Why Does a Building From 1971 Function Better Than a Brand-New LEED Building?

Why Does a Building From 1971 Function Better Than a Brand-New LEED Building?

As FirstFuel’s Domenic Armano explains, it’s all about management.

Domenic Armano

As the energy efficiency industry gets more sophisticated, building owners and managers are increasingly interested in optimizing energy use with new technology and state-of-the-art equipment. It’s critical to understand, however, that while next-generation systems can certainly help support energy efficiency initiatives, they are essentially worthless if not properly managed.

I recently compared two buildings from FirstFuel’s database of thousands of remote audits: a new LEED-certified structure with all the latest energy-efficiency bells and whistles and an office building from 1971 with dated but well-maintained infrastructure. The assets of the respective buildings hid a deeper truth about how well their energy use was being managed.

The new building, despite having a large solar PV array and natural gas-fired condensing boilers, was wasting thousands of dollars annually due to poor system management. In fact, I found that the building had the potential to save 15 percent of its annual energy costs by making simple operational adjustments. For instance, by turning off lights and computers after the workday, the building operators could save an impressive $3,000 per year.

Not only that, but operators could save an additional $3,650 annually by modifying the sequencing of their brand-new gas boilers. Improving setback scheduling would save an additional $2,600 in gas. Other operational changes involved tweaks to data center cooling, lighting controls, HVAC scheduling control, HVAC boiler sequencing, HVAC boiler plant operation and maintenance, HVAC efficiency testing and air fuel ratio.

The older building, which was operating with much more dated equipment, such as vintage T-8 lighting and a fifteen-year-old gas boiler, required far fewer operational changes. Advanced meter data analytics showed that the building had a faster shutdown time than the newer structure and demonstrated greater alignment between its systems operations.

For example, the ventilation was well tuned with the heating and cooling; the structure had the proper night setbacks; and the building used free cooling from outdoor air. The majority of the building’s real opportunity was in retrofits, as property owners chose to push out capital expenditures for a few years longer by doing the best they could with the equipment they had.

This comparison is not meant to cast blame on property managers who have invested in revolutionary energy equipment. Rather, it serves as a cautionary tale about how even the newest of buildings can consume unnecessary energy. No two buildings are exactly the same, but through innovative analytics solutions that track energy use habits in real time, property managers can gain insight into specific ways in which buildings are wasting energy. With this insight, those managers can easily and effectively take the actions necessary to eliminate unneeded usage and slash utility costs.

By being mindful of how a particular building operates, property managers can determine the best ways to unlock energy efficiency for that structure through easy and free operational changes. If property managers across the nation adopted a similar analytical approach to determine energy savings, just think of the millions we would all save and the climate benefits we would reap.

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MEDICAL MARIJUANA, GOOGLE GLASS AND OTHER NEW SUBJECTS FOR ASSOCIATION USE RESTRICTIONS.

Summer is the perfect time for many associations to speak with their association attorney about updating their rules and regulations. I have been busy for the past few weeks reviewing and updating rules and regulations for all types of communities. Naturally, one of the rules which I have been discussing at length was whether or not secondhand smoke had become a problem and should be addressed.

More and more community associations are addressing the issue of cigarette and cigar smoke and even vapors released by e-cigarettes. However, very few address the issue of marijuana smoke.

Florida Governor Rick Scott recently signed the Compassionate Medical Cannabis Act  into law which allows for the limited use of medical marijuana for persons suffering from epilepsy, cancer and ALS. In addition to this law, Florida voters will be asked to decide in November if an even more expansive use of medical marijuana should be allowed by amending the Florida Constitution to permit such usage. Early polls indicate widespread support for this referendum.

Twenty-two states and the District of Columbia now have some form of law that permits the use of marijuana for varying medical purposes.

Of course, this new right is accompanied by a countervailing concern about how the use of and growing of marijuana might impact neighbors living in shared ownership communities. The starting point for associations in other states which have preceded Florida on this path has been the passage of rules limiting the smoking of medical marijuana in common areas as well as on balconies, patios, front and back yards.

Regardless if you see this as a personal-freedom issue or just another potential usage that should be regulated by your association, the fact remains that new laws, new technology and new products coming on to the market bring with them the need for boards and residents to evaluate how they wish to see their communities operated.

Another example of a rule which was requested by an association board for the first time recently pertains to wearable technology. In this community, a few residents using Google Glass presented questions about security risks as well as data and personal privacy concerns. Wearable technology encompasses not just Google Glass but other wearable devices such as health monitors, watches, GPS devices, cameras, etc. The basic concern with wearable technology is that there will be no telltale signs that the tech users are taking pictures or video or tape recording conversations. In fact, the very appeal of wearable technology is that it can be used with little or no effort.

Whether we are talking about smoking marijuana or wearing Google Glass, any usage which falls within the definition of a nuisance can be regulated as such. Otherwise, your association may wish to get a little more specific about these and some other new member behaviors which have popped up on your radar.

5 Reasons Occupancy Is Growing Stronger

Most people think that when a flood of new supply hits the apartment market, occupancy and effective rents will go down. That’s true in most cases, but not in the first half of 2014, according to Axiometrics research. Even though 180,000 units have come on line in the past year, with thousands more on the way in the third and fourth quarters, occupancy and effective-rent growth have been at their highest levels since almost the turn of the 21st century.

Occupancy in May was 95.0 percent, the highest since Axiometrics started reporting monthly in April 2008. Early-release second-quarter 2014 numbers also show occupancy at 95.0 percent, the best quarter since the second quarter of 2001.

Additionally, the 2Q14 statistics show the quarter-over-quarter effective-rent growth rate at 2.4 percent, the strongest performance since the third quarter of 2000.
So why is this cycle different from most others? Here are some answers:

1. Supply is still in catch-up mode.
The influx of all these new units hasn’t been felt yet because almost nothing was built in the early part of the Great Recession recovery, with financing so hard to get. Even deliveries in 2012 and 2013 grew inventory by only about 1.3 percent, below the long-term average of 1.5 percent. And the onslaught of 2014 deliveries, which is expected to total the most since before the recession, will be below or barely reach the long-term average.

Moreover, the number of new units doesn’t account for demolitions and conversions into condominiums, senior housing, and the like. Demolitions, especially, have been occurring at a growing rate as buildings from the 1970s, 1960s, and earlier become obsolete.

So, this game of catch-up has allowed occupancy to rebound more quickly than usual. Occupancy in some metropolitan statistical areas (MSAs) is the highest it’s been this century, which is leading to a sustained period of strong rent growth.

2. Single-family homes aren’t as popular as they once were.
Apartment construction in the past couple of years is about the same as it was in the last cycle (2003 to 2009), but there’s one big difference: Not as many people are moving from apartments to single-family homes.

The homeownership rate of 64.8 percent in the first quarter of 2014, as reported by the U.S. Census Bureau, was the lowest since the second quarter of 1995, when the rate was 64.7 percent. Single-family housing starts have flattened, with negative growth in four of the past 12 months, after a recovery from late 2011 to early 2013. The gap between single-family and multifamily starts has narrowed considerably in the past year.

These figures mean less overall residential supply available to residents, which means higher prices. Even though mortgage-qualification standards are loosening a bit from the noose of two years ago, the price of homeownership is still too high for many people. So, they stay in their apartments longer, even if the rent is somewhat higher.

Which leads us to …

3. Some people are scared of owning.
Many people, especially young adults, know someone who was hit very hard by the foreclosure crisis of the mid-2000s. They saw their parents, an aunt and uncle, a friend’s parents, or a neighbor go through the heartbreaking process of losing their homes. They saw the equity vanish in a minute.

As a result, what was once the American dream of homeownership has faded. Millennials, for the most part, are eschewing the suburban home and its negative connotations and are choosing apartment living instead, especially in the urban core, because they want to be closer to work and play and not have to rely as much on their cars. Occupancy and effective-rent growth have eroded slightly in some urban-core submarkets, but the new units in the center city are, for the most part, being absorbed.

Additionally, life-cycle events, such as marriage and parenthood, are occurring later in life, so Millennials can postpone the move into a single-family home. And many Gen Yers are still paying off student loans, meaning they lack either the credit rating or the 20 percent downpayment needed for a home, according to a July 1 article in Digital Journal.

This means we’re becoming a “renter nation,” as Nightly Business Report called it on its June 20 segment on apartment trends, which featured statistics from Axiometrics.

4. Many Millennials could leave the nest soon (finally!).
During the depths of the recession and into the early part of the recovery, many in the 25-to-34 age cohort were living with their parents because they either didn’t have work or were working at jobs that didn’t pay enough to leave Mom and Dad.

As job growth picked up, albeit not as much as the economy would have liked, some of these Gen Yers were able to move into a place of their own and let their parents breathe a sigh of relief—but nowhere near all those living at home could do so. Indeed, more than 5 million people in the 25-to-34 age group are still living with their folks, according to the U.S. Census Bureau.

If job growth were to start improving at a faster rate, more of those young adults could move out of their childhood bedrooms, and the apartment market would be that much stronger.

5. New apartment properties target a new market.
Most of the new supply is priced for the top end of the rental market. What is being delivered are generally Class A, urban-core or prime suburban properties that are likely beyond the reach of renters in existing, older units.

In other words, it’s very much a new breed of renter that will occupy these new units, though, certainly, some renters are upgrading to the newer, more expensive units. Still, that upward mobility, in turn, opens up units for those unable to afford the new, urban-core apartments.

The pent-up demand and decision to rent, not own, have caused a surge in both Class A and B effective-rent growth. Higher-income people are absorbing the newer, top-of-the-line units while others who couldn’t rent before or have found better jobs are lapping up Class B apartments—especially Class B+, which have many of the amenities and attractions as Class A units; they’re just a bit older and lower priced.

Much like the Great Recession and the subsequent recovery differed from the economic norm, the current apartment-market cycle is differing from previous cycles.
Stay tuned to see whether occupancy and effective-rent growth continue increasing through the rest of the year.

Jay Denton is vice president, research, and K.C. Sanjay, senior real estate economist, at Dallas-based research firm Axiometrics. They can be reached at jdenton@axiometrics.com and skc@axiometrics.com.

Build It Green Announces CEO Search 

Following CEO Catherine Merschel’s announced retirement, Build It Green and its executive consultant, Waldron, have begun our search for a new CEO. Full details can be found in our overview document (pdf).

Please forward this message and the pdf to any professionals who might be interested. All qualified candidates are encouraged to apply as soon as possible. To be considered, please visit candidates.waldronhr.com and submit your resume and a cover letter expressing your passion for the mission and fit for the role. Letters may be addressed to Jeff Waldron.

About the Position

The Chief Executive Officer oversees Build it Green and drives programmatic and operational initiatives in line with the organization’s strategy, which is set in collaboration with the Board and staff. Building upon BIG’s already strong foundation, the CEO will be responsible for further operationalizing an impactful, high functioning statewide organization.

Build It Green seeks a CEO who is genuinely passionate about the organization’s mission and can bring a combination of enthusiasm and a sense of urgency to make an impact in the residential green building sector. The CEO must be an innovative, entrepreneurial leader who can craft a vision for the future, and be experienced looking at the larger picture in order to strategically evaluation new opportunities.

For full details on the position’s key priorities and the ideal candidate profile, please view the position overview document.

10 Reasons Value-Add is an Apartment Asset Manager’s Number One Job Manager’s Choice

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With all of the new apartment supply hitting the market, it’s no surprise investors not in the merchant building game are turning to value-add rehab opportunities in multifamily. In fact, repositioning is so hot in the disposition space, forward pricing on class B value-add is practically approaching class A apartment real estate, with sub-five cap rates popping in major markets across the country.

Underwritten into these deals are valuation increases that reach 6 and 6.5 resale cap rates, sometimes within three years. Expectations like that make asset management perhaps the most critical job function within multifamily. Not only are asset managers assigned with keeping revenue and NOI steady when rents slow, they will also be tasked with identifying the most profitable rehab plays on value-add deals from the outset.

“Asset management is really the first line in any sort of value-add situation,” says Bonaventure Realty Group’s Elizabeth Karl. “From a big picture standpoint of evaluating the feasibility of a deal to taking an entire project through the whole entitlement process requires the balance of a lot of moving parts. Everything can look great on paper but at the end of the day it comes down to execution.”

At the Maximize: 2014 Multifamily Asset Management Conference (Maximize), we’ll look in depth in balancing these moving parts—. In addition to sessions on water and waste measurement, management and revenue, we’ll take a look at the top ten strategies for expense management that move the bottom-line. It’s basically the asset manager download of the biggest lifts that can be gained in the course of a multi-year holding period.

We know you can sketch out kitchen and bath upgrades in your sleep, so we invite you to join us for a deep dive into future initiatives that make sense for your portfolio. We’ll factor in time, hours, change management, and the entire financial impact of strategies to move the needle. Between sub fives in and 6.5s out, there’s a lot of asset management needle to move.

Register today to join us for Maximize, October 13-15 at the Omni Amelia Island Plantation Resort in Florida. We look forward to seeing you there. [http://mamconf.com/]

At almost $500,000 per apartment, a North San Jose building sale reflects market heat

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The sale of a new, high-end apartment project in North San Jose is setting the curve for Class A properties in that area during the current real estate up cycle, pricing out at about $498,000 per unit.

Zurich Alternative Asset Management paid about $86.7 million for the 174 unit, amenity-laden community at 121 Tasman Drive, according to two sources with knowledge of the deal. The seller was a limited liability company affiliated with the insurance giant Cigna and Oakland-based developer LCOR, according to title records.

The property, adjacent to the VTA Baypointe light-rail station, was completed in 2013 and was already 95 percent leased as of this past April. It comes as the North San Jose area has experienced rapid change in the last couple of years, moving from essentially a massive, low-density office park to an emerging community of relatively dense mid-rise residential and new office parks.

The transformation has been led by theIrvine Co., which has built several large communities in the neighborhood. The property at 121 Tasman is located near Irvine’s Crescent Village, River Oaks and North Park communities, and is also down the street from where Samsung Semiconductor is currently constructing a 680,000-square-foot campus at North First Street and Tasman Drive.

Investors in the area have also sunk big bucks into rehabilitating older R&D properties for modern tech tenants, such as TMG’s Champion Station, which includes several buildings formerly owned by Cisco.

The sale of the property by 121 Tasman Apartments LLC was arranged on the seller’s side by Stanford Jones, Philip Saglimbeni and Salvatore Saglimbeni, all of Institutional Property Advisors, a unit of Marcus & Millichap. Zurich was represented by Sean Bannon and Chris Edgar.

“Tasman is the first of the new vintage assets in the Golden Triangle to trade,” Philip Saglimbeni said in a statement to the Business Journal. “The majority of the developers with projects either underway, in lease-up or recently stabilized are long-term holders, which will likely translate to very limited near-term opportunities to acquire core Class A assets in the Bay Area. We had very strong interest in the deal from both institutional and sophisticated private parties.”

Driving investor interest in apartments is strong job and rent growth, which has only accelerated. As I wrote last week, average apartment rents in Santa Clara County jumped $124 in the second quarter, which is a year-over-year increase of 9 percent.

The 121 Tasman property includes bells and whistles like a spin room, video-conference center, outdoor fireplace lounge, dog park and demonstration kitchen.

Zurich Alternative Asset Management is an alternative investment advisor to Zurich North America, the huge insurance company. ZAAM currently manages about $2.5 billion in commercial real estate assets in the U.S. for its affiliates

49ers’ rooftop garden, solar energy propel Levi’s Stadium to LEED gold status

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View from the top: A 27,000-square-foot rooftop garden with low-water plants and rows of solar panels is one of several environmentally-minded features at the San Francisco 49ers’ $1.3 billion Levi’s Stadium.

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Pedestrian bridges decked out in solar panels and a living roof ready for private parties and photo ops might not scream professional football.

But those green design elements and others at the San Francisco 49ers’ new $1.3 billion Levi’s Stadium on Tuesday helped land the team its long-sought LEED Gold certification at the Santa Clara venue, which officially opened with a ribbon cutting last week.

The Niners earned 41 points on the 51-point scale for LEED certification, inching a few notches higher than the 39 points required for the sustainable building designation. With the points tallied, the team becomes the first in the National Football League to claim LEED Gold status for a new stadium.

Click here for a photo tour of Levi’s Stadium, and click here to see a by-the-numbers breakdown of venue features like 1,180 solar panels and 2,700 TVs.

The 49ers’ focus on LEED certification also exemplifies a push for teams across the sports world to better mitigate the environmental impact of their massive, energy-intensive events, as the National Hockey League has also recently detailed.

Rick Fedrizzi, president and CEO of the U.S. Green Building Council, said in a statement Tuesday that the 49ers have demonstrated “tremendous green building leadership.”

Though the 68,500 square-foot sports stadium obviously has higher brand visibility than any old building, office and residential developers throughout the stereotypically “green” Bay Area have also worked toward LEED certifications. The ultimate designation is LEED Platinum.

One of the most intricate environmental elements at Levi’s Stadium is a solar energy system that the team says will generate enough power to balance out the energy used at home football games — a feat called “net zero” energy usage. The team has two different sponsors in the solar energy field, though no financial terms for those agreements have been disclosed publicly, who have supplied and installed more than 1,000 solar panels.

Additional energy will likely be needed to power lights, concessions, outlets and other features at the stadium for non-49ers events at the stadium, the team has said