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Energy Star: The Business Case

Many building owners have been benchmarking their portfolios for years. And they're making improvements, to raise their energy scores even where they're not made public by new disclosure regulations. What's the business case for a landlord to make buildings more efficient, when it's not yet required by law, and doesn't directly save them money? Denis Du Bois interviews Jack Beuttell, Global Sustainability Manager for Hines, a real estate investment, development and management firm.

This is a highlight from the Building Priorities Briefing.

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Denis Du Bois:
Our next guest is Jack Beuttell, Global Sustainability Manager for Hines, a real estate firm based in Houston.

Jack, you're in charge of sustainability for a company that owns hundreds of buildings. Give us a sense, if you would, of the size of your portfolio.

Jack Beuttell:
Hines is a real-estate investment, development, and property-management firm. We operate in 17 countries and about 70 or 80 cities in the United States. We own and manage a vast portfolio. Our managed portfolio is approximately 120 million square feet in the US. It's primarily office product, but we also manage some other product types, including sports stadiums, biomedical facilities, and other product types: retail, some industrial.

Now, these disclosure requirements we've been talking about don't kick in, in some cases, until 2011. But I understand you're not waiting.

Yeah, that's correct. We've been a partner with Energy Star since 1999, when Energy Star expanded its program to the commercial real-estate sector. And in DC, our entire portfolio has been benchmarked for a number of years, and most of the properties there hold the Energy Star label.

Portfolio-wide, in the United States, we benchmark -- or strive to benchmark -- 100 percent of the properties we manage. There are some exceptions, for various reasons, to that rule, but that is certainly our policy, and we have achieved Energy Star labels in approximately 75 percent of that managed portfolio.

Another percentage of that portfolio has achieved or is pursuing LEED certification. We've got approximately 182 LEED certified, pre-certified, and registered projects. And that represents about 95 million square feet, which is substantial.

What indication do you have that benchmarking scores or certifications like Energy Star mean anything to the occupants and tenants in the buildings?

I think Energy Star says that there's a vast awareness of the Energy Star brand in the United States. I think it's the number-one household brand in the United States according to "Good Housekeeping." So they're familiar with the brand, with their refrigerators and other residential appliances, so that carries over into their workspace.

So there's brand recognition with the Energy Star label. And as more and more people become aware of issues relating to sustainability and energy efficiency, those people are asking questions to their employers. The employers are asking questions to building managers. Of course, that rises to the building owners, and that's how the pressure is applied. That is, in part, why Hines pursues the Energy Star label.

What are some of the other business reasons behind making the investment to get Energy Star ratings or to get LEED certification for a building?

Hines has pursued the Energy Star label, historically, primarily for energy efficiency reasons. Obviously, there is tremendous value in understanding how a building performs in terms of its energy consumption profile. And there is that old adage: you can't manage what you can't measure.

So Energy Star and other benchmarking tools help property managers and owners like Hines understand how a building is performing relative to itself, historically, and also relative to other buildings. Multiple academic studies corroborate that sustainable office properties, or those with a LEED or Energy Star or comparable label, have higher occupancies, rental rates, and transaction values, and, in some cases, returns.

We have pursued these labels for two primary reasons. One, because investors are asking us about it. These labels are indications to our investors that we are developing or managing consistent with a class-A approach to real estate.

On the other hand, tenants are beginning to ask for these things, and there is growing awareness among tenants on the importance of sustainability, and the impact of certain strategies in the office space on occupant health and productivity.

So here you are. You have a head start on raising the Energy Star score on your buildings. Are you concerned that a mandate for rating all buildings will take away some of the market advantage you've created for yourselves?

There's probably a little concern there. I mean, we never really know what's coming out of the government and how it will affect us. In many cases, we can't control that, so the best strategy is simply to improve energy efficiency as best we can now.

In some cases, we actually think that disclosure and these various rating systems that are coming out will actually benefit Hines, because they highlight -- they show more transparently -- how well Hines is performing versus its competitors. So, in many cases, we feel like it will actually help us.

So are Energy Star and LEED certifications the ultimate goal here? Have you thought about what comes after that in terms of improving the sustainability of buildings?

The one thing that Hines is focusing on is energy consumption in the tenant space. Historically, we have done a very good job at designing, constructing, and delivering top-rated, green, sustainable office properties to the market.

We've also done a very good job at operating properties, and that's evidenced by our success, both in the LEED and Energy Star programs.

The sort of third aspect to energy consumption or energy efficiency in office properties is what I like to call the last frontier, and it's what happens in the tenant space. Typically, building managers and owners have little to do with what happens in the tenant space after the tenant signs a lease. Hines is working on strategies to partner with tenants, developing tools to help educate them on what they can do in their space to enhance the sustainable features and operations of that space.

One of the things that Hines did in 2009 was release a program called Green Office for Tenants, and it was based on a program we developed initially for our tenants. The program is complementary with the LEED for Commercial Interiors and Energy Star Bring Your Green to Work programs, which are two very successful and important programs.

Our program looks at some additional questions and elements and breaks things down; breaks strategies down to seven categories in which occupants can take proactive measures to enhance sustainability.

Those are things like energy efficiency, recycling, supply-chain sustainability, commuting, and other things. Once a tenant achieves 70 Leaf Credits, which is what we call the point system, they are awarded with a plaque and the designation of Green Office.

This has been a very important and well-received tool to engage our tenants in the energy-efficiency process, and we think it's very important to continue to find solutions to engage those tenants to control what's happening in that tenant space.