Sustainable Building | Case Study 05, Bottom Line

Sustainability

High Performance Buildings deliver

On the Bottom Line

In early decisions about a building project
the best financial choice may be to create
a healthy, productive working environment.

To see why, look at the Cost Proforma in this report.

High Performance Building Improvements Result From:

high benefit lighting techniques
access to natural daylighting
superior indoor air quality
individual control of heat, light and ventilation

Here Are Three Case Studies:

At West Bend Mutual Insurance Headquarters

40% reduction in energy
early estimate of 16% productivity increase with 4-6% increase attributed to individual work station environmental control
thermal condition complaints dropped from 40 per day) to two per week

At Verifone

50% energy savings
absenteeism dropped 40%
productivity increased 5%, reducing payback time to under one year -- a 100% ROI

For Retail Sales

In a California study of 108 "big box" stores, two thirds had skylighting, one third did not.

Skylighting boosted sales by 40 percent.

Here are other improvements you can expect from High Performance Building:

reduction in liability insurance
reduction in workers compensation cases
increased market value up to 100%
decreased energy costs up to 90%
decreased O and M costs up to 73%
overall paybacks of under a year, and,
rates of return that exceed 1000%

Additional case studies in our report on Productivity Improvement

Here is why High Performance Building makes financial sense

Buildings consume 40 percent of the world's total energy, 25 percent of wood harvest, and 16 percent of water consumption, according to the U.S. Department of Energy's Center of Excellence for Sustainable Development.

But ... only 2 percent of the 30-year costs of a building are in its initial construction ... another 6 percent is expended on operations and maintenance and the remaining 92 percent is spent on the people who work there. A one percent savings in personnel costs could justify increased construction cost for an improved working environment.

Or, looking at annual operating expenses of commercial space on a dollars per square foot basis, by far, the largest item is salaries, followed by rent. Operations and maintenance and energy costs are relatively insignificant. A one percent savings in salaries -- or a one percent productivity improvement -- of $2.00/s.f./year, exceeds either O&M or energy costs.

In early financial decisions made for a building project consider these possibilities (based on High Performance Building case study evidence):

If daylighting could increase retail sales by 25%, retailers might be willing to increase rent by 10%, from $20.00 to $22.00 per square foot to achieve these benefits.
If daylighting and indoor air quality improvements could achieve a total productivity improvement of just 3% ($6.00/sq.ft./year), then employers might be willing to increase rent by $3.00 per square foot per year to achieve these results.
Case studies indicate these building improvements can also result in reduced operation, maintenance and energy costs of 30% or more. They also indicate that increased "desirability" can retain tenants, perhaps reducing vacancy and credit losses from 8% to 6%.

To compare a "Standard" building project to a "High Performance" project in a proforma, the following assumptions were made:

Each building is mixed use, with 20,000 sq. ft. of retail space and 80,000 sq. ft. of office space
"Standard" building construction cost, exclusive of land, is $100.36/sq.ft.
The "High Performance Building" (HPB) optimizes daylighting to reduce electric lighting requirements. This also reduces HVAC requirements. Increased cost for daylighting and controls will be offset by reduced HVAC costs.
A raised floor for air distribution will be used in the HPB, at an added core and shell cost of $2.00 per sq. ft.
individual office workstation control of ventilation, heat and lighting will be provided at a cost of $1,500 per workstation, increasing tenant improvement costs from $10.00 to $14.40 per sq. ft.
Resulting HPB construction cost, exclusive of land, increases to $112.58/sq.ft. Note that many case study examples were constructed with no increase in construction cost.

A COST COMPARISON
a "Standard" Building Project and a "High Performance" Building Project

Cost Comparison

Income and Cost Proforma Comparison Results

Value in a commercial building is determined by Net Operating Income (NOI), not by how much it cost to build it. The only ways to increase NOI are to reduce operating expenses (O&M, energy, management and vacancy and credit losses or to find ways to increase rents.

A quick look at the Average Annual Commercial Expense chart on shows that operating expenses are insignificant compared to rent and salaries.

This proforma shows that increasing rent by 14%, while reducing O&M and energy costs by about 30% and reducing vacancy and credit losses by 25%, increases NOI by 27.6% or nearly $400,000 per year.

Because the "High Perfromance Building" loan amount reflects increased construction cost, net cash flow (NOI less loan payments) increases by just under $300,000. This is, however, an increase of 63.75% over the "Standard" project.

This increase in NOI increases project value by just over $4 million, an increase of 27.7%.

For those who build, lease up and sell, profit is the motivating factor. Even for those developers and short term owners, High Performance Building strategies that emphasize long term value increase profit at the proforma level of investigation from $3,456,349 to $6,428,973, an increase of 85.8%, or nearly $3 million.