by Marc Karell — This article originally appeared in the November/December 2019 issue of FMJ
Green Building is a very popular topic these days. However, most building owners or managers are not familiar with the concepts as it is relatively new and was not taught to most in school. With lack of familiarity comes hesitancy to take advantage. Yet studies show that buildings that achieve certain green goals will much often save operating costs and raise both asset value and demand for space.
With growing public concern about climate change and fuel and electricity availability, upgrading existing buildings is becoming of greater importance. Buildings play a significant role in everyday life. They must not only serve purposes and be comfortable, but also have a reduced impact on the environment. How can buildings be designed and operated to be both functional and green?
What Is Green Building?
There is no specific, universal standard for a green building, and some claims are controversial. The United States Green Building Council (USGBC) developed and oversees the world’s most commonly respected green building standard called Leadership in Energy & Environmental Design (LEED). Any building meeting LEED standards as certified by the USGBC, can viably claim to be green. However, meeting strict LEED standards is expensive and takes time, and can be a hardship. Owners will benefit from incorporating at least some green building features, even if not officially certified. Any building improvements resulting in greater energy efficiency, reduced water use, better indoor air quality, reduced waste creation (and/or greater recycling rates), and incorporation of innovative technologies, such as green roof systems and renewable power, are positive steps toward being green, will likely result in direct financial benefits, and is worth talking about to potential renters.
The Many Financial Benefits of Green Building
Here are some of the direct financial benefits from implementing green strategies.
- It’s Not So Expensive. Conventional thinking says adding or updating to green features will make a prospective project prohibitively expensive or result in a negative payback. Not true. Most green technologies have dropped in price because of greater competition; meaning adding green features will not raise the initial cost of a new building or upgrades greatly. Many utilities and governments have reason to encourage such upgrades and will pay part of the upfront cost in direct rebates or tax incentives. If completed correctly, most green upgrades will show an ROI in a short timeframe.
- Reduced Costs. Again, if done properly, a green upgrade will reduce operating costs, such as electricity, fuel, and/or water enough over the lifetime of the change to pay back the initial investment at minimum. ROIs equivalent to 20, 30, or 40 percent or more per year have been achieved.
Many green updates prove to be a great investment that shows perpetual savings. For example, if the building owner pays for the technologies to reduce electricity usage (improved lights, better HVAC, improved insulation) one time, but can earn cost savings year after year. It’s not like anyone would yank out the efficient lights and re-install the old ones!
If a building owner saves, say, $10,000 per year in electricity costs the first year after changes, the savings will not only be the same $10,000 the next year, but actually more, as savings are based on a utility rate which only rises in time (how often do utilities lower their electric or gas rates?). The second year, the cost savings may well be $10,300, and the third year, $10,700, etc., for as many years as the technologies last. For LED lighting, that could mean seven to 10 years or more; and all without having to do any additional efforts. This is different from most sales, which must be achieved every year.
There is much literature on major companies who have invested in green upgrades or becoming LEED- or WELL-certified and the benefits they have brought. It’s easier for them, having a lot of resources on hand to invest. However, here is a case study of a small company without a huge amount of money set aside that went green that may have been the difference between business success and failure.
The firm (which wishes to remain nameless) owns two adjoining buildings built in the late 1940s in a New York City suburb where the firm performs warehousing, office and light industrial activities. The buildings had had minimal changes over the decades, including the original windows and boiler. The owner thought such upgrades were unimportant and would drain funds from the business. One cold, winter day a gust of wind hit the building and literally blew the papers off the owner’s desk. The single-pane windows had cracks and needed caulking so badly it could not keep out the outdoor wind! The owner walked down the main aisle of his office and saw his workers at their desks using space heaters and sitting in their parkas – with the boiler on! He realized this was not the way to run a company and was determined to do better.
To his credit, the owner did not put band-aids on the problem but went full out to improve the two buildings. He invested in a series of upgrades, such as new top-of-the-line double-pane windows, a new boiler (going from about 40 percent thermal efficiency to 95 percent), improved insulation and lighting, and thermostats to bring conditioned air only to the places that needed it. They received available utility rebates and state tax incentives to recover some of the upfront cost. Total energy usage was reduced by just under two-thirds. They then invested some of the initial cost savings into installing solar panels on the roof for both domestic hot water and for electricity for further energy cost savings.
The workers no longer had to wear their parkas at their desks and morale was raised. But there turned out to be an additional financial benefit no one had anticipated. A portion of the warehouse had been unused for decades and was a depository for old window air conditioning units and other junk. The owner learned that the local utility pays for each unit returned, no questions asked. In addition, with energy costs curbed, he renovated that space and rented it out for more income. And he rented it to a supplier, allowing him to get some of his supplies in a shorter time. Another financial benefit for the company.
This is why such projects – again, if done smartly – should not be thought of as frivolous or cool, but as good financial investments. According to the California Sustainable Building Task Force (https://www.thespruce.com/benefits-of-green-buildings-1708553), a 2 percent investment in green building design will save more than 10 times that investment in time. In other words, a $20,000 investment in green features for a $1 million project will typically result in about $200,000 in actual cost savings over 20 years. This begs the question: what bank or Wall Street investment pays a return like that – and with no risk?
- Reduced O&M. Many green upgrades result in reduced O&M costs. For example, LED lights do not burn out and many are warrantied for seven to 10 years and do not need to be replaced for longer. This differs from most fluorescent lamps which typically last about two years. This means less time for maintenance changing light bulbs, freeing them to focus on higher-priority projects for tenants while reducing risks from possible accidents. Also, because such equipment must be replaced less often, fewer pieces must be stocked as spares, freeing up space for important inventory.
- Higher rents, better tenants. Having a certified green building is known to attract more high-end tenants who want/need the association, allowing the owner to charge higher rates. The resale value of certified green buildings is higher because potential buyers know that costs (energy, water, waste) will be lower. A recent study by Build It Green, funded by PG&E, shows that green-certified homes in northern California bring a higher sales price, even though market barriers often prevent the full value of its green features from being recognized (https://www.builditgreen.org/images/BIG_GreenHome-Sales-Prices_Report_FINAL_2018.pdf).
- More satisfied tenants mean less turnover. There is experience now to demonstrate that working in a certified green building is good for both physical and mental health, improving the productivity or sales of the tenant company and resulting in the desire to renew the lease for the long-term. Lower tenant turnover and having successful businesses as tenants are good for the building owner. Investment by an owner in such green features as better ventilation, no VOC carpets and furniture, no toxic pesticides, green roofs can result in this. A building owner can go further and invest in upgrades for gyms, more bike racks, better furniture, upgrading staircases, etc. to boost the health and well-being of building users. A new standard from the USGBC called WELL codifies such changes. One major study (http://newsroom.ucla.edu/releases/study-certified-green-companies-238203) showed employees who work in green buildings are 16 percent more productive than those who work in traditional buildings. Another study (https://www.nationalgeographic.com/environment/urban-expeditions/green-buildings/surprising-ways-green-buildings-improve-health-sustainability/) showed that employees in green buildings were better at making decisions, reaching goals, and completing tasks. Some green features helped circadian rhythms, allowing workers to sleep better and be more alert for the tenant company.
- Environmental progress. Do not forget that having green buildings result in indisputable environmental benefits. By moving toward green building, a firm can demonstrate to stakeholders’ real progress which can be tracked through the amount of greenhouse gas emission reductions achieved, a metric which is universally respected. This can put a company on the moral high ground, which would be helpful in public perception or should there be future disputes.
Investing in green features in a building, whether it is formally certified or merely recorded, is good for any company’s bottom line. The science of green building has advanced so that proper analyses can be performed to predict the degree of success. It is no longer cute to be green, but now makes economic sense and can put you ahead of the competition.
Marc Karell is a principal of the energy and environmental consulting firm Climate Change & Environmental Services, LLC, located in New York, USA. He earned his Bachelor of Science degree from New York University, Masters of Science degrees in Biochemistry from the University of Wisconsin and in Chemical Engineering from Columbia University. Karell is a licensed professional engineer, a certified energy manager, and an existing building commissioning professional. He has more than 30 years of experience in the environmental, energy, and sustainability fields. His main areas of expertise are energy audits, projects managing energy upgrades, making sustainability profitable, renewable power, climate change, carbon footprinting, and air pollution permitting and compliance.