The road to greener commercial buildings isnt easy

Seattle has been leading the way in green building since Tom Paladino and others helped create the first Leadership in Energy & Environmental Design (LEED) rating system and training programs in the late 1990s. In downtown Seattle today, nearly 32 percent of the commercial properties are LEED certified and 44 percent are Energy Star rated by the U.S. Environmental Protection Agency. The U.S. Green Building Council estimates that by 2015, 58 percent of Americas nonresidential building starts will be green and the market will be worth more than $200 billion.

But with greenhouse gas emissions continuing to grow dramatically and office buildings contributing nearly 35 percent of those emissions nationwide, cities must do much more to cut energy use. That situation was the inspiration for Seattle 2030 District, which was launched in 2010 and set ambitious goals, including a 50 percent reduction in total energy use in the downtown area by 2030 and an immediate 60 percent reduction below national averages in energy use of new buildings. Not only will the climate benefit, but tenant costs will also fall as landlords see the values of their buildings rise, says Brian Geller, executive director of the organization. Given comparable locations and amenities, adds Geller, The buildings with the lowest energy and water use per square foot have the competitive edge.

To achieve such ambitious goals, dozens of existing buildings in Seattle must undergo substantial retrofitting. That process requires significant capital investments, often costing $1 million or more for a single renovation. Since energy is a buildings highest operating cost after taxes, investing to cut energy and water use can bring attractive returns.

Unfortunately, the way the industry structures capital budgets and leases makes it difficult for landowners to justify undertaking the long-term investments.

For minor upgrades and maintenance, managers use conventional off-balancesheet financing so they neednt dip into capital budgets. This approach involves repaying efficiency investments over time through energy savings, then reinvesting money year over year on the operations side. Tax, bond and grant programs from federal, state and local entities (such as Washington states Jobs Now), also provide funding sources, along with utility rebates and incentive programs.

But for major improvements, there are other obstacles. Many building owners assume that they may sell a given building in two years or lesswhich makes any investment that doesnt bring a shortterm return appear unattractive. Another challenge is the split incentive built into most commercial leases under which owners absorb the costs of capital projects, while tenants get the savings.

To overcome these obstacles, Brett Phillips, sustainability director for Unico Properties, says, We have to fundamentally change our financing systems, and how we finance projects. Today, he notes, Seattle has become a living laboratory of energy financing and creativity. The goal, he says, is to move project financing from the capital budget to the operating budget so that owners can recover their investments and reduce tenants annual operating expenses at the same time.

One example is the Washington Athletic Club (WAC), which recently completed a $1 million project that cut energy use by 25 percent. To pay for it, WAC used low-interest, third-party financing that included money invested by The Seattle Foundation. The money paid for a range of investments, including the upgrade of the clubs 40-year-old HVAC system. Under the arrangement, the WAC continues to pay its regular monthly utility bill. Savings from the reduced energy costs are then channeled through a third party to pay the interest on the loans.

MacDonald-Miller Facility Solutions, which handled the WAC renovation, is using a similar financial arrangement to complete an $800,000 project at the Renaissance Seattle Hotel and another $450,000 upgrade to the Lake Union Building, a seven-story office complex developed in 1970. Its also working with the Seattle Aquarium on a $1 million project that will increase the reliability of the life support systems for the marine life and also reduce energy use.

Some developers and non-profits have taken advantage of tax-exempt bonds issued by the Washington State Housing Finance Commission to finance their projects. The YMCA of King County used this approach to raise money to boost energy efficiency at six of its facilities around greater Seattle.

Many of these arrangements have benefited from computer energy modeling that allows project managers to predict energy savings accurately for a given job. Such modeling was critical in the 30- year deal that the Bullitt Foundation and Seattle City Light recently announced. These new models estimate that the new Bullitt Center near Capitol Hill will use about two-thirds less electricity than a comparably sized new structure built to meet Seattle city codes. Under the deal, the building owner pays market rates for its unused electricity and Seattle City Light buys back that electricity for about $44,000 a year. The value comes from the utilitys not having to build new generating capacity to cover that usage. The arrangement is enabled by something called a metered energy efficiency transaction structure, which provides the baseline and day-to-day consumption data to confirm the buildings energy savings. If this pilot program works, the model could be used to help retrofit many older buildings.

With all this experimentation going on, its critical for buildings to share information on how they cut energy costs and save water. Kilowatts, therms and gallons might as well be dollars, euros and yen, because money is something tenants can understand, says Vulcan Real Estate Development Director Brandon Morgan. Saving energy saves occupancy costs.

Precise modeling could also end up reducing red tape. If we can prove out our modeling predictions in practice, we could waive the standard energy code review and create innovations that go far beyond code requirements, notes Morgan. Vulcan and other companies are partnering with Preservation Green Lab and the City of Seattle to pilot an outcome-based resource efficiency code.

Real estate players are also looking at green leases that allow tenants and owners to share costs, rewards and benefits of building improvements. A $1 million project, for example, might deliver $110,000 in energy savings per year. The lease could be written to allow the landlord to recover most of the savings while still leaving some of the savings for the tenant.

Also promising is the commercial Property Assessed Clean Energy (PACE) program, which applies to clean or renewable energy projects and puts liability for project costs on the property tax. But these instruments are financed with municipal bonding and not widely used in this era of tight public sector budgets.

Green investments cant be one-off initiatives like adding some solar panels to a roof, says 2030 Districts Geller. Each upgrade has to be part of a strategic plan that aims at improving the whole building. … In some markets, big commercial clients wont even look at a Class A building if its not LEED Gold or better.

Basic maintenance and adjustment of controls for lighting, plumbing and HVAC systems can by themselves lead to substantial energy and water savings. Programming worksimply changing HVAC controls from a static setting that runs full on or full off to an adjustable setting that responds to the needs of the tenants in the spacecan reduce energy costs and free up money that clients can spend on other benefits, says Jeremy Richmond, senior building performance engineer at MacDonald-Miller.

Changing tenant behavior is the holy grail for McKinstry Executive Vice President David Allen. A typical energy service performance contract can lower consumption by 18 to 30 percent, he notes. With tenant involvement, you can improve on that by another 10 percent. A building really becomes sustainable when the people in it behave and operate it sustainably.

Tenants are willing to walk through revolving doors, learn when to open and close windows for ventilation, and how to use dual-flush toilets. They like seeing real-time dashboard data, so they can alter their behavior to reduce their buildings environmental impact. The questions, says Geller, are how much information to provide and how much tenants can be involved without interfering with their work.

The 2030 District member buildings, in partnership with Seattle City Light, are now installing building dashboards, which, Geller expects, will provide answers to these questions and create friendly competition that will help speed the district toward achieving its resource efficiency and carbon reduction goals.

Still, there is no such thing as a truly green building. Any construction process scrapes everything green off a site to erect the empty box that tenants will occupy. The ultimate challenge is to create a building that does no harm and also restores the environment. That big step is the Living Building Challengegoing beyond LEED Platinum (which 1201 Third Avenue, Skanskas 34 Stone and six other Seattle properties have achieved). The worlds greenest commercial building, The Bullitt Foundations new headquarters, moves in that direction.

With creative financing, recognition of the bottom-line value of energy conservation and the entrepreneurial spirit that made the city ground zero for helping to develop LEED, Seattle will remain on the cutting edge as it continues to reduce its buildings impacts on the environment.