APPROACH AND METHODOLOGY
NRDC, JCI, JLL, and Goldman Sachs, together with project partners Greenprint Foundation, Vornado Realty Trust, Malkin Holdings and YR&G will identify and work directly with a diverse group of 12-15 major tenants who are executing new leases (or renewing existing leases) to help them incorporate high performance measures into the initial build-out (or, in the case of renewals, the retrofit) of their leased premises, and track the savings from those measures. The goal of this work is to develop replicable, scalable processes for the design and installation of high performance tenant improvements, and to document and commercialize the business case for doing so. The Project partners will all work to source tenants to participate in the Demonstration Project.
For each participating tenant installation, the Project team will:
- Work with the tenant during design phase to suggest potential green, indoor environmental quality and energy efficient measures, providing ROI and payback period analyses;
- Develop a baseline energy usage model and cost estimate for hypothetical BAU code-compliant build-out;
- Apply best practices for (i) measurement and verification of energy savings produced by the Energy Conservation Measures (ECMs), utilizing continuous commissioning to optimize savings; and (ii) tracking employee retention, health and productivity gains from incorporating superior Indoor Environmental Quality (IEQ) measures;
- Work with property owners, where possible, to pursue an integrated building approach to incorporate a high performance retrofit of the building's central systems;
- Develop replicable financing mechanisms to fund the capital costs of green build-outs/retrofits where applicable;
- Produce case studies showcasing economic and environmental returns from the green measures, and in the case of build-outs undertaken in high performance buildings, quantify and emphasize the added economic benefit that flows through to the tenant from the building's more efficient central systems;
- Develop an aggressive marketing strategy to commercialize the business case for retrofits based on the project results; and
- Document job hours applicable to the build-outs.
We are also announcing several new participating demonstration projects:
1. Integrated tenant build-out and whole building retrofit project: JLL tenant space in building owned by Vornado at 330 Madison Avenue in New York, NY;
2. Li&Fung (USA) multi-floor tenant space build-out in the Empire State Building, New York, NY;
3. Bloomberg LP 400,000 square foot multi-floor tenant space build-out at 120 Park Avenue, New York, NY; and
4. Linked-In tenant space retrofit/build-out in the Empire State Building in New York, NY.
Each of the implementing partners will have particular responsibilities, as outlined below:
Natural Resources Defense Council will convene relevant parties to design, negotiate, implement, and finance efficiency retrofits as part of a new lease execution or lease renewal and provide guidance on the implementation of 'energy aligned lease' provisions to align the costs and benefits of the retrofits between landlord and tenants. NRDC will further assist in ensuring robust and transparent measurement, verification, and reporting of energy savings from the demonstration projects, and showcase the demonstration projects through case studies - highlighting the quantifiable energy savings, associated ROI, and other benefits achieved both by tenants and by building owners as well as the processes used to achieve these savings. NRDC will also assist with possible integration of demonstration projects with credit enhancement facilities that will be provided by New York City Energy Efficiency Corporation.
Johnson Controls will provide technical analysis in the modeling of tenant and building baseline energy consumption in comparison to the expected energy performance of minimum code compliant tenant space, as well as support the tracking, management and reporting of actual energy performance post-build out. JCI will also help establish a replicable process and associated marketing materials to assist a broad range of tenants to build out their leased space in a high performance manner, and will assist with the design and implementation of data collection methodology for the demonstration projects' monitoring and evaluation protocol, to ensure transparent and comparable performance tracking.
Jones Lang & LaSalle will provide guidance on specific measures that should be assessed during design of tenant build-outs to maximize efficiency, IEQ, and ROI, and will work with JCI on development of technologies that will support tenants' ability to measure and monitor their post build-out energy usage. The Company will also assist in the development of materials that will enable a broad range of tenant facility managers and C-level executives to understand the process and economic opportunity for high performance build outs. Finally, JLL will identify potential major tenants from their portfolio that would be interested in participating in the demonstration projects, and attempt to identify particular buildings in their portfolio that have recently undergone a major tenant build-out incorporating ECMs and superior IEQ principles that would be good candidates to be showcased in historical case studies.
Vornado will identify buildings in their portfolio that would be suitable candidates for an integrated retrofit demonstration project (i.e., buildings with a manageable number of tenants, with expected rollover/new lease of major tenant space, and core systems that would benefit from efficiency upgrades) and design and execute an integrated building retrofit project in one or more of these buildings. Vornado will also identify potential major tenants from its portfolio that might be interested in participating in demonstration projects.
Malkin Holdings will enforce tenant installation guidelines that work with new tenants in its portfolio to facilitate the construction of energy efficient installations, and will request that they participate in demonstration projects to track their performance. Based upon its market-leading energy efficiency retrofit and ongoing management practices at the Empire State Building, Malkin Holdings will provide data and advice to the project team to help demonstrate that these high performance tenant build-outs work together with the ongoing retrofitting of Malkin Holdings' buildings' central systems to enable best-of-kind energy management and leasing practices, and enhance these tenants' economic return from their investment in high performance measures.
Goldman Sachs will provide key financial support to enable NRDC's role in the project, and will advise on project structure, parameters and strategy. The company will also help assess potential financing mechanisms for demonstration projects, based upon the specific characteristics of the respective projects, and help identify potential capital sources to fund these financing mechanisms.
Greenprint Foundation will assist with the design of data collection methodology for the demonstration projects' M&V protocols, integrating these with existing Greenprint data collection and reporting procedures. Greenprint will also participate in the development of case studies and other publication materials and disseminate these throughout their membership while working with their members in the real estate community to identify potential demonstration projects.
YR&G will assist in the development of materials that support a broad range of designers, tenant facility managers and C-level executives in their respective understanding of the process and opportunity for high performance build-outs.
The Rockefeller Foundation will both act as an advisor to the demonstration project and provide key financial support to enable NRDC's role in the project.
IMPLEMENTATION, TIMELINE AND DELIVERABLES
The Project will extend over three years (2011-2014) and have three distinct phases: (1) identification and commitment of demonstration projects; (2) design and execution of build-outs and retrofits; and (3) measurement, verification and publication of results. As the demonstration build-outs will be staggered over the full Project period, these three phases will overlap with respect to various build-outs. Accordingly, the following is at best a rough estimate of timing for milestones and deliverables.
September 20, 2011:
1. Identification and Commitment of first four demonstration projects: (i) integrated building project - Jones Lang LaSalle tenant space build-out, in conjunction with base building system retrofit of Vornado building located at 330 Madison Avenue, NY; (ii) Li & Fung (USA) multi-floor tenant space build out in Empire State Building; (iii) Bloomberg LP multi-floor tenant space build-out at 120 Park Avenue, NY; and (iv) LinkedIn single floor tenant space retrofit/build-out in Empire State Building.
2. Develop template for historical case studies.
June 30, 2012:
1. Develop a template for case studies.
2. Implement demonstration project processes with respect to the four initial build-outs identified above.
3. Agree on the metrics for tracking energy and cost savings.
4. Utilize CGI platform (as well as the Project partners' respective networks) to source additional (second phase) potential tenant build-out participants and integrated building retrofit opportunities: target at least 4 additional projects, 1 of which would ideally be an integrated building retrofit. Commence work on second phase projects.
5. Complete case studies for at least two existing tenants efficiency fit-out success stories ('historical case studies').
June 30, 2013:
1. First phase projects: build-out completed; M&V systems established and deployed; case studies at least 30% complete.
2. Identification, commitment and substantial engagement of second phase build-out projects (target - at least 3).
3. Develop an agreed upon methodology and strategy for measuring performance of the initial projects.
4. Disseminate 'how-to guide' and additional information resources for tenant build-outs.
June 30, 2014:
1. Second Phase projects [3-5]: build-out completed; M&V systems established and deployed.
2. Case studies completed for first phase projects.
3. Develop the communications materials and a strategy to showcase the project successes.
4. Continue working with the demonstration project team to showcase results.
5. Complete implementation of all tenant build-out projects and case studies.
The commercial office sector is an intensive energy user and producer of carbon emissions. According to New York City's PlaNYC 2030, roughly 85 percent of the US buildings projected to exist in 2050 already exist today. Given this and the fact that the technologies needed to install energy efficient improvements currently exist, green retrofits represent one of the quickest, most cost effective and best opportunities to address climate change.
Scaling deep energy efficiency gains in commercial buildings will have tremendous value from both from an economic and environmental perspective, creating energy savings, green jobs, and reducing global warming pollution. This will require a staged approach - a series of energy retrofits over time, integrated into each building's capital plan. Achieving this level of energy savings from multi-tenant office buildings demands an integrated approach between owners and tenants. According to major property owners, approximately 50 to 70 percent of the energy used in a multitenant office building is consumed by tenants within their leased premises, and therefore making these spaces highly efficient is an important goal in and of itself. But tenant demand can also play a crucial role in driving building owners to undertake green retrofits of their buildings' central systems (e.g., building envelope, HVAC central plant, elevators, and common area lighting). This collaborative approach is hindered by the high upfront cost and, in many cases, the 'split incentive' issue: the costs and benefits of energy efficiency retrofits are often misaligned - the initial capital cost of a retrofit is borne by the landlord, while the resulting energy savings flow through to the tenants. As a result, landlords have little incentive to install the retrofits in the first place. Further, neither the process nor the business case of making core building green retrofits and high performance tenant space build-outs is clearly understood or readily accessible to owners and tenants.
NRDC, the New York City Mayor's Office of Long Term Planning and Sustainability, and the Washington DC Downtown Business Improvement District made a related commitment at CGI America to help increase market demand for cost-effective energy efficiency retrofits in the commercial office sector by engaging a group of major commercial property owners, tenants, and managers to collaborate with each other during lease negotiations. The goal of that commitment is to persuade major owners and tenants in New York and Washington DC to focus on energy efficiency at the point of lease negotiation, in part by implementing energy-aligned lease provisions (or similar language) to address the split incentive. Empire State Building LLC-Malkin Holdings, Vornado, RREEF, JLL, JCI, Bloomberg LP, Citi, Deutsche Bank and others have already signed on to this engagement. The Center for American Progress, CERES, Greenprint, and the US Green Building Council have agreed to support the committing partners in recruiting additional owners and tenants to engage.
For both owners and tenants the value proposition for high performance retrofits and build-outs goes beyond the resulting energy savings:
- for tenants, energy savings can be compounded by productivity gains, improved employee attraction and retention, and documentable progress toward corporate social responsibility goals;
- for owners, energy efficient central systems and advanced, transparent energy management systems will not only result in energy savings, but will help attract and retain high profile tenants, thereby increasing occupancy and enhancing overall asset value.
The current stage of the real estate cycle presents a great opportunity to recruit Project participants, as a significant amount of leased space is approaching expiration within the next five years in New York, Washington DC, and many other major metropolitan areas.
While there have been many efforts to understand the energy and cost data behind efficiency upgrades, there is no comprehensive repository that the market can draw from to learn the details of the business case and the process of implementing efficiency for all players (owners, tenants, financial institutions) - a gap that this project aims to overcome.
By making the process and value proposition of green build-outs accessible to tenants, the Project will increase tenant demand for these installations. Tenants seeking to incorporate green measures in a new build-out will favor buildings where efficient central systems and transparent energy management practices serve to maximize the economic benefits that accrue to those tenants through execution of their high performance build-outs. This heightened tenant demand will drive owners to invest in central system retrofits and energy management systems, in order to increase occupancy and enhance asset value. The growth of this market will lead to an increase in new job creation in the sector, not only in the physical construction of the build-out, but in related areas such as financing of the retrofits and ongoing monitoring and verification efforts in the space.