Although commercial contracts are more complex, the same concepts generally hold true as in buying and selling a home.
In selling a home, the seller wants a substantial deposit from the buyer, does not want to make representations about the home that will get him in trouble later, and wants to walk away from the closing without liability. The seller does not want the buyer coming back later alleging that the condition of the roof was misrepresented and asking for a new roof. On the other hand, the buyer wants to deposit as little money as possible, wants to know about problems in advance and wants to make sure that the home received at closing has no surprise problems.
Understanding key provisions in a commercial contract helps in negotiating the most favorable deal.
Property description. The real estate contract must be in writing, signed by the parties and contain a good legal description of the real property. It is also important to have a good description of leases, service contracts and personal property. Any exclusions from the sale need to be addressed. For example, the rights to architectural plans may be owned by the architect rather than the seller. The seller may also want to exclude its trade name.
Earnest money and inspection. Earnest money, which serves as a pool of funds for the seller to retain if the buyer defaults, is often not at risk until the end of an inspection period. In Texas, a contract with an inspection period is a form of option that is not enforceable without some type of consideration changing hands, so a sum of money in addition to the earnest money is typically paid to the seller.
Title and environmental. Contracts generally allow a buyer to review a title commitment and survey and to obtain an environmental report. A title commitment contains a search of the deed records and discloses record ownership and any encumbrances. The survey drawing should depict the encumbrances. It is key to look at the title commitment and survey together. The utility easement in the title commitment may look harmless, but the survey may show that it runs through the middle of a building. An environmental report prepared by an environmental consultant detects environmental issues and also provides the buyer with certain defenses to liability under federal environmental laws.
Estoppel certificates. An estoppel certificate is a signed statement from a tenant that confirms the lease documents and material terms of the tenant's lease. The certificate may provide a defense to the buyer in a post-closing lawsuit by a tenant claiming that it had a side deal with the former seller\landlord to change the terms of its lease.
Operating covenants. The buyer will want approval over how the property is operated to make sure that no costly capital improvements are made and no below-market leases or new service contracts are entered into. Prior to the earnest money being at risk, the buyer typically has less approval rights. Once the buyer's earnest money is at risk, the buyer is typically accorded greater approval rights.
Representations and warranties. The seller will generally want to sell the property with limited representations and warranties, while the buyer will want more in order to flag issues. The parties will also often negotiate whether the representations and warranties are to be qualified to the knowledge of only certain individuals, the length of time they will survive closing, whether a parent company guarantee or post-closing escrow of the purchase price will stand behind them and whether there will be a cap on potential recourse against the seller for breaches.
Remedies. Contract remedies for default are negotiable. If the buyer defaults, the seller is often allowed to retain the earnest money. If the seller defaults, the buyer is often given the choice of either terminating the contract and receiving the earnest money back or suing for specific performance. Buyers often negotiate for the right to recoup out-of-pocket inspection costs in addition to the return of the earnest money. If remedies are to be limited, the contract should clearly state this intention, otherwise a court may construe the list of remedies to be permissive as opposed to exclusive.
Market conditions and resulting leverage drive the negotiations of many contractual provisions. If there is good communication between the parties, reasonable compromises can be made. The seller can hopefully obtain a fair price for the property, while the buyer obtains a property that he wants and in the condition that he expects.
Mark Biskamp is a partner in the Houston office of Mayer Brown LLP (www.mayerbrown.com).
for more information see : www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Monday, June 16, 2008
Thursday, June 12, 2008
International Law Firm Relocating to Bank of America Center
Hogan & Hartson LLP, an international law firm founded in Washington, DC with 24 offices worldwide, signed a 10-year lease for the entire, 17,519-square-foot 43rd floor of 700 Louisiana Street. The company will relocate from its current office at 711 Louisiana Street by the end of this year. Bank of America Center is a 56-story, 1.25-million-square-foot, Class A office building with a tenant roster including Bank of America, KPMG, Mayer Brown and Simmons & Company International. The building features 32 passenger elevators, on site management, card key access and a restaurant. John Spafford of PM Realty Group represented the landlord, The Novati Group. Rock Rome and Nicole Miller of Studley’s Washington, DC office, along with Kevin Hodges of Studley’s Houston office, represented the tenant. For more information see: www.houstonrealtyadvisors.net or www.houstonrealtyadvisors.com
Wednesday, June 11, 2008
REITS looking for troubles and hard times in 2008
The U.S. commercial property market will avoid the massive troubles crippling the single-family housing sector but will face hard times in the coming year, according to presenters at NAREIT’s annual REIT Week conference that took place in New York City from June 4 to June 6. Coming out of ICSC’s RECon show in Las Vegas in May, retail REIT executives said retailers were worried about sluggish consumer spending and continued to scale back store openings. Few, however, have asked for outright rent relief. Overall, the market environment seems to be more stable than everyone feared, leading to predictions that the industry will weather a long, but mild recession.
Rising food and gas prices currently present the biggest challenge for shopping center operators, according to Milton Cooper, chairman and CEO of Kimco Realty Corp., a New Hyde Park, N.Y.-based shopping center REIT with a 120-million-square-foot portfolio. With gas costing more than $4 a gallon, U.S. consumers are cutting back on everything but the essentials. Even luxury retailers have started to feel the impact, said John Bucksbaum, chairman and CEO of General Growth Properties, Inc., a Chicago-based regional mall REIT with a 180-million-square-foot portfolio.
“In the past couple of years, everybody wanted to trade up,” Bucksbaum said describing the trend of middle-income consumers dabbling in the luxury sector. “Today, so many of those people are scaling back. It’s all at the margins, but it makes a big difference to the retailers.”
Despite the hit to consumers, most REIT executives reported that leasing activity during the RECon show remained healthy, though below last year’s robust levels. The retailers holding on right now include discounters, warehouse clubs and supermarkets, which are benefiting from inflation on food prices, according to Cooper. On the flip side, restaurants are hurting, said Craig Macnab, chairman and CEO of National Retail Properties, Inc., an Orlando-based REIT that owns approximately 10.6 million square feet in single-tenant retail assets.
This lackluster environment will likely last for another year or so, according to Kenneth Rosen, professor of real estate and urban economics at the University of California-Berkeley, who estimates the economy has entered a recession, but thinks there's a 50 percent it will remain mild. The wild card, however, is the price of oil. If that jumps significantly, all bets are off.
Despite the broader economic challenges, commercial real estate fundamentals remain solid in part because developers have scaled back on new projects, limiting the amount of new supply. That will provide a buffer against the kind of precipitous price declines experienced in the residential sector, Rosen said. However, there will at least be a modest drop in prices this year, he predicted.
In the past 12 months, cap rates on A-class retail assets have increased between 25 basis points and 50 basis points to approximately 6.5 percent, according to Kenneth Bernstein, president and CEO of Acadia Realty Trust, a White Plains, N.Y.-based shopping center REIT with an 8-million-square-foot portfolio. Cap rates on class-B and class-C assets have moved up 100 basis points, meanwhile, and may still go higher.
As a result of the slowdown in leasing and the difficulty of obtaining construction financing, most of the REITs are taking a more measured approach to new development—Acadia, for example, expects to have a five-year turnaround for its new projects, instead of the usual three-year plan. But the majority of REIT executives expect that they will be able to get through the current downturn unscathed.
“I am optimistic about the long range, we just have to be patient,” said Cooper. “I am very hopeful and optimistic that the market will change next year. Whoever is elected president, there will likely be an increase in taxes, which will be good for the dollar. And there will be a push to make America less dependent on oil."
--Elaine Misonzhnik
For more information see: www.houstonrealtyadavisors.com or www.houstonrealtyadvisors.net or www.edayres.com
Rising food and gas prices currently present the biggest challenge for shopping center operators, according to Milton Cooper, chairman and CEO of Kimco Realty Corp., a New Hyde Park, N.Y.-based shopping center REIT with a 120-million-square-foot portfolio. With gas costing more than $4 a gallon, U.S. consumers are cutting back on everything but the essentials. Even luxury retailers have started to feel the impact, said John Bucksbaum, chairman and CEO of General Growth Properties, Inc., a Chicago-based regional mall REIT with a 180-million-square-foot portfolio.
“In the past couple of years, everybody wanted to trade up,” Bucksbaum said describing the trend of middle-income consumers dabbling in the luxury sector. “Today, so many of those people are scaling back. It’s all at the margins, but it makes a big difference to the retailers.”
Despite the hit to consumers, most REIT executives reported that leasing activity during the RECon show remained healthy, though below last year’s robust levels. The retailers holding on right now include discounters, warehouse clubs and supermarkets, which are benefiting from inflation on food prices, according to Cooper. On the flip side, restaurants are hurting, said Craig Macnab, chairman and CEO of National Retail Properties, Inc., an Orlando-based REIT that owns approximately 10.6 million square feet in single-tenant retail assets.
This lackluster environment will likely last for another year or so, according to Kenneth Rosen, professor of real estate and urban economics at the University of California-Berkeley, who estimates the economy has entered a recession, but thinks there's a 50 percent it will remain mild. The wild card, however, is the price of oil. If that jumps significantly, all bets are off.
Despite the broader economic challenges, commercial real estate fundamentals remain solid in part because developers have scaled back on new projects, limiting the amount of new supply. That will provide a buffer against the kind of precipitous price declines experienced in the residential sector, Rosen said. However, there will at least be a modest drop in prices this year, he predicted.
In the past 12 months, cap rates on A-class retail assets have increased between 25 basis points and 50 basis points to approximately 6.5 percent, according to Kenneth Bernstein, president and CEO of Acadia Realty Trust, a White Plains, N.Y.-based shopping center REIT with an 8-million-square-foot portfolio. Cap rates on class-B and class-C assets have moved up 100 basis points, meanwhile, and may still go higher.
As a result of the slowdown in leasing and the difficulty of obtaining construction financing, most of the REITs are taking a more measured approach to new development—Acadia, for example, expects to have a five-year turnaround for its new projects, instead of the usual three-year plan. But the majority of REIT executives expect that they will be able to get through the current downturn unscathed.
“I am optimistic about the long range, we just have to be patient,” said Cooper. “I am very hopeful and optimistic that the market will change next year. Whoever is elected president, there will likely be an increase in taxes, which will be good for the dollar. And there will be a push to make America less dependent on oil."
--Elaine Misonzhnik
For more information see: www.houstonrealtyadavisors.com or www.houstonrealtyadvisors.net or www.edayres.com
Monday, June 9, 2008
Institutions Struggle with Denominator Effect
Just when many institutional investors have committed larger pools of money to the commercial real estate sector for the first time in years, those same investors are potentially facing the very real need to sell off a portion of their commercial real estate portfolios in order to maintain pre-set target investment allocation levels.This quandary is known as the “denominator effect.” As the value of different asset classes — stocks and bonds for example — falls, the value of allocations to other assets, including commercial real estate, rises above allocation targets, triggering needed adjustments, i.e. sales. But the sales market for real estate assets has come to a virtual standstill as investors wait for the gap between buyer and seller pricing expectations to narrow.While waiting, some pension fund advisors have begun telling clients to cut back on future funding to commercial real estate. Recently the City and County of San Francisco Employees’ Retirement System (SFER) reduced its target allocation to real estate by 73%, from $750 million to only $200 million in its next fiscal year beginning in July. SFER’s advisor, the Townsend Group, also recommended that the fund invest only in non-core assets.“By all accounts, large sums of equity capital from foreign and domestic sources remain available [to invest in commercial real estate] but appear content to sit on the sidelines for now,” according to a recent research report from Parsippany, N.J.-based Prudential Real Estate Investors. The report also notes that core funds are seeing more withdrawals as more pension funds grapple with over-allocations to real estate caused by the sharp downturn in the equity and bond markets over the past year. “It’s been a long time since core funds had queues of investors trying to get out, but the risk that many of the large open-end commingled funds will be in such a position by year-end has increased.”According to New York-based researcher Real Capital Analytics, institutions have slowed their acquisition pace dramatically in 2008, with only $4.9 billion in office building transactions in April, down 80% from a year ago. And if history is any indicator, pension funds and others will lag any upturn in the markets.“Institutional investors are notoriously slow to react and are usually followers as opposed to leaders,” says Robert White, president of Real Capital Analytics. That was the case in 2003 and 2004, when institutions stayed out of the market as more opportunistic investors waded in. “Like everyone else, they want greater clarity of where the economy is going. They really didn’t start to become active in a big way until 2005 and 2006, well into the bull run,” says White.That experience looks to have taken hold in the present market environment. “At this point, investors are wary of becoming buyers too soon rather than responding to any urgency over concern that they will miss the upside,” says Sam Chandan, chief economist and senior vice president at New York-based Reis. The recent sale of the General Motors Building in Midtown Manhattan for an estimated $2.9 billion has given some sellers a tiny sliver of hope, but most observers don’t believe it was a seminal event that will uncork an explosion in deal making.“No doubt the sale is a good sign, especially at that price, but I don’t think it’s going to be a strong signal to the market since it is such a special, one-of-a-kind property,” says White.Chandan agrees. “There are few conclusions that can be drawn from its sale — the roster of participants to the transaction or the structure of the financing that are directly relevant for more common properties available for sale.”As White puts it, “There was a lot of ego in that deal, not necessarily economics.” For more information see: www.houstonrealtyadvisors.com and www.houstonrealtyadvisors.net or www.edayres.com
This article is written by Ben Johnson, National Real Estate Investor 6/9/08
This article is written by Ben Johnson, National Real Estate Investor 6/9/08
Making energy data pay for itself
Monitoring how occupants and tenants use energy can result in savings — and sometimes immediate payback on the cost of such analysis.
from Building Operating Management, October 18, 2006
"Information from utility meters and customer submeters provides much more than just total usage and cost data. Some facility executives are using meters and data handling systems to cut energy costs and recoup more money from both tenants and government agencies.
Electric meters for commercial and institutional facilities typically measure both use and the rate of use. Usage, called consumption, is defined by the number of kilowatt-hours received during a billing period, which is usually a month. The maximum rate of use, called peak demand, is determined by the highest kilowatt level measured during the billing period.
Most utilities measure peak demand by counting the kwh in a 15- or 30-minute period and dividing by the length of that period, defined as a percentage of an hour. For example, 2,000 kwh used in 15 minutes - a quarter of an hour - yields a billed peak demand of 8,000 kw. In some parts of the country, peak demand accounts for roughly half the electric bill, so understanding how fast a facility uses power may be just as important as knowing how much electricity is being consumed. Some real estate personnel mix up these terms, using kw when they mean kwh.
Confusing the two units has cost a few of them dearly.
Experience with routine monthly monitoring of meter data shows potential savings between 2 and 15%, with most results in the single digits. For customers spending a million dollars on energy annually, that's $20,000 or more a year. The cost for such analysis should be only a fraction of that amount, yielding an immediate payback on the effort. As data handling becomes more sophisticated - through submetering, interval data review and linking with operations in near real-time, for example - savings may rise.
Energy data is only valuable when it's converted into useful information, such as invoices, usage trends, potential savings, options for cost recovery and planning for growth. To make that conversion, personnel experienced in analyzing energy data, preferably equipped with appropriate software, are essential.
Start by reviewing how energy costs are allocated among tenants, departments and other occupants. When only a single utility meter is in use, most facilities apportion costs based either on a square footage formula, plus a portion of common area usage, or through one-time surveys of occupant loads and assumed operating hours. Before negotiating another lease or allocation, consider installing temporary or permanent submeters on the largest tenants to assess how accurately such methods are working. Occupant peak loads change over time and, in some cases, may have always been responsible for a greater percentage of the total building use than was assumed. The same may be true for operating hours: modern electronic submeters record the time of usage in intervals, showing when and how fast energy is being used. Where time-of-use electric rates and high demand charges are in effect, this information alone may open the door to adjusting an occupant's share of the electric bill.
Meter Service Options
Whenever possible, permanent submeters should become the basis for internal monthly energy billing. Experience shows that merely receiving a monthly energy bill results in lower consumption - more than 20% lower in a few cases - and sometimes lower peak demand. Such revenue-grade electronic submeters may also be used to verify the utility meter's reading. In one case, catching and correcting one large error in a utility meter nearly covered the annual cost for submetering. Such cost may, depending on lease terms, be added to tenant or department energy bills, making submetering a self-financing effort over time.
In many cities, private meter data service providers install and read submeters. In a few states, utility metering has been deregulated, allowing replacement of utility meters with more modern and more useful equipment. In New York and California, metering service providers are now certified to handle such tasks.
The Bucks Keep Coming
Submetering may also provide the basis for improving indirect cost recovery at institutions performing federally supported activities, such as research. Those facilities are reimbursed for a portion of the operating and maintenance expenses related to those activities. Unless otherwise determined, those operating and maintenance costs are based on the usual percentage square footage formula, regardless of the intensity of usage. At one university, using data from submeters significantly increased the indirect cost recovery for that facility.
Reducing peak demand by billing tenants for their demand as well as their consumption may translate into avoided costs for power distribution reinforcement or expansion, as well as better terms when purchasing deregulated electricity. Sudden changes to usage seen on a submeter may reveal operating problems such as equipment or controls failures, steam leakage, or open windows. Such anomalies might also indicate potential problems with loads that are approaching or exceeding the capacity of transformers, pipes and other infrastructure.
Reviewing usage and demand for portions of a building or campus, instead of lumping it all on one utility meter, may help plan facility expansion and budgeting. Some facility executives have used such data in the development, for example, of on-site distributed generation systems for critical loads.
Many large facilities having only one electric account may already have some free utility submetering. As facilities grow, utilities may add new electric services, each with its own meter, and simply add that meter to the existing bill. A quick review of the meter readings on an electric bill will show how many utility meters are in use. In large buildings, utility meters may exist on individual electric risers or transformers, potentially allowing segregation based on end usage. In one case, a utility meter was found to monitor only lighting loads, all of which were fed by a single riser. Data from that utility meter was used to prove savings from a lighting upgrade. Where electric distribution diagrams are not available to show how loads are separated by riser or transformer, an electrician can use a signal tracing system to determine which loads are being seen by each meter.
With utility permission, a shadow meter or data logger may be connected to output ports on some utility meters that allows a customer to monitor in real-time the power passing through that meter. While far from perfect, this option is often a first good step toward understanding how a building uses its power over time.
Where a performance contract is involved that is based on claimed energy savings, such meter data collection may help enforce the contract.
Surveys of energy managers have found that difficulty finding and measuring such savings is one of the leading reasons such contracts are contested.
Getting Sophisticated
Complex facilities having multiple HVAC systems, concentrated usage, such as that on trading floors, and process loads, including computers, labs and food service equipment, have benefited from analysis of interval data from time-of-use meters. That process focuses attention on how power is used during 15- or 30-minute intervals across days, months and even years. Such analysis provides detail much greater than available using only monthly meter readings.
Using such techniques, even highly efficient facilities can find ways to further trim peak demand, eliminate off-peak energy waste, and correct controls malfunctions. What's more, where power costs exceed the national average of 8 cents per kwh, this process may be cost-effectively pursued with the help of a consultant or training of in-house personnel. When applied in real time, such data may be used to automatically control some building systems to minimize peak demand charges.
Getting a good handle on hourly load profiles may also lead to cheaper power in deregulated electric markets. Without access to a customer's actual load shape, power marketers routinely use standard utility customer load profiles that may, or may not, be appropriate.
Customers whose operations run 24/7, or involve unusual HVAC systems like thermal storage or gas-fired chillers, often have load profiles quite different from those used by utilities to develop tariff pricing.
Some large customers have used detailed load profile data to show why their use of power should cost less to serve and have secured lower power prices from marketers as a result.
In another case, close analysis of data from multiple meters at a single building resulted in a switch from individual utility metering to a master account meter. Previously used as an apartment building, the facility had been converted to offices that were all part of one firm.
More than 100 separate electrical accounts were maintained, but all bills were paid by the firm's centralized accounting staff. Office managers were not responsible for power use, losing much of the value of the existing metering.
Finding Wasted Dollars
The internal cost to handle and pay those electric bills was
significant: studies of invoicing costs found them to be $5 or higher per account each month, resulting in a hidden cost exceeding $6,000 a year. In addition, each account had a base service charge of about $12 per month that was levied even when an office was empty. Because of churn and growth within the firm, some offices were empty for months at a time, resulting in an additional $15,000 a year in wasted dollars.
Overlaid on that waste was the differential in electric rates between the utility and the power marketer serving the firm's larger accounts. Because the existing meters were simple electromechanical units with no demand or time-of-use capability, standard utility profiles applied. In some deregulated power markets, a portion of the electric rate is based on an installed capacity charge that defines the peak demand of a small customer based solely on consumption during several summer months in the prior year. That charge may be 5 to 20% of the total bill. The total charge for the building was therefore based on several assumptions that did not apply to this facility - but the existing metering would not allow any change to it.
When a temporary master time-of-use and demand meter was installed, actual peak coincident demand was found to be about 30% lower than the total derived demand used by the utility to set its power pricing. An examination of the base, consumption and demand rates that would apply to a large commercial account replacing the 100 small accounts revealed overall savings sufficient to cover the cost to convert to master metering.
Such goodies do not always fall only into the landlord's lap. During several submetering installations, tenant electric services were found to be serving some common areas, including lighting in hallways, stairwells and rest rooms, resulting in a few tenants paying directly for costs that should have been shared by all tenants or paid solely by the landlord. Appropriate refunds became part of pending lease renewal negotiations.
In another case, a landlord who was unaware of this circuiting peculiarity paid for a lighting upgrade of common-area lighting - but saw no savings. The tenants, however, all saw their electric bills drop
- at no cost to them."
For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
from Building Operating Management, October 18, 2006
"Information from utility meters and customer submeters provides much more than just total usage and cost data. Some facility executives are using meters and data handling systems to cut energy costs and recoup more money from both tenants and government agencies.
Electric meters for commercial and institutional facilities typically measure both use and the rate of use. Usage, called consumption, is defined by the number of kilowatt-hours received during a billing period, which is usually a month. The maximum rate of use, called peak demand, is determined by the highest kilowatt level measured during the billing period.
Most utilities measure peak demand by counting the kwh in a 15- or 30-minute period and dividing by the length of that period, defined as a percentage of an hour. For example, 2,000 kwh used in 15 minutes - a quarter of an hour - yields a billed peak demand of 8,000 kw. In some parts of the country, peak demand accounts for roughly half the electric bill, so understanding how fast a facility uses power may be just as important as knowing how much electricity is being consumed. Some real estate personnel mix up these terms, using kw when they mean kwh.
Confusing the two units has cost a few of them dearly.
Experience with routine monthly monitoring of meter data shows potential savings between 2 and 15%, with most results in the single digits. For customers spending a million dollars on energy annually, that's $20,000 or more a year. The cost for such analysis should be only a fraction of that amount, yielding an immediate payback on the effort. As data handling becomes more sophisticated - through submetering, interval data review and linking with operations in near real-time, for example - savings may rise.
Energy data is only valuable when it's converted into useful information, such as invoices, usage trends, potential savings, options for cost recovery and planning for growth. To make that conversion, personnel experienced in analyzing energy data, preferably equipped with appropriate software, are essential.
Start by reviewing how energy costs are allocated among tenants, departments and other occupants. When only a single utility meter is in use, most facilities apportion costs based either on a square footage formula, plus a portion of common area usage, or through one-time surveys of occupant loads and assumed operating hours. Before negotiating another lease or allocation, consider installing temporary or permanent submeters on the largest tenants to assess how accurately such methods are working. Occupant peak loads change over time and, in some cases, may have always been responsible for a greater percentage of the total building use than was assumed. The same may be true for operating hours: modern electronic submeters record the time of usage in intervals, showing when and how fast energy is being used. Where time-of-use electric rates and high demand charges are in effect, this information alone may open the door to adjusting an occupant's share of the electric bill.
Meter Service Options
Whenever possible, permanent submeters should become the basis for internal monthly energy billing. Experience shows that merely receiving a monthly energy bill results in lower consumption - more than 20% lower in a few cases - and sometimes lower peak demand. Such revenue-grade electronic submeters may also be used to verify the utility meter's reading. In one case, catching and correcting one large error in a utility meter nearly covered the annual cost for submetering. Such cost may, depending on lease terms, be added to tenant or department energy bills, making submetering a self-financing effort over time.
In many cities, private meter data service providers install and read submeters. In a few states, utility metering has been deregulated, allowing replacement of utility meters with more modern and more useful equipment. In New York and California, metering service providers are now certified to handle such tasks.
The Bucks Keep Coming
Submetering may also provide the basis for improving indirect cost recovery at institutions performing federally supported activities, such as research. Those facilities are reimbursed for a portion of the operating and maintenance expenses related to those activities. Unless otherwise determined, those operating and maintenance costs are based on the usual percentage square footage formula, regardless of the intensity of usage. At one university, using data from submeters significantly increased the indirect cost recovery for that facility.
Reducing peak demand by billing tenants for their demand as well as their consumption may translate into avoided costs for power distribution reinforcement or expansion, as well as better terms when purchasing deregulated electricity. Sudden changes to usage seen on a submeter may reveal operating problems such as equipment or controls failures, steam leakage, or open windows. Such anomalies might also indicate potential problems with loads that are approaching or exceeding the capacity of transformers, pipes and other infrastructure.
Reviewing usage and demand for portions of a building or campus, instead of lumping it all on one utility meter, may help plan facility expansion and budgeting. Some facility executives have used such data in the development, for example, of on-site distributed generation systems for critical loads.
Many large facilities having only one electric account may already have some free utility submetering. As facilities grow, utilities may add new electric services, each with its own meter, and simply add that meter to the existing bill. A quick review of the meter readings on an electric bill will show how many utility meters are in use. In large buildings, utility meters may exist on individual electric risers or transformers, potentially allowing segregation based on end usage. In one case, a utility meter was found to monitor only lighting loads, all of which were fed by a single riser. Data from that utility meter was used to prove savings from a lighting upgrade. Where electric distribution diagrams are not available to show how loads are separated by riser or transformer, an electrician can use a signal tracing system to determine which loads are being seen by each meter.
With utility permission, a shadow meter or data logger may be connected to output ports on some utility meters that allows a customer to monitor in real-time the power passing through that meter. While far from perfect, this option is often a first good step toward understanding how a building uses its power over time.
Where a performance contract is involved that is based on claimed energy savings, such meter data collection may help enforce the contract.
Surveys of energy managers have found that difficulty finding and measuring such savings is one of the leading reasons such contracts are contested.
Getting Sophisticated
Complex facilities having multiple HVAC systems, concentrated usage, such as that on trading floors, and process loads, including computers, labs and food service equipment, have benefited from analysis of interval data from time-of-use meters. That process focuses attention on how power is used during 15- or 30-minute intervals across days, months and even years. Such analysis provides detail much greater than available using only monthly meter readings.
Using such techniques, even highly efficient facilities can find ways to further trim peak demand, eliminate off-peak energy waste, and correct controls malfunctions. What's more, where power costs exceed the national average of 8 cents per kwh, this process may be cost-effectively pursued with the help of a consultant or training of in-house personnel. When applied in real time, such data may be used to automatically control some building systems to minimize peak demand charges.
Getting a good handle on hourly load profiles may also lead to cheaper power in deregulated electric markets. Without access to a customer's actual load shape, power marketers routinely use standard utility customer load profiles that may, or may not, be appropriate.
Customers whose operations run 24/7, or involve unusual HVAC systems like thermal storage or gas-fired chillers, often have load profiles quite different from those used by utilities to develop tariff pricing.
Some large customers have used detailed load profile data to show why their use of power should cost less to serve and have secured lower power prices from marketers as a result.
In another case, close analysis of data from multiple meters at a single building resulted in a switch from individual utility metering to a master account meter. Previously used as an apartment building, the facility had been converted to offices that were all part of one firm.
More than 100 separate electrical accounts were maintained, but all bills were paid by the firm's centralized accounting staff. Office managers were not responsible for power use, losing much of the value of the existing metering.
Finding Wasted Dollars
The internal cost to handle and pay those electric bills was
significant: studies of invoicing costs found them to be $5 or higher per account each month, resulting in a hidden cost exceeding $6,000 a year. In addition, each account had a base service charge of about $12 per month that was levied even when an office was empty. Because of churn and growth within the firm, some offices were empty for months at a time, resulting in an additional $15,000 a year in wasted dollars.
Overlaid on that waste was the differential in electric rates between the utility and the power marketer serving the firm's larger accounts. Because the existing meters were simple electromechanical units with no demand or time-of-use capability, standard utility profiles applied. In some deregulated power markets, a portion of the electric rate is based on an installed capacity charge that defines the peak demand of a small customer based solely on consumption during several summer months in the prior year. That charge may be 5 to 20% of the total bill. The total charge for the building was therefore based on several assumptions that did not apply to this facility - but the existing metering would not allow any change to it.
When a temporary master time-of-use and demand meter was installed, actual peak coincident demand was found to be about 30% lower than the total derived demand used by the utility to set its power pricing. An examination of the base, consumption and demand rates that would apply to a large commercial account replacing the 100 small accounts revealed overall savings sufficient to cover the cost to convert to master metering.
Such goodies do not always fall only into the landlord's lap. During several submetering installations, tenant electric services were found to be serving some common areas, including lighting in hallways, stairwells and rest rooms, resulting in a few tenants paying directly for costs that should have been shared by all tenants or paid solely by the landlord. Appropriate refunds became part of pending lease renewal negotiations.
In another case, a landlord who was unaware of this circuiting peculiarity paid for a lighting upgrade of common-area lighting - but saw no savings. The tenants, however, all saw their electric bills drop
- at no cost to them."
For more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
Friday, June 6, 2008
Redstone points Compass in new directionReal estate owner to tear down Compass Bank building on Post Oak in favor of redevelopment
Redstone Cos. is preparing to raze the Compass Bank building on Post Oak and replace it with a new development -- a move that real estate watchers have been speculating about for years.
The multitenant office building at 2200 Post Oak near Westheimer sits on approximately four acres of prime land near the Galleria. The site is owned by an affiliate of Houston-based Redstone, a well-funded firm that owns the Houstonian Hotel, Club & Spa and specializes in private equity, hospitality and real estate.
Redstone has been signing only short-term leases in anticipation of a redevelopment project. Tenants in the 123,000-square-foot building were notified two weeks ago that their leases would be terminated, effective Dec. 1. The seven-story building, which was constructed in 1967, has been home to some of the businesses for many years.
"Our current plans include the demolition of the existing office building," states the termination letter which was signed by Steven Lerner, executive vice president of Redstone. for more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
The multitenant office building at 2200 Post Oak near Westheimer sits on approximately four acres of prime land near the Galleria. The site is owned by an affiliate of Houston-based Redstone, a well-funded firm that owns the Houstonian Hotel, Club & Spa and specializes in private equity, hospitality and real estate.
Redstone has been signing only short-term leases in anticipation of a redevelopment project. Tenants in the 123,000-square-foot building were notified two weeks ago that their leases would be terminated, effective Dec. 1. The seven-story building, which was constructed in 1967, has been home to some of the businesses for many years.
"Our current plans include the demolition of the existing office building," states the termination letter which was signed by Steven Lerner, executive vice president of Redstone. for more information see: www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net
Tuesday, May 27, 2008
Demand is making a difference in march toward green buildings
It may seem that green buildings are everywhere in Houston, almost becoming the standard of construction. But certain major real estate sectors are only just beginning the move toward healthy and green buildings, says Morris Architects Project Manager Tim Murray, chairman of Houston U.S. Green Building Council.
He cites USGBC statistics that the greater Houston area currently has 114 building projects totaling 23.7 million square feet that are registered under the national Leadership in Energy and Environmental Design certification program, meaning architects, construction contractors and facility managers are following USGBC's guidelines to get enough points to qualify for bronze, silver, gold or platinum LEED status after completion.
"Of that green building total, over 48 percent is commercial construction," he says. "Another 25 percent of the registered projects are classified as multi-use."
Commercial buildings From: http://houston.bizjournals.com
LEED has become the common standard for private commercial buildings.
"Developers understand that green buildings make economic sense," Murray says.
He cites the statistic provided by Andy Bergman, co-chair of the Greater Houston Partnership's Green Building Subcommittee, that 73 percent of Class A commercial projects planned or under construction are LEED-registered.
"No major developer wants to build the last 'standard' commercial building," Murray says. "Even speculative builders realize that a green building will bring more value and demand higher lease rates."
Existing buildings in the commercial market are also going green.
According to Murray, the Miller-Spivey report from the University of California, San Diego ranks Houston No. 2 in the nation in terms of the square footage of LEED- and EnergyStar-rated commercial buildings. The Institute of Real Estate Management-Houston Chapter recognized over 70 existing commercial buildings as achieving an EnergyStar rating in 2007.
"This shift results from owners looking for energy savings and tenants demanding green buildings for recruitment and retention purposes," he says.
Public buildings
The government is also taking advantage of the benefits of green buildings.
Locally, the City of Houston passed a Green Building resolution in 2004 and has since designed every feasible municipal project to the LEED standard -- over 20 to date.
"One of the earliest adopters of LEED was the federal government," Murray notes. "Most of the federal projects in the region are registered, the majority at NASA's Johnson Space Center. JSC has a LEED-certified building on campus and currently has 5 LEED-registered projects."
The higher-education sector has far fewer projects than other sectors, but still has 4 percent of the LEED projects, he says, adding that Rice University leads with five projects Lagging behind
Some markets -- health care, industrial, retail and multifamily -- lag behind, according to Murray.
§ Health care. "Houston has a huge medical real estate market. You would think that medical projects would quickly embrace the concept of healthy buildings," he says.
The Pearland Pediatric Building in Pearland is listed as one of the nation's 20 certified health care projects. But of Houston's 114 LEED-registered projects, only two are health care facilities.
One is Baylor's new Clinic and Hospital. Because of the facility's size, Houston's LEED health care facilities comprise 5 percent of the area's total LEED projects, much better than the national 1.9 percent.
"The health care industry is slow to warm to new methods for reasons ranging from cost to infection control," Murray says. "In addition, these buildings tend to be owner-occupied so there is no tenant market demand. And while green health care guidelines have existed for years, the LEED for health care rating system has not yet been formally released."
§ Industrial. Murray cites Colliers International statistics that the Houston area has 6.2 million square feet of industrial space under construction in the first quarter of 2008. Liberty Property Trust is developing two registered projects that equal 2.5 percent of the LEED list.
"Green projects are lacking," he says. "Industrial properties have been slow to accept green construction because even slight increases in construction costs can hurt competitiveness, and there is little precedent for how to 'green' this building type."
He notes that the drive to green industrial projects is led by large corporate tenants that demand green facilities as part of their sustainable corporate philosophies.
§ Retail. Retail is another dominating portion of the region's construction, yet is only 3 percent of the area's LEED projects, Murray says. He adds, however, that retail is often integrated into larger mixed-use commercial projects.
§ Multifamily. "Data on multifamily projects is hard to capture, since they are now so often included in mixed-use projects, but there are currently no stand-alone multifamily LEED projects in the Houston area," he says.
"The Houston market had just over $3 billion in building contracts in the first quarter of 2008, according to the Greater Houston Partnership," Murray says. "Green buildings are only just starting make to make a contribution to the built environment, and it is a movement that has tremendous room for growth."
Customer demand
Most large companies see sustainability as a major issue and are willing to pay a premium for space that meets sustainability standards, according to a recent international survey conducted by Jones Lang LaSalle Inc. and CoreNet Global.
Ninety percent of commercial real estate directors responding to the survey say sustainability such as the LEED certification maintained by the U.S. Green Building Council is a critical concern today, or will be within the next three years.
The survey queried 2,300 commercial real estate directors on four continents. Seventy-seven percent of those responding say they are willing to pay a premium in their occupancy cost to be in sustainable buildings, while only 22 percent expect to pay the same.
Thirty-eight percent of the survey respondents estimate sustainable buildings will cost 1 percent to 5 percent more than traditional buildings; 52 percent estimate the incremental cost at 5 percent to 10 percent; 22 percent estimated the premium at more than 10 percent. Those who focus on retrofitting existing buildings will see higher incremental costs than those engaged in new construction projects.
Respondents say a limited supply of green buildings is a widespread problem:
§ Only 17 percent say there are good, or widely available, sustainable real estate solutions in markets where their companies need to locate offices.
§ 42 percent say the supply chain is good in some markets but not others.
§ 41 percent views overall availability as limited or minimal.
"A company that wants to lease space in a LEED-certified building may have very few choices, if any, in the area where it wishes to locate," says Bruce Rutherford of Jones Lang LaSalle, Houston who is responsible for tenant representation and leasing operations throughout the region.
A building need not be LEED certified to be energy-efficient and environmentally friendly; however, LEED certification provides credibility that more and more owners value as a way to get credit for their efforts at sustainability, he adds.
Additionally, owners of existing buildings are considering renovations that can earn an existing building (LEED EB) or commercial interior (LEED CI) certification.
"It often turns out that a LEED silver or even gold is not out of reach," says Michael Novosad, a vice president for project and development services in the west region of Jones Lang LaSalle. "The equation is easy to calculate: Minimal cost of LEED certification, offset by higher rent and occupancy levels, equals more sustainable buildings in the near future."
Topping the list of factors driving corporate interest in sustainability are rising energy costs and the possibility of government regulation of greenhouse gas emissions, also known as carbon emissions, he says, citing USGBC statistics that buildings are responsible for 65 percent of all electrical usage and 30 percent of all greenhouse gas emissions.
Whether the cost of energy and sustainability is minimal or runs into the double digits, it's money well spent, Novosad adds.
"Benefits such as increased employee productivity and enhanced corporate image are not easily measured, but the energy savings are quantifiable and substantial, as much as 30 percent compared to traditional buildings," he says.
"We have passed the tipping point for sustainability, and the question is no longer about whether sustainable design should be considered," says Eric Bowles, vice president and director of research for CoreNet Global. "The question will be: How do you explain why you chose not to have a sustainable design?"
For more information on LEED Design call Ed Ayres or seek info : www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
He cites USGBC statistics that the greater Houston area currently has 114 building projects totaling 23.7 million square feet that are registered under the national Leadership in Energy and Environmental Design certification program, meaning architects, construction contractors and facility managers are following USGBC's guidelines to get enough points to qualify for bronze, silver, gold or platinum LEED status after completion.
"Of that green building total, over 48 percent is commercial construction," he says. "Another 25 percent of the registered projects are classified as multi-use."
Commercial buildings From: http://houston.bizjournals.com
LEED has become the common standard for private commercial buildings.
"Developers understand that green buildings make economic sense," Murray says.
He cites the statistic provided by Andy Bergman, co-chair of the Greater Houston Partnership's Green Building Subcommittee, that 73 percent of Class A commercial projects planned or under construction are LEED-registered.
"No major developer wants to build the last 'standard' commercial building," Murray says. "Even speculative builders realize that a green building will bring more value and demand higher lease rates."
Existing buildings in the commercial market are also going green.
According to Murray, the Miller-Spivey report from the University of California, San Diego ranks Houston No. 2 in the nation in terms of the square footage of LEED- and EnergyStar-rated commercial buildings. The Institute of Real Estate Management-Houston Chapter recognized over 70 existing commercial buildings as achieving an EnergyStar rating in 2007.
"This shift results from owners looking for energy savings and tenants demanding green buildings for recruitment and retention purposes," he says.
Public buildings
The government is also taking advantage of the benefits of green buildings.
Locally, the City of Houston passed a Green Building resolution in 2004 and has since designed every feasible municipal project to the LEED standard -- over 20 to date.
"One of the earliest adopters of LEED was the federal government," Murray notes. "Most of the federal projects in the region are registered, the majority at NASA's Johnson Space Center. JSC has a LEED-certified building on campus and currently has 5 LEED-registered projects."
The higher-education sector has far fewer projects than other sectors, but still has 4 percent of the LEED projects, he says, adding that Rice University leads with five projects Lagging behind
Some markets -- health care, industrial, retail and multifamily -- lag behind, according to Murray.
§ Health care. "Houston has a huge medical real estate market. You would think that medical projects would quickly embrace the concept of healthy buildings," he says.
The Pearland Pediatric Building in Pearland is listed as one of the nation's 20 certified health care projects. But of Houston's 114 LEED-registered projects, only two are health care facilities.
One is Baylor's new Clinic and Hospital. Because of the facility's size, Houston's LEED health care facilities comprise 5 percent of the area's total LEED projects, much better than the national 1.9 percent.
"The health care industry is slow to warm to new methods for reasons ranging from cost to infection control," Murray says. "In addition, these buildings tend to be owner-occupied so there is no tenant market demand. And while green health care guidelines have existed for years, the LEED for health care rating system has not yet been formally released."
§ Industrial. Murray cites Colliers International statistics that the Houston area has 6.2 million square feet of industrial space under construction in the first quarter of 2008. Liberty Property Trust is developing two registered projects that equal 2.5 percent of the LEED list.
"Green projects are lacking," he says. "Industrial properties have been slow to accept green construction because even slight increases in construction costs can hurt competitiveness, and there is little precedent for how to 'green' this building type."
He notes that the drive to green industrial projects is led by large corporate tenants that demand green facilities as part of their sustainable corporate philosophies.
§ Retail. Retail is another dominating portion of the region's construction, yet is only 3 percent of the area's LEED projects, Murray says. He adds, however, that retail is often integrated into larger mixed-use commercial projects.
§ Multifamily. "Data on multifamily projects is hard to capture, since they are now so often included in mixed-use projects, but there are currently no stand-alone multifamily LEED projects in the Houston area," he says.
"The Houston market had just over $3 billion in building contracts in the first quarter of 2008, according to the Greater Houston Partnership," Murray says. "Green buildings are only just starting make to make a contribution to the built environment, and it is a movement that has tremendous room for growth."
Customer demand
Most large companies see sustainability as a major issue and are willing to pay a premium for space that meets sustainability standards, according to a recent international survey conducted by Jones Lang LaSalle Inc. and CoreNet Global.
Ninety percent of commercial real estate directors responding to the survey say sustainability such as the LEED certification maintained by the U.S. Green Building Council is a critical concern today, or will be within the next three years.
The survey queried 2,300 commercial real estate directors on four continents. Seventy-seven percent of those responding say they are willing to pay a premium in their occupancy cost to be in sustainable buildings, while only 22 percent expect to pay the same.
Thirty-eight percent of the survey respondents estimate sustainable buildings will cost 1 percent to 5 percent more than traditional buildings; 52 percent estimate the incremental cost at 5 percent to 10 percent; 22 percent estimated the premium at more than 10 percent. Those who focus on retrofitting existing buildings will see higher incremental costs than those engaged in new construction projects.
Respondents say a limited supply of green buildings is a widespread problem:
§ Only 17 percent say there are good, or widely available, sustainable real estate solutions in markets where their companies need to locate offices.
§ 42 percent say the supply chain is good in some markets but not others.
§ 41 percent views overall availability as limited or minimal.
"A company that wants to lease space in a LEED-certified building may have very few choices, if any, in the area where it wishes to locate," says Bruce Rutherford of Jones Lang LaSalle, Houston who is responsible for tenant representation and leasing operations throughout the region.
A building need not be LEED certified to be energy-efficient and environmentally friendly; however, LEED certification provides credibility that more and more owners value as a way to get credit for their efforts at sustainability, he adds.
Additionally, owners of existing buildings are considering renovations that can earn an existing building (LEED EB) or commercial interior (LEED CI) certification.
"It often turns out that a LEED silver or even gold is not out of reach," says Michael Novosad, a vice president for project and development services in the west region of Jones Lang LaSalle. "The equation is easy to calculate: Minimal cost of LEED certification, offset by higher rent and occupancy levels, equals more sustainable buildings in the near future."
Topping the list of factors driving corporate interest in sustainability are rising energy costs and the possibility of government regulation of greenhouse gas emissions, also known as carbon emissions, he says, citing USGBC statistics that buildings are responsible for 65 percent of all electrical usage and 30 percent of all greenhouse gas emissions.
Whether the cost of energy and sustainability is minimal or runs into the double digits, it's money well spent, Novosad adds.
"Benefits such as increased employee productivity and enhanced corporate image are not easily measured, but the energy savings are quantifiable and substantial, as much as 30 percent compared to traditional buildings," he says.
"We have passed the tipping point for sustainability, and the question is no longer about whether sustainable design should be considered," says Eric Bowles, vice president and director of research for CoreNet Global. "The question will be: How do you explain why you chose not to have a sustainable design?"
For more information on LEED Design call Ed Ayres or seek info : www.houstonrealtyadvisors.com or www.houstonrealtyadvisors.net or www.edayres.com
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