Making the Financial & Public Policy Case for Retrofitting Exisiting Buildings

By: Stefano Vrespa – Associated Renewable

Published: February 12th, 2013

Until recently new construction was thought to be the green choice; however, today’s market has demonstrated that retrofitting and energy efficiency are more profitable environmentally-friendly solutions. Other than a solid economic argument, retrofit projects provide additional benefits such as greater greenhouse gas (GHG) emission reduction, job creation as well as the creation of better neighborhoods.

According to a report published by Deutsche Bank and the Rockefeller Foundation the US market alone could save one trillion dollar in energy savings over the next ten years. This report depicts a highly profitable future for energy efficiency retrofits in commercial, residential and institutional buildings. With an estimated $279 billion dollar investment size, it doesn’t matter what the drivers are, retrofitting is a rapidly growing market that will benefit owners, tenants, the environment and communities alike. With consumers and governments influencing the demand for energy efficiency projects, owners of older buildings and realty companies would be able to take advantage of cost reductions and new market segments that could reposition themselves ahead of the competition.

Bob Best, executive vice president of Jones Lang LaSalle (JLL), a leading realty company, knows it well. As reported on the National Real Estate Investor, two of Jones Lang LaSalle’s real estate properties just committed to a 25% energy usage reduct ion goal and joined the Chicago’s Commercial Buildings Initiative. In New York City, the most prominent and known example of a strong return on investment (ROI) on energy retrofit is the Empire State Building: with a $13 million dollar invested capital and $4.4 million in yearly energy savings the Internal Rate of Return is as high as 31%.

Given the current economic downturn, such a high rate of return would be hard to match especially when compared to alternative, more costly environmentally-friendly investments. Mcgraw-Hill, a global construction company, supported these results in a recent study “Green Outlook 2011: Green Trends Driving Growth” which reported that, on average, new “green” buildings have a 9.9% Return on Investment (ROI), while retrofit and energy efficiency investments present a stronger 19.2% average ROI.

The question is thus how to increase the scale of investments? How to promote this green shift and be profitable? The Rockefeller Foundation and Deutsche Bank report that financial barriers and owners’ skepticism can be overcome by enabling local and national policies and by promoting energy efficiency regulations.

In this context New York City is the right place to be: high rise residential building, commercial real estate and the political willingness to promote economic growth and a better, more environmentally friendly, community. In this light, Bloomberg’s administration launched the “Greener, Greater Buildings Plan” to support the adoption of energy efficiency measures, to drive the retrofits of NYC built environment, and to meet PlaNYC 2030 sustainability goals.

The adoption of benchmarking and energy audit laws, through Local Law 84 and 87, are thus the right steps of a larger process that could substantially reshape the current commercial and high rise residential real estate scenario. A process that has the potential to attract significant investments and revenue opportunities for multiple stakeholders. With this in mind, being at the forefront of this new paradigm is, then, key to access incentives and rebates that will make your return on investments even more attractive.

Will you be there?