Can the Right Tool Unlock Green Building Investment?

Abstract

Office buildings within the U.S. Commercial Real Estate (CRE) sector spend more than $32 billion annually on energy1 and contribute 18% of US carbon dioxide emissions.2 For building owners, energy costs directly impact net operating income which is a key metric for their profitability. For tenants, who are often responsible for the cost of the energy consumption, efficiency improvements are tied to their bottom line. For the environment, a meaningful reduction in CO2 emissions from commercial buildings would help move the needle in the fight against climate change. All the major stakeholders involved have something to gain from reducing energy consumption, and yet the CRE market has been slow to make large-scale changes. Building owners and management firms must weigh many factors before deciding to make an investment in energy efficiency. For example, they must estimate their potential return and the timeframe within which they will receive it. They must also consider the upfront cost and to whom the benefit will accrue as well as how the investment will be received by tenants. This process takes time and requires an understanding of the benefits and tradeoffs of available technologies and many firms in the CRE industry do not have this additional time and expertise. However, with the right decision making framework, firms in CRE industry can more efficiently explore and evaluate potential investments that will both increase their profitability and benefit the environment. For this project, we partnered with the Grand Rapids based property management firm CWD to develop a system by which property managers can more efficiently identify potential opportunities for investments in energy efficiency that will yield both a financial return and reduce CO2 emissions.