“The Low Hanging Fruit in CRE Energy Efficiency”

July 26, 2010

Did you ever think replacing old and outdated vending machines in your break room could be the beginning of a corporate real estate energy reduction strategy that creates an efficiency movement throughout your organization?

A few weeks ago we received a comment from Bill Clay of Bill Clay Design Studio who was responding to a blog post entitled, “You Don’t Pay For What You Don’t Use — Strategies to address the efficiency, economics and environmental sustainability of your real estate portfolio.” Bill provided the following energy cost savings ideas that, on the surface seem rather innocuous but, when they are implemented throughout a company’s real estate portfolio they could have a dramatic impact on overall energy cost savings:

  • Replace all old/outdated vending machines with Energy Star-rated vending machines – save up to $1,000.00/year/machine
  • Replace exit signs (that are on all the time) with new LED green edge-lit signs – they look modern and use way less energy than the old style and generate an ROI in first year
  • Change out toggle light switches with new occupancy sensor light switches – cut office lighting bill in half
  • Replace computer monitors with 28W LED monitors and modify power settings – Less wattage, less heat, less cooling, less energy
  • Replace 40W T-12 fluorescent tube office lights with same cost 28W T-5 lights – 30% less wattage (30% less lighting energy cost,) less light “flicker” with new ballast technology, natural light color spectrum for improved working environment and a cooler temperature office environment
  • Replace 400W warehouse lights with T-8 or T-5 high efficiency – high output fluorescent lights with occupancy sensors – cuts your warehouse lighting bill by 50%, reduces heat from lights and lowers summer warehouse cooling costs
  • Install solar panel systems – cost has decreased 50% in the since 2007
  • Check out local, state and federal rebates and utility company incentives to offset capital investments – with energy cost increases ROI will accelerate

Tackling some of these real estate/facility-related ‘low hanging fruit’ initiatives may start with energy efficiency but, may soon transition into achieving efficiency and eliminating waste throughout the organization. From more efficient methods of acquiring raw materials, accessing resources, and refining business processes the CRE department could be the catalyst of change throughout the company and contribute mightily in moving your entire organization toward environmental sustainability.

Who would have thought you could kick start you company’s movement toward corporate social responsibility and environmental stewardship just by changing out your vending machines?…something to think about the next time you get a soda for that “2:30 feeling.”

For more information about energy efficiency ideas and renewable energy projects contact Bill Clay directly at bill@billclaydesignstudio.com

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“You Don’t Pay For What You Don’t Use” — Strategies to address the efficiency, economics and environmental sustainability of your real estate portfolio

July 12, 2010

The following is an excerpt from an article pending publication in CoreNet Global’s CORPORATE REAL ESTATE LEADER.

With many of today’s companies struggling to weather the storm in a difficult economy, the C-Suite is looking to cut operational expenses and trying to adopt a social responsibility strategy recognizing “green has become the new black.”

Realizing real estate comprises one of the top two or three largest impacts on their financial performance, the three important questions senior management are asking their corporate real estate/facilities executives are:

  1. “What is our total cost of occupancy?”
  2. “How can we reduce it?”
  3. “How can our real estate assets serve our organization’s operational needs and contribute to our company’s desire to achieve environmental stewardship?”

Tough questions? Maybe, if the CRE professional doesn’t have access to the information needed to identify areas where costs can be cut. The first challenge in the equation is determining the cost categories that make up the “total cost of occupancy.”

A great place to start is by taking a look at the International Total Occupancy Cost Code developed by London-based IPD Occupiers. The code includes over 250 categories organized in the five super categories of:

  1. Property Occupation (Rent, taxes, acquisition, debt service)
  2. Adaptation and Equipment (Fit out, improvements, capital investment)
  3. Building Operation (Energy/utilities, maintenance, repair, moves, churn, security, cleaning)
  4. Business Support (Reception, catering, mail room)
  5. Management (Fees for real estate, facilities and project management)

The next challenge is to determine where, within the enterprise, the information resides and be able to summarize and standardize the information across the portfolio of leased and owned properties. Once achieved, (no small feat given the resources available to the CRE professional and silos of information that exist in many organizations) the information is collected, analyzed, and prioritized a benchmark can be developed and the “bigger buckets” targeted for the greatest degree of cost savings.

The information then becomes actionable business intelligence that can be used as a foundation of a strategy.

In typical organizations, the top ten cost items for a leased facility are:

  1. Net Rent
  2. Rates (local property taxes)
  3. Total utilities (energy + water)
  4. Total repair & maintenance
  5. Total property management
  6. Total cleaning
  7. Internal & external distribution
  8. Service charges
  9. Security
  10. Catering & vending

“Think, Build, Operate”

With the total occupancy costs calculated and a cost benchmark established, the CRE professional can now answer senior management’s question #1.

To answer the subsequent questions, the CRE department will need to put together a strategic plan. Through facilitated sessions with internal constituents and outside consultants the process will help to develop a plan that will get the organization to “crawl, walk and then run.”

Along with a consultant CRE departments will co-develop a strategic and tactical solution unique to the organization might utilize a process driven approach that will challenge the internal team to:

THINK: What is the real estate portfolio’s current and desired future state?

BUILD: What are the specific initiatives to be implemented across the real estate/facilities department(s) and portfolio that bring about the desired efficiency, economic and environmental sustainability results?

OPERATE: How/who will implement the plan, what will become the KPIs to measure progress and define success, and how will the momentum be maintained until the desired future state is reached?

Departmental and Portfolio Efficiency

At a departmental level, in order to effectively bring about change, the CRE professional needs to be realistic about ‘where they are’ (current state) and where the enterprise ‘wants to be’ (future state). Is it simply to reduce operating costs, rationalize your portfolio, dispose of non-core assets or something much more?

A key component to determining whether the organization will be heading in the right direction is to articulate the KPIs they will use to assess the portfolio and processes and help them manage change. These KPIs become the “gauges on the dashboard” and determine how to measure success and whether they are driving costs out of the portfolio.

But, before addressing the overall portfolio of leased and owned facilities the CRE professional will be well served to look in the mirror and examine the internal business processes, departmental core competencies and the role outside service providers play. Getting the management piece addressed is the fundamental component can be streamlined and improved to set the efficiency train in motion.

At this stage it’s best to incorporate a plan of how to orchestrate the “people” (who will implement and affect the desire results?); the “process” (what are the workflows that will be refined or developed that will become the framework for making and managing change?); and the “technology” (how will the use of technologies help the organization measure, manage, automate, and report on portfolio/building information about occupancy costs that will support strategic decision making?).
 
Tackling the low and high hanging fruit of the economics of the portfolio

The next piece of the puzzle is to identify and implement the specific initiatives that begin to carve out costs. The most efficient building in the portfolio is the one you no longer use because you’ve disposed it. While every organization is unique some common threads of initiatives to cut costs could be: 

  • Deploying alternative workplace strategies
  • Addressing operational efficiency of your owned facilities
  • Reducing energy consumption
  • Evaluating and executing leasing strategies into commercial properties that can contribute to your company’s sustainability goals
  • Decreasing the utilization of expensive facilities with space management designed to show vacant and under performing facilities
  • Developing the visibility into your under performing facilities
  • Rationalizing your portfolio and consolidating staff/facilities to dispose of non-core assets

By effectively managing the size and cost of the portfolio, real estate executives can have a dramatic impact to their organizations’ bottom-line and profitability while contributing to corporate social responsibility (CSR) initiatives important to many companies today. 

The ‘holy grail’ – achieving environmental sustainability

In today’s new economy the challenge has become how to maintain profitability while moving your organization toward environmental stewardship.

While the debate about whether climate change is truly caused by the emission of greenhouse gases continues, it is clear that adopting environmental sustainability initiatives can contribute to the positive financial performance of the company.

Some of these practices that involve operational efficiency include:

  • ‘Green’ and LEED certified design practices
  • ‘Smart’ building systems
  • Energy demand/consumption
  • Use of renewable energy sources

It makes good business sense to adopt these enviro-friendly principles because it reduces costs and moves the organization toward societal responsibility of the environment. While “green has become the new black” it no longer means it creates “red ink.”

In developing a sustainability strategy plan the blue print starts with determining the overall sustainability goals of the organization and identify initiatives are already in place to address sustainability.

A contributing factor to company’s CSR strategy is for the CRE professional to bring the real estate perspective by:

  • Evaluating the financial and environmental impact of capital investment decisions focused on resource consumption and carbon efficiency
  • Outsourcing non-core services to ‘green, cleantech’ providers
  • Streamlining and ‘greening’ departmental workflows
  • Automating corrective and preventive maintenance schedules and alerts to maintain facilities at peak resource and energy efficiency
  • Establishing carbon disclosure reports and creating sustainability scorecards
  • Exploring the feasibility and benefits of alternative and renewable energy sources (solar, wind, geothermal, hydroelectric, Co-generation, etc.)

By achieving greater efficiency of business workflows and facility operations, carving out occupancy costs and implementing environmental sustainability measures not only makes good business sense but, it’s the right thing to do for the environment.

Back in the day ‘tree hugging, do gooders’ were pushing for recycling, turning off the lights, adjusting the office thermostat and copying on both sides of paper. Being good to the environment seemed like an expensive nuisance. Now? It makes fantastic business sense due in large part to the fact that, “you don’t pay for what you don’t use.”

What do you think? What are your ideas of how you could implement cost avoidance initiatives that support an overall real estate strategy and help you don’t pay for what you don’t use?


The Window of Opportunity in the IWMS Market

July 1, 2010

The following was re-posted with permission after its publication on July 1, 2010 in the online outlet, IWMSnews >>> http://www.iwmsnews.com/2010/07/the-window-of-opportunity-in-the-iwms-market/ as a Guest Editorial

In a recent post entitled, “The Convergence in Corporate Real Estate,” (6/21/10) I cited three dynamics that will present challenges and opportunities for the (Integrated Workplace Management System) IWMS providers in the coming months creating a window of opportunity.

Each of the following elements on their own offers unique challenges but, the combination of them will create a critical need among corporate real estate departments to respond or they will lose opportunities to contribute meaningful value to the organizations they support.

  • The intensifying focus real estate will receive from the C-Suite as a result of the FAS13 changes coming into effect in January, 2012 that will capitalize future rent obligations bringing millions/billions of dollars onto the balance sheet;
  • The increasing need for organizations to reduce real estate related operating expenses thru lower occupancy costs; and,
  • The desire among corporate leaders to achieve environmental sustainability through LEEDS certified design principles, effective energy management and building efficiency.

Above all, companies will need to access reliable, real-time actionable business intelligence if they are to comply with changing regulations and keep up in measuring and managing their companies real estate portfolio of leased and owned assets.

IWMS providers will have a relatively short window of just 18 months to define what that can provide, communicate their unique selling propositions and develop a “rapid to deploy” model if they are going to be successful.

Companies will be faced with a decision to utilize either their ERP, IWMS, a point solution, “do nothing” or employ the rapidly acceptable alternative of “cloud computing.” Each strategy has its own Pros and Cons.

Enterprise Resource Planning (ERP)

PROS – Large installed base with a great deal of investment by the company who would have a strong desire to have all real estate rent rolls, depreciation schedules, occupancy cost data and work processes integrated as part of the company’s general ledger.

CONS – High cost to deploy and in most cases limited functionality to address the day-to-day operations in automating space management, work orders, move management, etc.

IWMS

PROS – Better suited to address repetitive work processes and a higher level of adoption and usage at the facility level.  In many cases, the IWMS is the system of record for CRE and facilities personnel who are collecting the data at the property level.

CONS – Lack of integration with the GL to achieve portfolio-wide financial performance data. Will likely cede the financial aspects of leases and depreciation over to the GL and remain the system overseeing the operational aspects in the life cycle.

Point Solutions

PROS – Fastest and most cost effective alternative to deploy.

CONS – Lack the robust functionality demanded by today’s larger, companies who are challenged to gather/report consistent data across the entire enterprise.

 “Do Nothing”

PROS – Least cost alternative.

CONS – Puts the company at grave risk with a failure to comply and loses valuable opportunities of collecting occupancy cost data in order to implement initiatives to reduce operating expenses.

Cloud Computing

PROS – Focuses comprehensive information to ‘executive dashboard’ summary level, real time information. A very cost effective approach that leverages investments made-to-date and combines financial data from the GL with work process functionality from IWMS systems and point solutions.

CONS – May require involvement from consultants and IT architects to create a seamlessly compatible platform.

In light of these alternatives and the limited time/resources companies have to collect, measure and manage the data the challenge will fall to the IWMS provider to define, develop and execute an effective go-to-market strategy. IWMS providers MUST have depth of functionality in full life cycle operational management; detailed and rolled-up occupancy cost data and work processes; and, a tightly integrated environmental sustainability offering.

The good news is that this convergence in the market now brings every FORTUNE 1000 company back into play as a prospect and could provide a HUGE boost for those technology companies who are agile enough to get in front of the right decision maker, articulate their value proposition and, most importantly, deliver a solution in the old adage, “on time and on budget.”

The question becomes, are you ready to seize the moment in this limited window of opportunity?