Summertime, right? Time for vacation with family and to regroup before the blur of activity in the post-Labor Day fourth quarter? Wrong.
For most of you, the month of August is about hungering down in a conference room converted, “war room” with co-workers crunching numbers to prepare your real estate budget for departmental and corporate approval.
As you know, the budgeting season can be a tedious process to track down information, project internal charge-back costs to offset expenses, calculate macro interest rates, collect data from various systems and sources, and project/reconcile budget-to-actuals.
But, you don’t have to go visit a rocket scientist or ask a brain surgeon to know we are still amidst difficult financial times for most companies and budgeting is getting more and more difficult. The challenges you face are how to reduce operating expenses and enhance asset/enterprise value. But, now you’re being asked more and more to align the real estate portfolio with corporate environmental goals while achieving an acceptable rate of return.
How are you going to do find monies in your budget to create a sustainability strategy with so much less? The Sustainability Roundtable, Inc. (SR Inc.) and their most recent research just might have some of the answers.
SR Inc., in their report, “Allocating Resources for Sustainable Outcomes” found that:
- Sustainability upgrades can have a substantial impact on the enterprise bottom-line to reduce operating and maintenance costs, mitigate carbon impact, improve employee productivity and increase asset value.
- Capital allocations to improve indoor environmental quality can be more cost-effective and create greater enterprise value than energy conservation and efficiency investments.
- Determining the relevant metrics and qualifying some sustainability key performance indicators (KPI) is difficult but methods are emerging measure intangible benefits.
- Base financial models such as simple payback and ROI are inadequate to assess the real costs and benefits of most sustainability projects.
- Energy performance can be benchmarked, monitored and evaluated, and therefore energy efficiency upgrades are high-priority for innovative finance programs.
But, you don’t own all of your facilities and have little control on the pass through expenses from your landlords in your current lease. SR Inc. has conducted some breakthrough research in a report entitled, “More Sustainable Leased Space,” where the adoption of ‘green lease’ language and other measures can help you achieve greater sustainability and reduce occupancy expenses. The research found:
- To overcome conflicting priorities and the barriers that hinder the move to more sustainable leased space, leading companies develop a strong business case aligned with corporate goals, conduct total lifecycle accounting, adopt “green” leases, and gather data for sustainability KPIs to benchmark internally and externally.
- Many corporate tenants pursue LEED-CI or BREEAM interiors to reinforce credibility, provide brand recognition and engage employees/clients. To avoid administrative burdens of formal certification but still obtain the benefits, some choose to ‘design to LEED-CI’ but not certify.
- To achieve cost-effective sustainable leased space and certification, CRE leaders give preference to those buildings that are ENERGY STAR rated or whose landlord has demonstrated a commitment to sustainability.
SR Inc.’s Vice President of Research and Consulting, Irina Mladenova claims, “overestimating certification costs and setting unrealistically high hurdle rates based on a simple payback analysis are typically the biggest barriers in the move towards more sustainable leased space. When real estate executives hire consultants to lower the documentation and filing cost but do not overpay them and when a life-cycle cost analysis rather than a simple payback analysis is used to establish hurdle rates, the additional costs to achieving green building certification is in fact far less (0-2%) than many real estate professionals assume. And, there is an increasing recognition that green buildings result in significant, yet hard to quantify, health and productivity benefits.”
The challenge to find monies in your budget for sustainable real estate is no longer a cost benefit trade-off. The budgeting process may be arduous but, there is clear evidence that you can achieve a more sustainable real estate portfolio by allocating resources where they will have the greatest impact and implement initiatives that are more about changing behavior than being capital intensive. And, besides, budgeting for sustainable outcomes is a heck of lot easier than rocket science and brain surgery.
If you would like to learn more about how you can create a budget with greater sustainable outcomes you can download SR Inc.’s research: “More Sustainable Leased Space,” (http://sustainround.com/research/leasedSpace.php); and for a copy of “Allocating Resources for Sustainable Outcomes” please contact Larry Simpson, EVP of Advisory Services at firstname.lastname@example.org.
(The author is Larry Simpson, Executive Vice President, Sustainability Roundtable, Inc. who can be reached at email@example.com. Additional posts can be found in SR Inc.’s Forum found at http://www.sustainround.com/forum/ )