Corporate Real Estate and Asset Management

Micro Adaptive Reuse and the peer-to-peer revolution

couchsurfingI am on a flight to San Francisco to attend Greenbuild. I am not staying at a hotel, opting instead to take the plunge into "couch surfing", a slightly less scary option than hostels. Okay, so I am not exactly couch surfing, but I am staying in someone else's home and sleeping in someone else's bed... still pretty creepy by many standards. I used a matching service called Airbnb. Similar to the old music peer-to-peer services like Kazaa or Napster, Airbnb connects individuals with a marketplace for non-traditional lodging alternatives. Unlike many file-sharing sites, this legitimate service will not have the feds knocking on your door! I am exploring this phenomena as a real estate solution that is based on the concept of adaptable reuse... on a much smaller scale. I arrived in Oakland right on time and as a sustainable traveler, I took the Air BART to the BART to Powell Street Station. There I connected with my landlord, walked over to Mint Plaza and settled down with a cup of joe to wait. I did not have to wait long, as she arrived very quickly with the apartment keys. We walked upstairs and she showed me the basics, then left me with the key and a set of instructions. Easy peezy! I walked down a few blocks to Whole Foods and picked up groceries for the week. I feel right at home.

I have been here for two days now, and things are going great. I would suggest that if you go down this path for lodging, you be comfortable sleeping in someone else's bed and using another persons utensils  All in all, I am happy with this choice and look forward to the rest of the trip and future "couch surfing" opportunities. If you want to branch out on your own travels, here are a few sources to get you started.

  • Airbnb: an obvious choice, given the mention in this article. Airbnb is easily accessible on the web and through an app on your mobile device through the iOS or Android app stores.
  • VRBO: Vacation Rentals By Owner (VRBO) is a site that I have used in the past. From impromptu trips to Europe to local accommodations for visiting family members, VRBO has been a solid experience.
  • Homeaway: Like VRBO (and co-owned), Homeaway offers vacation homes that provide travelers with hotel alternatives. The company also makes it easy for vacation rental owners and property managers to advertise their properties and manage bookings online.
  • Flipkey: Similar to Homeaway and VRBO, Flipkey specializes in vacation homes. It is owned by Tripadvisor and provides user reviews and commercially managed properties, as well.
  • Roomorama: Better for Europe and Asia stays, this is a good site for travelers headed abroad. 70 percent of the available properties are second homes that are handled by a management company. It also has features similar to Hipmunk, and allows owners to make offers based on ads from searchers. It also uses established security measures to raise the quality of experiences for both owners and renters.

From the Experts: Top 10 Real Estate Issues

The Counselors of Real Estate (CRE) recently identified common cross-industry issues that are impacting real estate executives. These issues cover shifting demographics, capital markets, new uses of technology, and the role of sustainability.  My interpretation of the results are below:

  • Demographics: An aging population will have an impact on demand for real estate, however millions of new pensioners will push fund managers to focus on asset allocation decisions on stable asset classes, including real estate. On the other hand, the redirection of public funds to retirement systems will challenge the ability to provide basic services and infrastructure.
  • Capital Markets and Finance: Liquidity leads the list of concerns. Indeed, access to capital is causing uncertainty in many industries. Specifically for real estate, the capital "hangover" from previous over-allocations will continue to limit capital for some time into the future. That being said, there is a spark of hope as cash-strapped state and local governments create development opportunities by leveraging their hard assets through Public-Private Partnerships. The dynamics of political gridlock and global economic crises, paired with civil discord in pockets around the world are also concerning for future fundraising efforts.
  • Technology: the increased use of technology in process automation and alternative workplace strategies is shrinking the need for industrial and office space. Meanwhile, the internet is turning traditional "brick and mortar" stores into showrooms, as shoppers turn to web-shopping rather than cash-and carry approach, resulting in less demand for retail space.
  • Sustainability is well-integrated through global enterprise. From corporate governance and management to reporting systems and supply chains, executives are building sustainability into the fabric of their organizations. Real estate is still and will continue to be the primary focus in many corporations' sustainability strategies.

Energy Conservation Measures in the Federal Government

Sustainability has been a hot topic in the private sector for the past several years. Think “Clean Tech” with over $13.6 billion dollars of private equity and venture capital invested in solar energy generation, new battery technologies and alternative transportation vehicles in the last five years (according to the National Venture Capital Association). Lately, the Federal Government has been playing catch-up with the private sector by introducing progressively more stringent requirements, new sustainability initiatives, and more executive orders that encourage and mandate Federal agencies to address energy consumption and advance energy reduction efforts.

The Progression of Federal Government Involvement in the Energy Conservation Marketplace

Over the last 20 years, there has been a bi-partisan push to address national energy needs through the development of new energy sources on the supply side, and the encouragement of reduction in energy consumption on the demand side. These two approaches combine in several public legislations and executive orders that have matured greatly over the past five years. Many experts consider the introduction of the Energy Policy Act (EPAct) of 1992 to be the foundation of modern public sector involvement in the energy marketplace. It set forth basic resource conservation requirements for water management and energy management. It was followed by the Department of Defense (DoD) Authorization Act of 2004 that recognized the arduous acquisition process of the Federal government and streamlined the process for obtaining energy management services, which in recent years (2011) addressed, specifically, the competition requirements for Energy Savings Performance Contracts (ESPC). The EPAct of 2005 further defined the requirements of energy conservation and set specific targets for reduction in energy consumption, as did the Energy Independence and Security Act (ESIA: pronounced “ē-sah”), and Executive Orders 13423 and 13514, established by President Bush and President Obama, respectively. In fact, these documents set forth goals of a 30% reduction in energy use by federal buildings from 2006 through 2015; and a 16% reduction in water use by federal buildings from 2008 to 2015. Most, if not all, of these documents refer to Energy Conservation Measures (ECM) as a way to achieve these (and other) goals.

What Exactly Are Energy Conservation Measures?

Energy Conservation Measures (ECM) are the government’s way of categorizing means and methods that Agencies can use to achieve the goals set out by the various executive orders and public laws. The ECM include items such as the installation of Building Automation Systems (BAS) and advanced metering, upgrades to lighting and HVAC systems, switching to renewable energy sources, and a renewed focus on continuous load management. ECMs are often categorized according to the following areas, or other similar groupings:

  • Mechanical or Heating Ventilation and Air Conditioning (HVAC): Oftentimes, these measures can be as simple and low cost as installing occupancy-based controls, such as motion sensors, and programmable thermostats. It can also include rezoning a building, upgrading the chiller or boiler plant, and installing more efficient systems, such as geothermal. These upgrades can easily be the most expensive among all ECMs.
  • Lighting: Replace older lighting with more efficient fixtures and upgrade bulbs in existing fixtures. Install day lighting controls and do not forget about the site lighting by installing motion sensors, timers, and more efficient bulbs in existing exterior light fixtures.
  • Energy Sourcing and Management: Typically, energy is consumed by buildings as electricity generated from fossil fuels. This consumption can be reduced by installing solar energy; wind power; cogeneration plants; or capturing, storing and reusing energy that might otherwise be lost in normal operations. Often, energy use in a building is poorly understood, due to a lack of metering to collect data or the lack of analysis of existing data. Resetting timers, installing motion sensors, or turning off redundant Ethernet connections can be low cost initiatives, but rely on effective energy management data collection, interpretation, and reporting.
  • Load Reduction - Building Envelope: The primary elements for reducing the load on a building involve installing better wall and ceiling insulation, replacing inefficient windows/doors, caulking and sealing air leaks, and installing “green” roofs. These projects reduce the overall demand for energy by the building systems and control the exchange of controlled climate.
  • Load Reduction - Power Management: Reduce plug loads by restricting personal printers, etc., switching to energy saving office equipment (i.e. Energy Star rated), and installing automatic shutoffs for equipment that is not used often. It is also important to integrate these ECMs with the latest initiatives in cloud-based computing. The majority of plug load demand is generated by server rooms, which can be managed by consolidating fragmented data centers, as well as increasing capacity and reducing redundancies by moving to cloud technologies.
  • Equipment: This is somewhat specific to the use of High Efficiency (HE) and Variable Frequency Drive (VFD) technologies for motors and pumps. These types of implementations can help extend the equipment lifecycle and service life; increase throughput while reducing total usage; and reduce power loads.
  • Water Use and Treatment Systems: These projects are designed to reduce the overall consumption of water by installing low flow fixtures, treating and recycling water for use in “gray water” scenarios, and moving towards timed or instant water heaters.
  • Operations and Maintenance: This can be as simple as establishing and executing a program that includes routine inspections and cleaning of equipment, such as air coils. It also includes commissioning and retro-commissioning to establish performance baselines and measuring against optimal performance.

Near-term Impacts on Federal Government Agencies

As of today, there are two primary ways to implement ECM projects. The first is through traditional appropriation methods through congressional budget requests. In this process, the Agency would draft capital investment plans to include ECM projects in future budget requests. This process can take two years at a minimum, more if the projects require prospectus review and approval, in which case, the Agency must draft Exhibit 300 documentation and possibly go through multiple rounds of passbacks until the project(s) are approved. This could add many more months to the process, and delay critical milestones in agencies’ sustainability strategies.

Alternatively, agencies can use Energy Savings Performance Contracts (ESPC) to address ECM implementation plans. This allows federal agencies to engage private sector Energy Savings Companies (ESCO) to leverage private financing mechanisms to invest in energy efficiencies in exchange for the cost savings that these investments generate. To learn more about the ESPC process read my article on Energy Savings Performance Contracts in the Federal Government.