Real Estate Investors And Owners Can Capture $290B With Simple, Scalable Approach To Building Energy Upgrades

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Best practices and automated tool for portfolio-wide analysis uncover opportunities for returns hiding in plain sight.

This approach to portfolio optimization allows owners and investors to see their entire spectrum of buildings with a holistic and investment-oriented lens, surfacing opportunities for savings and value that were previously hidden said Philip Keuhn, manager for RMI’s Buildings Program.

A new streamlined, portfolio-based approach to building performance optimization will allow commercial portfolio owners and investors to capture their share of a $290 billion net-present-value opportunity that has been largely untapped by traditional building-by-building retrofit approaches, according to a new report from Rocky Mountain Institute (RMI): Capturing Value Through Portfolio Energy Optimization.

Portfolio property owners own most commercial buildings, and are facing unprecedented pressure from the market to upgrade their building stock to be more intelligent, comfortable and environmentally sustainable. Yet, most building energy retrofits miss the distinct needs of this owner class. The diverse nature of commercial buildings, combined with a proliferation of emerging technology and consequent performance and financial uncertainty, make simple energy optimization initiatives—which could greatly reduce energy use and improve building value—challenging to evaluate and costly to access, resulting in slow adoption rates. The industry demands a better solution.

To bring building performance into the age of the portfolio owner, RMI pioneered a new approach—based on over two years of analysis, tool development and in-market testing—to fill critical gaps in the building performance industry. This emerging capability will allow energy to be treated as an investable asset in the portfolio.

Capturing Value Through Portfolio Energy Optimization reveals this value-oriented approach—detailing best practices for portfolio-level energy project identification and prioritization that real estate investment trusts, corporations, pension funds and other real estate portfolio owners can leverage to develop optimized investment strategies. RMI encoded these best practices into a new software toolset to aid portfolio property owners seeking rigorous financial analysis on a holistic set of energy opportunities across their portfolios.

“Companies often think they’ve done everything they can to improve the performance of their buildings. But this approach to portfolio optimization allows owners and investors to see their entire spectrum of buildings with a holistic and investment-oriented lens, surfacing opportunities for savings and value that were previously hidden,” said Philip Keuhn, manager for RMI’s Buildings Program.

Savings achievable with this approach are real—not theoretical—and have been proven with early client engagements with leading portfolios including Sanus Connect Inc., Morgan Stanley and REI. In fact, results from evaluating REI’s stores across the U.S. revealed an average four-year payback for a portfolio-optimized set of energy retrofit measures—achieving 39 percent savings. Analysis of Morgan Stanley’s Lafayette Tower, already heralded as one of Washington, D.C.’s most efficient buildings, revealed 15 percent energy cost-savings potential, with projects that could achieve a 13 percent unlevered internal rate of return for the owner, and a 47 percent unlevered internal rate of return for the tenants.

“These best practices stand to inform and accelerate a new era of high-performance buildings enabled by portfolio energy optimization, and ensure decision makers that they are harnessing their share of this $290 billion opportunity,” said Iain Campbell, managing director at RMI.

The full report and associated case studies are available at: info.rmi.org/portfolio_energy_optimization_report

ABOUT ROCKY MOUNTAIN INSTITUTE
Rocky Mountain Institute (RMI)—an independent nonprofit founded in 1982—transforms global energy use to create a clean, prosperous, and secure low-carbon future. It engages businesses, communities, institutions, and entrepreneurs to accelerate the adoption of market-based solutions that cost-effectively shift from fossil fuels to efficiency and renewables. RMI has offices in Basalt and Boulder, Colorado; New York City; Washington, D.C.; and Beijing.

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Nick Steel
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