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Prepared by: Daniele Horton, LEED AP + O&M, CEM, MDes, Assoc. AIA Founder & Principal Verdani Partners February 2014 Corporate Sustainability Business Case

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© 2013 Verdani, LLC

Prepared by: Daniele Horton,LEED AP + O&M, CEM, MDes, Assoc. AIAFounder & PrincipalVerdani Partners

February 2014

Corporate SustainabilityBusiness Case

© 2013 Verdani, LLC

Table of Contents

1. Introduction

2. Business Case

3. Strategic Sustainability Practices

4. Key Market Trends in Greening Existing Buildings

o Legislation & Codes

o Building Performance Ratings

o Tenant Engagement

o Technology

5. Case Studies

© 2013 Verdani, LLC

INTRODUCTION

Robust sustainability practices have been linked with enhanced purpose alignment, employee motivation, increased shareholder value, and higher competitiveness in the marketplace.

The importance of issues falling the umbrella of sustainability (i.e. energy efficiency, climate change resilience, and workplace health, safety and productivity) continues to grow and will play a vital role in the real estate sector now and in the future.

© 2013 Verdani, LLC

Sustainability or Bust: Why CFO’s can’t afford not to go greenLarge investors are starting to connect their capital to companies who focus on sustainability. Proactive owners and managers need to stay in front of the latest Environmental Social Governance trends to remain competitive and increase their bottom line.

Currently, there are a dizzying array of disclosure opportunities, and it is unclear which ones matter and how to participate.

The Global Real Estate Reporting Initiative is helping to define ongoing sustainability and make it a standard for investors to understand the sustainability practices of real estate owners.

© 2013 Verdani, LLC

• Carbon emissions need to be cut 80% by 2050

• US Buildings are responsible for 40% of CO2 emissions

• 98% percent of the nation's building stock is already built or near completion

• Biggest opportunity is in existing buildings

• Nearly 75% of US Commercial buildings is 20+ years old and need retrofits

• Building Retrofits are low cost, high payback investments

STATISTICSGreening Existing Buildings

© 2013 Verdani, LLC

There is simply no better example than what we’re seeing in Green Buildings

• REITs with above average energy efficiency performance, taken as a group, outperformed below average companies on stock price by nearly 2000 basis points (20%).

• Green Buildings in Portfolios of U.S. REITs: Most real estate investment trusts include green buildings in their portfolios. New indices being developed will help rate REITs according to how green their overall portfolios really are.

© 2013 Verdani, LLC

Hard Value Soft Value

8.5% Reduction in operating costs Market differentiation & reputation

6.8% Increase in building values Growing tenant demand and retentionand reduced turnover.

9.2% Increase in ROI Reduced obsolescence

6.4% Increased occupancy Lower energy cost risk

6.2% Increases in rent Increase in regulations

Healthier Buildings

Lower liability and risks

Its about the Sustainability of your organization Business benefits are the main drivers for green building retrofits

Source: McGrall Hill, Green Outlook 2011: Green Trends Driving Growth

© 2013 Verdani, LLC

The [design and construction phase] may take 2 to 5 years in a life cycle that may last a total of 45 to 50 years for a commercial building. This becomes significant because typically 30 to 40 percent of the total life-cycle costs for a facility occur in these first two phases and 60 to 70percent in the [operations] phase (in constant dollars).

Building operations last a lifetime!Design /

Construction

One time Event

Capital Budgets

First Cost

On-Going Process

Operating Budgets

Ongoing Costs

Operations (Life of Building)

30% - 40% 60% - 70% life cycle cost

Design / Construction

Source: National Institute of Standards and Technology

© 2013 Verdani, LLC

Drivers & Benefits of greening Existing BuildingsBenefits: • Lower operating expenses =

potential increase in NOI • lower insurance rates • lower vacancy levels • faster lease up, longer leases &

lower tenant churn• financial benefits of increased

employee productivity

Drivers• Marketability & Competitive edge • Government Incentives• Investor Demand • Cost Savings as Owner/Operator• Becoming the norm (obsolescence)• Good Business Practice & Enhanced

Reputation

• Enhanced Occupant comfort• Health • Controllability of systems• = increased productivity• Minimize strain on local

infrastructure• Contribute to overall quality of life

• Reduce natural resources consumption

• Reduce carbon emissions

• Improved air & water quality

• Reduce solid waste

Sustainability“Triple Bottom Line”

Environment Social

Economic

RegulationsIncentives

© 2013 Verdani, LLC

Key findings of the report include:

• Design and Construction Costs

• Asset Value

• Operating Costs

• Workplace Productivity and Health

• Risk Mitigation

Source: http://www.worldgbc.org/activities/business-case/

The business case for green buildingA Review of the Costs and Benefits for Developers, Investors and Occupants

© 2013 Verdani, LLC

Financial Performance of Green Buildings

© 2013 Verdani, LLC

Source: National Green Building Adoption Index, 2014 / CBRE, Maastricht University, Real Green

National Green Building Adoption Index / 2014

© 2013 Verdani, LLC

LEED for Existing Buildings: A Rising Star

185

21173

49167

0

10000

20000

30000

40000

50000

60000

Floor Area Forecast for LEED EB

(millions of square feet)

2009

2020

2030

Source: Rob Watson, Green Building Market and Impact Report 2009

• Exponential growth in EB market . In 2009-2010 half of all LEED certified space was certified in the LEED EB program

• The total new floor area of LEED EB registered/certified space exceeded all other rating systems combined

© 2013 Verdani, LLC

Average rents on all LEED EB versus non-LEED with renovations since 2005

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Rents Non LEED

Rents EBOM

Source: Norm Miller, Ph.D. – University of San Diego’s Burnham-Moores Center for Real Estate

© 2013 Verdani, LLC

July 2009LEED EBOM

Certified SILVER

April 2010 BOMA 360

May 2010 Energy Star

Label93

August 2011LEED CI

Certification forTenant Space

High performance existing building = ongoing improvement

“We are moving toward buildings as integrators. It’s no longer about a Certification at some point in time but about a timeline of activities. What means to be a high performance building is the ecosystem and collection of programs: Benchmarking, Energy Star, LEED Certifications and Awards.”Chris Pyke USGBC

May 2009Energy Star

Label 81

July 2013LEED EBOMRecertified

GOLD

© 2013 Verdani, LLC

State of the market• Despite the economic conditions, 2012 & 2013 continued to see growth for

sustainable buildings.

• Even better, the green building market is projected to exceed $200 billion by 2016.

• the McGraw-Hill trends report found that the top reason given for green building was the push from clients demanding lower operating costs. This is a shift from the trend in 2008 when the top reason reported was 'doing the right thing.'

• While both are valid, this is especially important in our view as it shows a shift in the market emphasis personal responsibility to value - something much harder to argue against.

© 2013 Verdani, LLC

Beyond First Costs…The Dollars and Cents of Green Building Investment and Valuation

Source: Norm Miller, Ph.D. – University of San Diego’s Burnham-Moores Center for Real Estate - Future Build LA Presentation – Oct 2009

Academic Study: “Does Green Payoff?”

• Looked at Performance of LEED, Energy Star Buildings Compared to Non-Green Buildings

• Used CoStar’s 4.0 Million Properties Database

• First Study on Revenue Impact of going Green as Opposed to the costs of Green.

• Results have been validated by other academic studies

© 2013 Verdani, LLC

Financial Returns from Green Building

Strong Payback Results• Average payback of 1.4 years, ROI of 73% in the first

year• All 25 projects demonstrated strong positive returns

across geographies and across levels of LEED certification

Green Premiums• Properties with green certifications demonstrate rental

rate premiums ranging from 3.7-6%• Premium values for energy-efficient real estate are

supported by strong occupant demand• Green rentals: supply of green buildings perceived to

be sub-optimal relative to demand

Business Benefits• Energy cost savings • Decrease in operating costs• Increase in ROI• Increase in overall occupancy• Rent increase

Source: Urban Land Institute, 2010, Retrofitting Office Buildings to be Green and Energy-Efficient: Optimizing Building Performance, Tenant Satisfaction, and Financial Return

© 2013 Verdani, LLC

Savings and ROI Associated with 25 LEED-Certified Retrofits

City State Energy Star Level SF Cost Cost PSF Savings Payback ROIWalnut Creek CA 89% Gold 249,391 $88,808 $0.36 $96,100 11 months 108%Los Angeles CA 98% Gold 317,058 $58,437 $0.18 $33,000 1.7 years 56%Atlanta GA 87% Gold 410,357 $116,812 $0.28 $89,000 1.3 years 76%Minneapolis MN 91% Gold 621,193 $191,130 $0.31 $186,238 1.01 years 97%Los Angeles CA 90% Silver 587,022 $71,700 $0.12 $55,000 1.3 years 77%Fort Lauderdale FL 92% Gold 261,676 $108,641 $0.42 $77,000 1.5 years 71%Los Angeles CA 84% Silver 137,369 $51,084 $0.37 $13,000 3.9 years 25%Charlotte NC 75% Silver 324,305 $53,777 $0.17 $60,000 9 months 112%Charlotte NC 75% Certified 298,371 $52,910 $0.18 $58,000 8.8 months 110%Denver CO 79% Certified 263,716 $108,097 $0.41 $102,750 1.05 years 95%Vienna VA 83% Silver 346,618 $53,700 $0.15 $32,000 1.6 yrs. 60%Atlanta GA 82% Silver 625,071 $91,520 $0.15 $50,000 1.8 years 55%Oakland CA 80% Silver 273,355 $59,033 $0.22 $25,000 2.3 years 42%Dallas TX 89% Silver 1,113,575 $291,136 $0.26 $237,400 1.4 years 82%Billerica MA 74% Certified 353,242 $54,281 $0.15 $35,000 1.5 years 64%Greenwood Village CO 78% Silver 317,218 $68,530 $0.22 $30,000 2.2 years 44%Greenwood Village CO 82% Silver 115,408 $47,885 $0.41 $10,000 4.7 years 21%Denver CO 78% Certified 150,673 $48,766 $0.32 $15,000 3.2 years 31%Chicago IL 85% Gold 800,000 $114,950 $0.14 $75,000 1.5 years 65%Atlanta GA 73% Certified 312,000 $72,990 $0.23 $31,000 2.3 years 42%Dallas TX 78% Certified 515,388 $64,460 $0.13 $50,000 1.2 years 78%Atlanta GA 73% Certified 670,000 $57,950 $0.09 $40,000 1.4 years 69%Atlanta GA 73% Certified 670,000 $78,110 $0.12 $40,000 1.9 years 51%Sacramento CA 78% Gold 336,104 $88,853 $0.26 $90,000 10 months 101%Denver CO 87% Silver 435,672 $67,821 $0.16 $40,000 1.6 years 59%

Avg. Sq. Feet

Avg. Cost

Avg. PSF Cost

Avg. Savings

Avg. Payback Yrs

Avg. ROI

420,191 $86,455.24 $0.21 $62,819.52 1.38 73%

Source: Urban Land Institute, 2010, Retrofitting Office Buildings to be Green and Energy-Efficient: Optimizing Building Performance, Tenant Satisfaction, and Financial Return

© 2013 Verdani, LLC

Investment Cost

$11MAnnual energy savings

$4.3MEnergy Reduction

37.5%

Investment Cost

$13.2MAnnual energy savings

$4.4MEnergy Reduction

38%

City National Plaza Empire State Building

Office Office

Los Angeles, CA New York, NY

3.2 Million GSF

2 (51) Story Towers

2.8 Million GSF

(102 Stories)

$11 M (Investment Cost) $13.2 M (Investment Cost)

$4.3 Million Annual

Energy Savings

$4.4 Million Annual

Energy Savings

37.5% Energy Reduction 38% Energy Reduction

Deep Retrofit Success Stories

Green Buildings Drive Value Creation

© 2013 Verdani, LLC

Increased Asset Value

LEED EBOM is an important process in driving improved asset value.

“The near future of commercial real estate will rest to a much greater extent in the hands of the facilities manager's ability to achieve green measures and LEED EBOM in their buildings. The increasing default rate and other macro-economic forces will favor buildings that have reduced operational costs and better retention. Both factors are achievable through LEED EBOM certification. Those owners that empower their facilities team to move forward quickly and effectively with LEED EBOM certification will reap the rewards.” Greg Reitz, Rethink Development Corp

Higher market value (or valuation)

Over time green building may providebetter terminal cap rates and interestrate credit from lenders

Annual Savings $1,454,264!

@ 8% Cap Rate

= $17,812,500 additional value

Cal/EPA Case Study

TPG developed Cal/EPA and has continued to successfully manage the day-to-day operations. Cal/EPA high efficiency measures saves over $1.4 million ($1.50 psf) annually in operating expenses.

© 2013 Verdani, LLC

STRATEGIC SUSTAINABILITY PRACTICES

© 2013 Verdani, LLC

There are three major forces driving increased investment in strategic corporate sustainability practices

The Business Case

NGO/Institutional and Individual

DemandImproved

Environmental Performance

Public Sector as Catalyst

Accountability Recognition

• Project-specific IRRs• Quantifiable productivity

gains• Demand for “Green” spaces• Direct cost savings effects

on bottom line: sustainable practices often increase cash flows, and asset values

• Enhanced reputation gains• Increased shareholder

value; reduced investment risk

Proj

ect

Org

aniza

tion

• CERES report on fiduciary responsibility

• Shareholder advocacy• Investor Network on Climate

Risk (INCR)• Third-Party collaborations

• Over 200 Federal voluntary programs related to corporate sustainability and voluntary environmental performance

• Sarbanes-Oxley• Awards and Recognition• GRESB• Municipal, State, Federal

legislation

Source: The Conference Board, 2005

© 2013 Verdani, LLC

Old Paradigm: Top management cares only about traditional contributions to shareholder value.

Conventional wisdom:

1. Mission of for-profit corporation is to maximize short-term profitability which generates cash flow and equity to fuel long-term viability (B-School 101)

2. CEOs are rated, rewarded, and reprimanded based on this single standard of performance

3. Some perverse results:• Obsession with short-term results• Manipulation of stock prices

Source: The Conference Board, 2005

© 2013 Verdani, LLC

New Paradigm: Improved environmental performance leads to improved shareholder value.

• Quality Management seeks sustainable sources of value

• More likely to come from intangible sources:- Enhanced brand and reputation- Improved supply chain management- Better trained and more committed employees

Benefits of beyond compliance activity Leaders Others

Corporate image 86% 56%

Access to communities 57% 27%

Operational efficiency 43% 41%

New business opportunities 43% 12%

Source: The Conference Board, 2005

© 2013 Verdani, LLC

… and Wall Street is paying attention.

Many types of risk can be prevented or mitigated through proactive environmental Management

• Mitigates investor risk (beta)• A major source of new cash flows• Generates significant goodwill / Intangible value

Source: The Conference Board, 2005

© 2013 Verdani, LLC

A whole-building, portfolio-wide approach with LEED and corporate sustainability maximizes cost-savings and value enhancement.

Source: The Conference Board, 2005

© 2013 Verdani, LLC

• The importance of issues falling under the umbrella of sustainability continues to grow, and the real estate sector will continue to be the focus of scrutiny from investors as well as regulators when it comes to greater transparency in these topics.

• Transparency of building performance data is both stimulating competition and providing owners with direct rewards for improved performance.

• To be on the forefront of change, companies need to be aware of four key trends affecting corporate sustainability.

Conclusion

© 2013 Verdani, LLC

LEGISLATION & CODES

Key legislation and code changes such as federal building energy codes and new building labeling initiatives.

Transparency requirements are driving change and raising new challenges.

© 2013 Verdani, LLC

• Transparency Requirements are Driving Change and Raising New Challenges.

• The number of cities in the US requiring properties to disclose their energy efficiency continues to grow and additional transparency requirement is both stimulating competition and providing owners direct reward for improved performance and penalizing owners with inefficient buildings.

• There should be a good balance between carrots and sticks and having Market forces and well-informed policies work together to moving us toward a more efficient and profitable building stock. It requires money, collaboration between business leaders and policymakers.

• Some owners are trying to go net zero to further distinguish themselves. Owners should Anticipate, support, and blow past regulation.

Legislation & Codes

© 2013 Verdani, LLC

RATINGS &DISCLOSURES

An overview of the most-watched ratings, disclosure standards, and performance metrics, with examples of how companies are meeting these various transparency requirements.

Buildings are being rewarded for improved performance.

© 2013 Verdani, LLC

• Buildings Are Being Rewarded For Improved Performance.

• Owners should pursue efficiency ratings and labels when appropriate and drive transparency in energy data.

• One of the most important aspects in Green Building is Performance. This shared theme demonstrates that “We are moving toward buildings as integrators. It’s no longer about a certification at some point in time but about a timeline of activities. What means to be a high performance building is the ecosystem and collection of programs, Benchmarking, Energy Star, LEED Certifications, Awards etc.

Ratings & Disclosures

© 2013 Verdani, LLC

Increased Building Performance Transparency

Entity Name Scope

GRESB(2009)

Global Real Estate Sustainability Benchmark

Global

GRI Global Reporting Initiative Global

CDP CarbonDisclosure project

Global

Greenprint Foundation (2010)

Greenprint index Global

USGBC (2010) LEED Building Performance Partnership

Global

UN-PRI (2009) SBCI Common Carbon Metric Global

ENERGY STAR (Prior to 2004)

Energy Star Portfolio Manager American

CR (2007) The Climate Registry American

BREEAM (2010)

International SustainabilityAlliance (ISA)

European

Green Rating Alliance (2010)

Green Rating European

IPD (2008) Eco Ledger European

California (2007) AB1103 Municipality

Better Building Partnership (2008)

Benchmarking Working Group Municipality

New York City(2011)

LL 84 Municipality

Key Performance Ratings, standards and regulations for the Real Estate Industry

© 2013 Verdani, LLC

Energy Star Portfolio Manager

What is it? Portfolio Manager is a free, web based energy management tool for tracking and assessing energy and water consumption across an entire portfolio

Why bother?

• Manage Energy and Water Consumption for all Buildings• Rate Building Energy Performance• Estimate Your Carbon Footprint• Set Investment Priorities• Verify and Track Progress of Improvement Projects• Gain EPA Recognition

Portfolio Manager Update June 2013• Increased reporting capabilities• Monitor individual project success• Available both for existing and design phase buildings

© 2013 Verdani, LLC

GRESB Global Real Estate Sustainability BenchmarkWhat is it? GRESB is a survey that assesses the sustainability performance of real estate portfolios (public, private and direct) around the globe.

Why bother? The GRESB is used by institutional investors to improve the sustainability performance of their investment portfolio, and the global property sector at large.

“GRESB’s mission is to enhance and protect shareholder value by evaluating and improving sustainability best practices in the global real estate sector.”

© 2013 Verdani, LLC

ULI Greenprint Center for Building Performance

What is it? Worldwide alliance of real estate owners, investors, financial institutions and other industry stakeholders committed to reducing carbon emissions across the global property industry. Membership includes Portfolio Scale Data Management / Enterprise Software for Sustainability Resource Management (SRM) through Credit 360

Why bother?Increased transparency = increased performance. Greenprint buildings between 2010 and 2011:

• Decreased GHG emissions 8.2%.• Decreased overall energy consumption by 4.4%• Increased procurement of offsite renewable energy by 10.8%.• Decreased water use by 3.1%.

“Working together, we can reduce energy consumption and carbon emissions, which will build value in the real estate asset class.”

© 2013 Verdani, LLC

ULI Greenprint Sample Dashboard

© 2013 Verdani, LLC

Global reporting Initiative (GRI)What is it? The Global Reporting Initiative (GRI) is a non-profit organization that promotes economic, environmental and social sustainability. GRI provides all companies and organizations with a comprehensive sustainability reporting framework that is widely used around the world.

Why bother? GRI’s global multi-stakeholder network includes experts who participate in Working Groups and governance bodies, reporters, and report users worldwide.

© 2013 Verdani, LLC

Sustainability Accounting Standards Board (SASB)

Stages of the SASB standards development process:

1. Review the material issues 2. Conduct in-depth industry research 3. identifying and documenting existing metrics and 4. Harvests existing sustainability , creates new ones

where none exist , result is a set of strawman performance indicators

5. Convenes Industry Working Groups 6. incorporates the IWG members’ feedback 7. Publishes the performance indicators to the

general public8. incorporates comments from the general public.9. Standards are reviewed by the SASB Standards

Council. 10.Sustainability accounting standard for that

industry is published.

What is it? SASB is a non-profit organization which develops and disseminates industry-specific sustainability accounting standards. Why bother? SASB provides integrated reporting of sustainability fundamentals alongside financial fundamentals, enabling investors and the public to compare performance on critical dimensions of sustainability, better understand risks and opportunities, and adjust behavior accordingly.

© 2013 Verdani, LLC

Better Buildings Challenge

What is it? U.S. Department of Energy’s (DOE) Better Buildings Challenge is a voluntary leadership initiative with the goal of making buildings across the country at least 20 percent more energy efficient over 10 years— saving American organizations $80 billion annually in energy costs.

Why bother? Through this program, Partners will join other industry and community leaders to create and share real solutions that reduce energy and water consumption, create jobs, and save money. Partners may also choose to work with the Department of Energy to track and reduce water use across their portfolio.

© 2013 Verdani, LLC

• Serve as tools of measurement, verification and validation.

• Provide consistent and credible benchmarking for green buildings.

• Raise the bar for sustainability performance.

• Act as a “seal of approval” that lends credibility and validity to sustainable projects.

• The LEED program is the preeminent global green building program. In use in more than 140 countries.

Timeline of Key Green Building Councils & Rating Systems

Green Building Certification Standards…

© 2013 Verdani, LLC

© 2013 Verdani, LLC

What is it? Leadership in Energy and Environmental Design (LEED) is the preeminent global green building program and is currently in use in more than 120 countries.

Why bother?

• The rate of LEED certification continues to grow at over 1.7 million square feet per day. In 2012 alone, over 3,500 projects representing over 500 million square feet were awarded LEED certification.

• Over 1.3 billion square feet were registered under LEED in 2012 and are in the process of being designed and constructed.

• Professionally, the number of LEED credential holders also continued to grow with almost 193,000 individuals nationwide holding either a LEED Green Associate or one of the LEED AP credentials.

• The LEED Dynamic Plaque for ongoing building performance monitoring and scoring platform.

LEED Certification: Trends

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What is it? FTSE is working on sustainable property indexes for both institutional and retail investors.

Green Property Index

“…FTSE is working on these indexes in response to investor demand for a new benchmark and new investment vehicles that reflect interest in sustainable real estate projects.”--Brad Thomas

© 2013 Verdani, LLC

GBIG (Tool)The Green Building Information Gateway

What is it?GBIG is the premiere search engine for green building data, making ‘ How green is it?’ an analytical question.

© 2013 Verdani, LLC

Are your buildings making the cut on Costar searches?Costar allows tenants to search for Energy Star and LEED Buildings

© 2013 Verdani, LLC

• Building owners have a vast number of rating systems and certifications to select from. For Class A office buildings, ENERGY STAR, LEED EB and GRESB & GRI reports are some commonly expected standards by investors, lenders, buyers and tenants.

• There is no one size fits all standard that will work for most buildings.

• Owners are motivated to make the initial investment if they can benefit financially and attract new business by marketing their participation in these programs. In sectors other than Class A office buildings, reward must be emphasized over penalization and combined with technical support and incentives.

• Building certifications play an important role with minimizing the environmental impacts of buildings.

• Certifications will be more effective and widely adopted when actual performance data can be tracked and managed in a more standardized way.

Conclusion

© 2013 Verdani, LLC

Tenant Engagement

Landlord-driven initiatives-identifying what today’s tenants want and satisfying those demands.

Disclosure Requirements Mean That Tenant Participation Is no longer optional.

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Tenant Engagement• Disclosure Requirements Mean That Tenant Participation Is No Longer

Optional. “It does not matter if you believe in Climate Change or not. Successful leaders must address what is important to occupiers of space. They want more efficient use of space, with more spaces that entice collaboration, greater productivity in healthier and better quality space and lower energy costs, and being in urban areas with access to public transportation will continue matter to all those who fear obsolescence.”

• Aligning tenant and owner goals during retrofit improvements are crucial. One tool for increased transparency is delivered through energy aligned green lease languages, smart metering and tenant sub-metering.

• Tenants are responsible for the majority of the energy use in buildings and when they are more engaged and are able to pay for their actual energy consumption versus a split fee between the tenants they are a lot more likely to lower their energy consumption.

© 2013 Verdani, LLC

What tenants want• More space? No, at least not in the US• Less noise and the ability to control interruptions• Cleaner air and control over their lighting & temperature • Configurations with more collaborative space • More natural light & views• More natural ventilation

© 2013 Verdani, LLC

• Submetering energy consumption and making it more transparent is an effective way to reduce tenants energy consumption.

• Engage building occupants and landlords in saving energy

• Incorporate energy efficiency in tenant improvements

• Structure agreements to benefit both parties by sharing both the cost and benefits of the benefits of the improvements.

Conclusion

© 2013 Verdani, LLC

Technology

Discuss the environmental software marketplace, and how the capabilities of each product fulfill a particular need critical for maintaining efficiency success.

Technology Must Catch-Up with Consumer Demand to Bridge the Retrofit Gap

© 2013 Verdani, LLC

Building Technology• Technology Must Catch-Up with Consumer Demand to Bridge the Current

Retrofit Gap. Upgrading to next-generation building efficiency technology is a good challenge and business opportunity.

• Customers will require measured (even real-time) energy use and pricing signals.

• We need to pay attention on the increasing role of building automation for energy efficiency using cloud based systems.

• The convergence of corporate and commercial real estate, information technology that is based on the cloud and energy efficiency is one of the key areas to focus on.

© 2013 Verdani, LLC

Real-time Energy Performance Dashboard

Source: Autodesk

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BUILDING SCALE: Intelligent Building System SoftwareTie to building automation system for real-time & automated monitoring of HVAC operations

1

2

3

Source: Building IQ

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PORTFOLIO SCALE: Data ManagementEnterprise Software for Sustainability Resource Management (SRM)

Cloud-based software reporting and management of energy, water, waste, carbon emissions, and corporate responsibility indicators.

Source: Carbon Systems

© 2013 Verdani, LLC

• More comfort, more productivity, less energy, stronger economics• Attack building’s inefficiencies with trans disciplinary insight and

entrepreneurship

• Make energy use more transparent

• Provide easy-to-access financing, priced commensurate with energy efficiency’s exceptionally low risk

• Train and educate a high-quality workforce.

• Upgrade to next-generation building efficiency technology and software capabilities and align utility incentives

• Begin overhauling how building design is done, built and operated

Conclusion

© 2013 Verdani, LLC

Case StudiesCity National Plaza

© 2013 Verdani, LLC

CITY NATIONAL PLAZAHigh Performance Redevelopment Case StudyLEED EBOM Gold Certified

© 2011 Thomas Properties Group, Inc.

59

© 2013 Verdani, LLC

Property Information

City National Plaza Site Acreage: 4.43 AcresJ-2 Site Acreage: 2.05 AcresTotal Site Square Feet: 282,268 sq ft

Office Tower Height: Two 52 Stories Towers

Office Square Feet: 2,338,855 rsfRetail Square Feet: 101,143 rsfJewel Box Square Feet: 56,086 rsfTotal Rentable Square Feet: 2,496,084 rsf

City National Plaza Parking Capacity:A Level Parking 404 StallsC Level Parking 384 StallsJ-2 Garage Parking Capacity 2,485 StallsTotal Parking Capacity 3,273 Stalls

LEED EB Rating: LEED EBOM Gold

City National Plaza

© 2013 Verdani, LLC

DATE MILESTONE1972 - 1973 • Project developed by Atlantic

Richfield Co. and Bank of America, previously known as Arco Plaza

1986 • Shuwa purchases Arco Plaza for $650,000,000 or $260 per sq ft.

2002 • Kings Capital negotiates an option to purchase Arco Plaza from Shuwa.

2003

2013

• TPG purchases Arco Plaza in joint venture with the California Teachers Retirement System (“CalSTRS”) for $270,000,000 or $108 per sq ft.

• Sold for $900,000,000 per sf to CommonWealth Partners in partnership with the California Public Employees Retirement System, or CalPERS

Project History

© 2013 Verdani, LLC

Investment StrategyRISKS URBAN RENEWAL REPOSITIONING LEASE-UPSignificant lease up exposureSignificant capital exposure to downtown Los AngelesHidden capital costsOvercoming negative perceptionProlonged domestic economy weakness

The redevelopment of this once Downtown trophy office building will revitalize the central core, and bridge the newer Bunker Hill and South Park business and residential districts in Los Angeles’ CBD.

The opportunity exists to create a Class AA building from the bones of a Class B building in a market which economically precludes the new construction of office properties for a cost which will total a significant discount to projected replacement of the asset.

The project was effectively 80% vacant with approximately 1.2 million square feet to lease up and additional 730,000 square feet had terminated with move out within 30 months of acquisition. The leasing process would drive the renaissance of this project and the surrounding area by bringing more tenants and consumers to the premises.

© 2013 Verdani, LLC

Leasing Experience Tower Stacking Plan at Acquisition and after redevelopment

NORTH TOWERSOUTH TOWER

Available 78.4%

Leased 21.6%

LEGEND

Available 8.8%

Leased 86.8%

Encumbered 4.4%

LEGEND

NORTH TOWERSOUTH TOWER

© 2013 Verdani, LLC

CNP Redevelopment Capital

Per rsf $110

64

© 2013 Verdani, LLC

Sustainability

LEED EB Gold

92energy star score

40%water savings

52%waste divertedfrom landfill

SUSTAINABILITY HIGHLIGHTS

• LEED EB O&M Gold• 92 Energy Star Rating (100 max)• Increased occupancy by 63% between 2003 and 2010 while

total electricity consumption has increased by only 1.37%• City National Plaza now uses 37.5 % less energy

consumption on an occupied RSF basis• Saved over $12 million in electricity costs since 2003• 2010 Annual Savings $4,319,955. Assuming a 6.5% Cap

Rate = $ 66,460,846 additional value

Key Sustainable Features

•40% reduction of indoor plumbing water use •Automation system (BAS) controls in place •Alternative transportation infrastructure •Target 75% diversion rate of construction waste from landfills•Heat island reduction - 100% of parking spaces under cover•Less pollutants and VOC’s with 98% of sustainable cleaning products•Great access to daylight and views•High-performance filtration equipment and entry mats increases indoor air quality

© 2013 Verdani, LLC

Sustainability Policies and Programs in Place

• Building Exterior & Hardscape Mgmt. Plan• Integrated Pest , Erosion Control and • Landscape Management Plan• Water Efficiency Program• Cooling Tower Management Plan• Refrigerant Management Policy• Energy Efficiency Policy• Sustainable Purchasing Policy• Solid Waste Management Policy• Lamp Purchasing Plan• Smoking Policy• Green Cleaning Policy• Indoor Air Quality Program• Indoor Integrated Pest Management Plan

Policies

LEED® FactsThomas Properties GroupLos Angeles, CA

LEED for Existing Buildings 2008 Certification awarded May 27, 2010

Gold 54*Sustainable Sites 4/12

Water Efficiency 6/10

Energy & Atmosphere 19/30

Materials & Resources 6/14

Indoor EnvironmentalQuality 12/19

Innovation & Design 7/7

*Out of a possible 92 points

© 2013 Verdani, LLC

High-efficiency Cooling Towers conserve Water & Energy (June 2008)

Energy EfficientLighting & OccupancySensors (60 new floors)

Wet Seal Building Exterior to Stop Air Leaks

Target 75% Diversion Rate from landfills for all Landlord Demolition Work

Recycled & Renewable Materials Specified for All Common Area Upgrades

Power Factor Correction Equipment (2006)

High Efficiency Fan Motors with VFD’S & Economizer Cycle Provides Fresh Air to Building (2005-2006)

Elevators Modernized with electronic controls allowed decommissioning of one elevator per bank (8 total) and elimination of DC generator motors

Transit oriented property diverting an average of 600 daily passengers to public transportation via its three environmentally friendly Natural Gas shuttle buses.

Low Flow Automated Plumbing Fixtures & Faucets (75 new floors)Resulting in 40% reduction indoor fixtures water use

Central Plant Upgrades Energy Efficient

Chillers (2004-2005) & Boilers (2009)

Building Automation Controls (2004-2005)

Heat Island Reduction with 100% of Parking Under Cover

Key Sustainability Features

Building automation system (BAS) controls key building systems, reducing building energy & maintenance costs

High-performance filtration equipment increases indoor air quality

LEED EB O&M Gold / 92 Energy Star Score

© 2013 Verdani, LLC

Electrical System Upgrades• Lighting upgrades with high-efficiency lamps,

ballasts and occupancy sensor controls (base building + over 60 Floors of tenant space)

• Power Factor Correction equipment

Heating and Cooling Technology Improvements• Replaced Chillers• Replaced Cooling Towers• Installed High-efficiency fan motors and VFD’s• Replaced Boilers

Other Improvements• Building Automation Systems (BAS)• Elevator modernization and motor controls• Wet seal building exterior to eliminate air leaks

Green Tenant Improvement Guide & Educational Programs• Requires efficient lighting, occupant sensors and

metering devices

Sample Energy Saving Projects

+

© 2013 Verdani, LLC

2003/2010 Electrical Consumption

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© 2013 Verdani, LLC

Energy SavingsCNP 2003/2010 Electrical Consumption

2003 Baseline Year 2004 Total (Savings) / Increase $ 451,032 2005 Total (Savings) / Increase $ 263,8812006 Total (Savings) / Increase $ (957,382)2007 Total (Savings) / Increase $ (1,916,812)2008 Total (Savings) / Increase $ (2,847,644)2009 Total (Savings) / Increase $ (2,997,323)2010 Total (Savings) / Increase $ (4,319,955)2003 / 2010 Total Energy Savings $ (12,324,203)

Annual Energy Savings (1)

(1) Annual projected savings based on the calculated consumption for the current year occupancy using the 2003 baseline kwh p/ occupied rsf consumption rate at the current year utility rate if energy saving improvements had not been implemented

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© 2013 Verdani, LLC

Financial Analysis for Energy Saving Projects

City National Plaza

Net Present Value & Internal Rate of Return (Energy Saving Projects) (1)

LEED EB Certification Costs PSFHard Costs $ 230,000 $0.06 Soft Costs (USGBC + Consulting Fees (3)) $ 50,000 $0.02 Total Costs $ 280,000 $0.08

(1) Based on Energy Star’s Building Upgrade Value Calculator for Office Building

(2) Rough Estimate (Includes base building capital improvement s+ estimate for energy saving projects at tenant spaces that resulted in energy savings)

(3) Does not include Internal Staff Time

Net Investment Cost (2) $ 10,924,712 Return On Investment (ROI) - 15 Year 375%Net Present Value (NPV) - 15 Year $19,195,627 Internal Rate of Return (IRR) - 15 Year 32.1%Potential Impact on Net Operating Income (NOI) - 2010 $ 4,319,955 Potential Impact on Asset Value - 2010 $ 66,460,846

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© 2013 Verdani, LLC

Before and After Retrofit Photos

© 2013 Verdani, LLC

Recycling

© 2013 Verdani, LLC

Materials & Resources Office paper recycling program and recycling containers at plaza• 75% Diversion Rate from landfills for all Demolition Work• Utilizes electronic work order systems and notification methods to

reduce paper used by the Office of the Building.• Work with tenants, vendors and suppliers to optimize purchases and

reduce waste.• Recycle over 50% of building waste. • Conducts E-Waste Drives twice per year.• Recycles light bulbs through proper handling methods.

Waste Management

© 2013 Verdani, LLC

Indoor Air QualityBuilding entrances with 10ft Walk off mats to keep dirt out•Smoking free facility•Robust IAQ program in place •High Efficiency Fan Motors with VFD’S & Economizer Cycle Provides Fresh Air to Building•High-performance filtration equipment with MERV 13 filters increase indoor air quality, tenant health and productivity•98% of cleaning products meet sustainable standards such as Green Seal.

Indoor Air Quality

© 2013 Verdani, LLC

• The purpose of this Tenant Improvement Guide is to educate our tenants about the variety of strategies they can use to green their interior spaces, minimize the environmental impacts of tenant improvements and create healthy and productive working spaces.

• We encourage our tenants to pursue the LEED CI Certification and green building strategies identified and explained in the manual.

Tenant Improvement Guide

© 2013 Verdani, LLC

Green Office Guide

• Tenants are responsible for 30-60% of energy use in office buildings.

• Truly Green Buildings require efficient green occupant loads and behavior: high performance design, construction and operations only takes us so far.

• The purpose of our green office guide is to educate and provide several simple and low cost behavior strategies and resources that our tenants can use to do things in a more efficient and sustainable way.

© 2013 Verdani, LLC

• Maximize energy & water efficiency

• Reduce operational costs

• Provide a higher quality product

• Position the office to attract and retain employees

• Stay ahead of pending government regulations

• Increase employee health and productivity

• Fulfill the needs of workers who are increasingly demanding healthy and

sustainable work environments

• Increase net operating income and value

• Be a good Stewart for the environment

• Marketing benefits and recognition

Benefits of Green Operations

© 2013 Verdani, LLC

Perception Change• At acquisition the property

attracted “B” rents – today top of the market rents

• A building that was avoided by the market – now attracts “A” list tenants

• Old building system – and now has the newest system in the market

© 2013 Verdani, LLC

Negative Positive

• Capital Markets Collapsed

• Major Recession

• Absorption Delayed

• Limited Availability of Debt Financing

• Costs Higher than Projected

• Major Tenant Terminates at

Acquisition

• Rents Higher Than Expected

• Capital Market Values Exceed

Expectation

• Low Interest Rate Market

• Overall Renaissance of Downtown LA

Positions City National Plaza as the

Property in the Center of City Activity

• Draws High Quality, Credit and

Trendy New Tenants to Market

What Happened Along the Way

© 2013 Verdani, LLC

Adobe SystemsIncorporated

© 2013 Verdani, LLC

© 2013 Verdani, LLC

Cost-Benefit Summary of a LEED EB Project

Source: Adobe Systems Incorporated and Cushman & Wakefield

Adobe Systems Incorporated . Platinum EB

The Adobe building saves a total of $1.2 million annually equating to an ROI of 121% and an average payback per project of 9.5 months. They have had a net ROI of 148% while the costs of certification were just 10 percent of one year’s savings!

© 2013 Verdani, LLC

Cal/EPA

© 2013 Verdani, LLC

Cal/EPA

Sustainability Highlights

• First LEED EB Platinum high rise in the US

• Building efficiencies save the tenant, the State of CA,

over $1.4 million annually in operating costs

• 26% More Energy Efficient then code

• 52% reduction in overall water use

• 100 Energy Star Score (100 Maximum)

• Enhanced tenants health and productivity

• Less than 1 year payback

Property Information

Name: Joe Serna, Jr./CA EPA BldgLocation: Sacramento, CAType: OfficeSize: 950,000 SF (25 Floors)Year Built: 2001Owner: City of SacramentoDeveloper: TPGManager: TPG since 2001LEED Rating: Platinum

© 2013 Verdani, LLC

Currently, the property’s annual operating expenses are more than $1.32 per square foot less than comparable Sacramento high-rise buildings.

DowntownCalifornia EPA Building Sacramento Avg.

Operating Expenses Total Per SF

Waste Removal $0 $0.00 $0.06Cleaning Supplies 47,510 0.05 0.14Electricity 940,698 0.99 2.05Filters 28,506 0.03 0.06Water 19,004 0.02 0.06Landscape 47,510 0.05 0.09Subtotal - Operating Expenses $1,083,228 $1.14 $2.46

O perating Expense Savings $1 ,254 ,264 $1 .32

Gross Payroll Expense Savings:Janitorial $110,000Engineering 50,000Other 40,000Subtotal - Payroll Expenses $200,000

Total Savings $1 ,454 ,264 $1 .53

CalEPA high efficiency measures saves over $1.4 million annually in operating expenses.

Operating expense Savings Cal/EPA

© 2013 Verdani, LLC

© 2013 Verdani, LLC

VERDANI Partners6868 Embarcadero LaneCarlsbad, CA [email protected]

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