Originally posted Monday, 13 September 2010

Written by Owners Perspective

A model for optimizing energy efficiency, sustainable practices, operating expenses and longterm value in existing buildings.

Owners of multi-tenant buildings, which comprise the bulk of office space, are primarily motivated by return on investment. To justify the costs associated with energy efficiency retrofits, owners must be convinced that the investment will be repaid by some combination of reduced operating expenses, higher rental rates and greater occupancy levels…

A Landmark Sustainability Program for the Empire State Building:

A model for optimizing energy efficiency, sustainable practices, operating expenses and long-term value in existing buildings

Owners of multi-tenant buildings, which comprise the bulk of office space, are primarily motivated by return on investment. To justify the costs associated with energy efficiency retrofits, owners must be convinced that the investment will be repaid by some combination of reduced operating expenses, higher rental rates and greater occupancy levels. The percentage of tenants willing to pay higher overall occupancy costs for green space is not large, and tenants that greatly value sustainability gravitate towards newer buildings that have been designed and built to higher energy and environmental standards. In general, the incremental cost of retrofitting older buildings to achieve improved energy performance is more expensive than the incremental cost of achieving the same performance in a new building.

This context underscores the extraordinary nature of the commitment that Anthony E. Malkin of Empire State Building Company has made to establish the Empire State Building as one of the most energy efficient buildings in New York City, and arguably the world’s most environmentally conscious office tower built before World War II. Just as extraordinary as Malkin’s commitment to retrofitting the Empire State Building was his decision to make the process transparent so that other building owners–particularly those with pre-WWII or landmark properties–would have an example to follow in pursuing their own green projects.

To ensure that this commitment was achievable, Malkin worked with the Clinton Climate Initiative to assemble a team of best-in-class consultants in the fields of climate change, real estate sustainability, environmental design and energy services. This brief paper details the process for assessing, quantifying and documenting the costs and benefits of potential strategies for enhancing energy and sustainability at the Empire State Building. This process led to the adoption of a set of final strategies that, upon implementation, will reduce the Empire State Building’s energy use and carbon footprint by up to 38 percent.

Empire State Building—one of a kind

The Empire State Building is no ordinary office tower. The world’s most famous office building, it draws between 3.5 million and 4 million visitors each year to the Observatory on the 86th floor. At a height of 1472 feet (449 meters), the spire is used for broadcasting by most of the region’s major television and radio stations. Its 2.8 million square feet of leasable office space hold a range of large and small tenants, drawn by the building’s prestige, its unmatched skyline views and its convenient location at the center of Manhattan’s mass transit system. Opened in 1931, the building has undergone recent upgrades of lobbies, hallways and other common areas including the just-completed renovation of the observation deck–restoring the building to its original grandeur.

Vision beyond the Empire State Building

“Buildings in New York City create 65 to 70 percent of the city’s entire carbon footprint,” Malkin told Metro Green + Business in June 2008. “Constructing new green buildings won’t move the needle in mitigating this problem. It is far more important to address the existing building stock.”

About 43 percent of all the office space in New York City was built before 1945, including a majority of the 10 million square-foot portfolio owned by partnerships affiliated with Malkin and other principals in Wien & Malkin. W&M has instituted green practices across its New York portfolio, such as using integrated pest management and green cleaning products, and using energy-efficient maintenance vehicles. The Empire State Building signed onto the Energy Star program for buildings to measure and report its energy efficiency as soon as the U.S. Environmental Protection Agency and Department of Energy expanded the program to include buildings.

Motivation

The main motivation for the project was ownership’s desire to prove or disprove the cost-effectiveness of energy efficiency retrofits. Secondary motivation included a desire to reduce greenhouse gas emissions and operating costs. Lastly, ownership wanted to address other aspects of sustainable operations including issues such as water conservation, recycling, reuse of building materials, reduction of chemicals and pollutants, and indoor air quality.

These changes are anticipated to enhance the Empire State Building’s long-term value based on the opportunity for higher occupancy and rents over time. Green buildings have a competitive edge in attracting companies interested in reducing their own carbon footprints as well as providing work environments that promote the health and well-being of employees. Furthermore,  eventually buildings could be affected directly or indirectly by sustainability-inspired regulatory changes at various levels of government.

Malkin and his team also knew what many do not: A market is emerging for financing capital improvements based on the cash flow from reduced energy costs. Developing a solid business case for these financing avenues requires a robust analytical process that produces valid data on retrofit costs and energy cost reductions. “We will be working to establish a financing format to provide the ability to otherwise indebted properties to participate in this sort of project, though the work on this project is not financing contingent and is going forward out of already available cash,” Malkin said.

The Project Charter stated the team’s mission succinctly

The retrofit of the Empire State Building into a Class A pre-war trophy building will transform the global real estate industry by transparently demonstrating how to create a competitive advantage for building owners and tenants through profitably greening existing buildings.

A multi-phase analytical process to establish a replicable model

Between April and November 2008, the collaborative team followed a comprehensive process to determine which energy and sustainability strategies could be implemented at the building, and what costs and obstacles might arise for each strategy. The purpose was to determine where cost and benefit intersected to result in the most sustainable building possible within reasonable cost parameters.

Expected income stream enhancements:

▪· Reductions in existing capital improvement program costs

▪· Reduced utilities budget due to greater efficiencies in energy and water usage

▪· Reduced building operations budget due to lower maintenance and repair costs

▪· Increased rent and occupancy due to enhanced value placed on updated services

▪· Additional income from new tenant service offerings, such as chilled water and emergency power

Incorporating comprehensive sustainability initiatives with the aggressive energy reduction projects, we developed a plan for the Empire State Building to achieve LEED® EBOM Gold certification.

Program Manager, Jones Lang LaSalle’s role was to ensure team collaboration, stakeholder communication and timely execution, as well as to drive performance measurement and documentation of the repeatable model for industry-wide use. Jones Lang LaSalle and Johnson Controls developed a Sustainability Metrics Model for Greenhouse Gas Emissions, using internationally accepted, scientifically based data and calculations to evaluate the reduced impact on global warming and local environment resulting from the implementation of sustainability measures.

Under the initial proposal delivered in April 2008, the analysis included four phases, completed in seven months.

Phase I: Inventory and programming

Team members conducted reviews of the building’s mechanical systems and equipment, calculated tenant energy usage, and developed a baseline energy benchmark report and a preliminary system for measuring energy efficiency.

A gap analysis was conducted to determine which LEED® and Green Globes criteria the building was already meeting, and which could be achieved feasibly. A plan was developed for the creation of pre-built green offices to serve tenants with an immediate need for finished space. The team steering committee met twice to discuss progress and refinements to the program, and Johnson Controls and Rocky Mountain Institute conducted a separate cross-functional workshop to look specifically at lighting strategies.

The central initiative involved in the inventory and programming phase, however, was the integration of the team’s goals with goals of a separate capital projects team already in place. When the energy savings program got under way, the Empire State Building had already embarked on a major capital program that included a combination of restoration and upgrades to lobbies, hallways, restrooms and other common areas.

An integrated team approach was adopted to deliver building services with minimal disruption to tenants and visitors. The Empire State Building Company capital program team, led by Jones Lang LaSalle and building ownership as project manager, guided work performed by TPG Architects, mechanical-electrical plumbing (MEP) consultant Lakhani & Jordan Engineers and others. For the sustainability program, a separate project management team of Empire State Building Company and Jones Lang LaSalle interfaced with the capital program team and worked with Johnson Controls and the Rocky Mountain Institute who identified opportunities for energy savings. Expertise from members of the energy savings team suggested ways to lower the cost of several capital projects while enhancing environmental factors such as energy, water and ventilation.

Outcomes of the first phase included a cost reduction of the baseline capital project of between three and four percent based on the review and suggestions of the team and a preliminary budget for energy projects compared to projected annual energy savings. This budget indicated a payback period of 15 years for energy-related work based on current energy costs; however, when the savings from the capital projects budget was considered, the payback period eventually was reduced to about five years.

Phase II: Design and development

An important element of the design and development phase was to narrow the myriad of issues down to a manageable number of potential solutions, essentially creating order out of complexity.

Rocky Mountain Institute’s analysis suggested that a reduction of 40 to 50 percent was not merely theoretical but achievable—if the cost-benefit equation did not devolve into a cost-avoidance strategy in the latter stages of the process.

Rocky Mountain Institute also discussed several issues that needed to be addressed. These included the challenge of incorporating bold concepts within conventional budget limitations, providing incentives for tenants to follow the team’s guidelines, designing more efficient HVAC systems while recognizing that loads are likely to increase over time and the challenge of achieving maximum efficiency gains by getting all parties to commit to average load reduction and life-cycle costing rather than merely efficient system design.

Johnson Controls and Jones Lang LaSalle made recommendations on sustainable tenant pre-built spaces, comparing two potential options to standard pre-built spaces from an architectural, mechanical and lighting standpoint.

Recommendations included reducing the number of interior wall enclosures to enhance natural light and views, selecting interior finishes to support sustainable goals and using task lighting to complement higher efficiency overhead lighting.

Phase III: Design documentation

Phase III of the analytical process centered on two major deliverables: a final report assessing the tenant energy usage and the impact of pre-built spaces; and the development and refinement of the eQuest Energy Model.

Tenant energy usage had been documented over a period of months ending in mid-August. The team had discussed ways for the building’s facility management staff to easily monitor energy usage of each floor and each tenant on that floor. The proposed plan was to create a computer “dashboard” that would automatically translate numeric data into visual data such as charts and graphs so that managers could more easily spot trends and act on them.

The plan as proposed to ownership on August 27 was to optimize energy systems floor by floor as spaces became available through vacancy or restacking tenants within the building. Following the building’s existing restacking plan, 14 floors could immediately be made available for optimization, with up to 33 floors available for optimization by the end of 2011.

At this phase of the analysis, the team also had final plans in place for pre-built tenant spaces and had started the vendor bid process. Different pre-built layouts had different energy savings impacts, and the team developed multiple scenarios to achieve different levels of energy efficiency within these spaces. The cost of the different scenarios exceeded the cost of non-sustainable pre-built spaces by 6.5 percent to 12 percent.

The most sophisticated element of the Design Documentation phase was the development of the eQuest Energy Model. Drawing on a program developed by the U.S. Department of Energy, the model was designed to be used for cost/benefit analysis for future improvements, modifications and operational changes. The team created a matrix that analyzed the costs and financial benefits of facility improvements and other potential green strategies, and integrated the data with sustainability ratings, architectural programming and operational best practices, creating comprehensive sustainability scorecard. The result was a sophisticated understanding of how different strategies, implemented individually or in various combinations, would affect project cost and building performance.

Johnson Controls and Rocky Mountain Institute conducted parametric runs on strategies relating to chillers, heating units, water pumping equipment, air handling units, controls, co-generators, lighting, plug loads and the building envelope.

These exercises helped identify scenarios that would provide the most value, taking into account life-cycle costs and benefits, economics and logistics of implementation. For each scenario, the team needed to document variables that could affect the results. For example, if tenant engagement and adoption rates were higher or lower than anticipated, or if more of the building was used for broadcast than anticipated, there could be an impact on the estimated results.

Phase IV: Final documentation

The final phase of the analytical process was to create an Integrated Sustainability Master Plan Report, synthesizing data from all available standards and measurement tools, including ENERGY STAR, LEED®, Green Globes, eQUEST Energy Modeling Tool, the Sustainability Metrics Tool and Financial Modeling Tool.

The recommended strategy was called the “net present value midpoint” because it considered strategies based on a balance of NPV with the amount of carbon dioxide avoided. The NPV midpoint was compared with other options, including one that would maximize NPV, and another that would maximize carbon dioxide reductions regardless of NPV. Comparing the midpoint option to the two extremes would help identify best-case scenarios.

The results pointed to a clear solution: The team should pursue a program that would reduce energy use and greenhouse gas emissions by 38 percent, saving 105,000 metric tons of carbon dioxide over the next 15 years. Once all eight projects are complete, projections show that the Empire State Building will achieve an ENERGY STAR score of 90, performing better than 90 percent of buildings in America regardless of age.

With these results in hand the team then ran an additional series of iterations through the models using various carbon trading proposals in the US, and the European Union OTC Carbon Price to gauge the effects carbon legislation could have on this project. The results showed significant differences when using the European framework, which increased NPV across the options, and from a business standpoint all other conditions remaining the same including ROI, more efficiency measures would be included with a corresponding increase in carbon savings.

“Achieving an energy reduction greater than 38 percent appears to be cost-prohibitive,” the team noted in its final report to ownership. The analysis had examined strategies that could have reduced emissions by nearly 45 percent, out of a theoretical maximum of 55 percent. A total of 40 energy efficiency ideas were narrowed down to 17 implementable strategies that were analyzed in depth. Of these, the first 90 percent of reduced carbon dioxide would also save costs over time by an average $200 per ton of carbon saved. The last 10 percent, by contrast, would carry a life cycle cost of more than $300 per ton of carbon saved.

Carbon dioxide reduction

The greatest reduction in carbon dioxide from the baseline would come from completing the task of installing digital demand controls that had been started in the capital projects.

This strategy alone would reduce energy use by nine percent from the baseline. Tenant daylighting—working with tenants to ensure that layouts maximize the use of natural light—would save six percent from the baseline. Three other strategies would save five percent each: replacing constant volume air handling units with variable air volume units, retrofitting the chiller plant and addressing window glazing.

Other strategies contributing to the 38-percent reduction included tenant energy management (three percent), radiative barrier (two percent) and tenant demand-controlled ventilation (two percent).

Chiller plant retrofit

The greatest cost savings came from the ability to retrofit the chiller plant rather than replace it. This was made possible by the reduction of the cooling load by 1,600 tons. The load reduction resulting from the sustainability program’s demand control ventilation project, which reduces outside air infiltration, and the window light retrofit, which reduces solar heat gain, would allow the chiller plant to be updated rather than replaced entirely.

Peak electrical usage reduction

Under the proposed plan, peak electrical usage would also be reduced by 3.5 megawatts, from its current peak and capacity of 9.6 megawatts to just over six megawatts. At the same time, the team looked at several options for additional capacity, including co-generation, gas-fired generation, fuel cells, renewable energy and purchasing capacity. After analyzing all options, the team determined co-generation was actually unnecessary because the energy savings initiatives eliminated the need for increased capacity.

Enhanced tenant environment

In addition to reducing energy and carbon dioxide emissions, the proposed sustainability program would deliver an enhanced environment for tenants including improved air quality resulting from tenant demand-controlled ventilation; better lighting conditions that coordinate ambient and task lighting; and improved thermal comfort resulting from better windows, the radiative barrier and better controls.

If performance fell short of the estimate by 20 percent, CO2 emissions would be less than 95,000 metric tons; if performance exceeded the estimate by 20 percent, more than 135,000 metric tons of CO2 would be saved. The team looked at anticipated near-term changes in U.S. CO2 costs and concluded that legislation likely would not significantly change CO2 calculations.

The other 17 percent of energy savings would depend on tenant actions that would not be fully complete for 12 years as leases rolled over, a front-loaded process given that 40 percent of leases are set to expire over the next four years.

Tenant participation to drive energy savings

In order to capture the 17 percent of energy savings involving tenant spaces, the Empire State Building team was given the responsibility for a program that would include both aggressive guidelines and incentives for tenants to achieve energy savings of about six percent. The proposed green pre-built design would help the team establish design principles for all tenant spaces. Tenants could review the experience of the pre-built spaces and access the eQUEST model and tenant financial tool to verify the economic validity of the guidelines in terms of cost (estimated at $6 per square foot) and operational cost savings to the tenant ($0.70 to $0.90 per square foot annually).

A program of sub-metering all tenant spaces and management of a reporting tool to inform tenants of their energy use was considered essential both to drive tenant focus on energy efficiency within their own space and to assist tenants in calculating their carbon footprints. Sub-metering would encourage tenants to follow the building guidelines on recommended strategies such as daylighting (creating space plans that maximize the use of natural light), and use of efficient lighting techniques such as task lighting.

The team also recommended exploration of tenant incentive programs such as a “feebate” plan wherein tenants that missed sustainability targets would pay fees that might be redistributed to those that exceeded sustainability targets. Implementation of the eight projects began in April 2009 with the work scheduled to be completed in two phases. Building systems work to be finished by year-end 2010 will result in over 50 percent of the projected savings. The work to take place in tenant spaces will be completed by 2013 and will achieve the balance of the energy savings.

Key lessons learned

In summary, the final presentation to management reviewed some key lessons from the team’s collective experience:

Developing robust solutions requires dynamic, multi-year models and collaborative efforts.

Delivering the maximum cost-effective CO2 reduction requires a whole-system and life-cycle view.

The results reinforce the need to address the natural tension between business value and CO2 reductions.

Rapid dissemination and adoption of the results requires development of an efficient process to reduce time and costs.

A look forward

The analytical process was merely the first step toward achieving an optimal energy and sustainability profile at the Empire State Building, but it was of critical importance to the ultimate success of the program. The strategies selected from this process will not only have a significant impact on the building’s carbon footprint but will open doors to additional cost-effective avenues of financing the project.

The Empire State Building is just one drop in an ocean of commercial buildings that must undergo some form of rational energy and sustainability retrofit in the next several years if we as a society are committed to reducing the impact of buildings on the environment. It is hoped that by making available documentation and information such as this report, the Empire State Building sustainability team can clear a path for thousands of other buildings to follow.

For more information on the energy efficiency retrofit project at the Empire State Building, and contact information for those involved, visit www.esbsustainability.com and view this whitepaper in its entirety under “Reports and Resources.”

The printed article is an excerpt of a whitepaper released by the Empire State Building Sustainability team. You can find the entire whitepaper and more information about the project at www.esbsustainability.com.