in less than six months, such as recycling and other waste manage­ment practices. Water efficiencies can show paybacks in less than two years. Traditional energy and light­ing upgrades will pay back within two to 10 years; renewable energy technologies take longer, but those payback periods are decreasing as better technology is developed and incentives become more plentiful.

To most people, the business case for high performance green buildings has been made and is difficult to dispute. The questions that now need to be answered are: “How do you harvest these savings?” and, “How do you get it done?” Capital projects for most of the private sector have historically been undertaken by an investment of available cash or by borrowing the money. A third option that’s gaining popularity is performance contracting, specifically green performance contracting.

Public entities, including school districts and municipali­ties, have been using this model to improve their physi­cal assets for the past 25 years, because it allows them to plan for the long term. It is also the only way things can usually get accomplished, because of the laws that govern publicly funded projects and time limits for bud­get commitments. But now, more organizations outside the public sector are looking to green performance contracting to start greening their existing buildings.

Green Performance Contracting

Existing buildings can be turned into high-performance green buildings through green performance contract­ing, a mechanism to implement capital improvement projects funded through operational budgets. Projects are typically done with little or no upfront capital, and the costs and savings are guaranteed.

Traditional performance contracting addresses energy issues and nothing else. Although energy efficiency is critical in creating a high-performance building and will deliver a revenue stream to a building’s owner, it doesn’t address the entire footprint of a building. It only speaks to two-thirds of the potential savings in a building.

Green performance contracting installs the same energy-efficiency solutions as traditional performance contracting, but adds water efficiency, green housekeep­ing, renewable energy, waste management and green purchasing policies. Green performance contracting saves money through reduced energy use and lower facility operating costs. The savings then pay for the im­provements. Another benefit of a performance contract is that the savings are guaranteed and performance risk for the owner is eliminated. In addition, the building owner has cost predictability for the life of the contract.

Green performance contracting saves money through reduced energy use and lower facility operating costs. The savings then pay for the improvements.

Making an existing building more efficient and sustain­able means the value of the building also may increase. The National Geographic Society invested $6 million in its green retrofit and increased its real estate value by $24 million, which equals a $4 return for every dollar invested. For any building, this type of return can im­prove equity, credit ratings and debt-borrowing capacity. Making this investment also embodies the Geographic Society’s commitment to its mission of nature conserva­tion, which benefits the organization’s relationship with donors, employees, the public and its brand.

Turning an existing building into one that is high performing and green delivers an array of benefits that not only reward the building owner, but a host of other stakeholders. How often can one project contribute to a reduction in greenhouse gases, conserve natural resources, and make building occupants healthier and more productive, while positively contributing to the company’s bottom line and its competitive advantage? It is not too good to be true: It is sustainability.

*Footnotes