What’s Next in Real Estate? New Data Measuring Building Performance

The Greenprint Performance Index

Leading commercial real estate stakeholders have long staked out a leadership role in exploring sustainable design and development practices which voluntarily exceed minimum legal requirements. But how can real estate investors and owners measure ongoing progress toward long-term sustainability goals while taking short-term and incremental actions to achieve them? How can the globalized commercial real estate industry benchmark ongoing progress across international geographies, markets and property types?

The Greenprint Performance Report gauges relative progress in reducing greenhouse gas emissions associated with buildings. In only three years, the international scope and size of the report have established it as one of the real estate industry’s largest, most verifiable, transparent and comprehensive energy benchmarking tools. It provides an open standard for real estate owners to measure and track energy usage and carbon emissions on a building and portfolio basis across international property markets.

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Transcript

Introduction by Gordon Feller

When we programmed this event, we thought we’ll hear and see and learn about the art of the city and the science of the technology. Being from Silicon Valley, I think it’s prevalent now throughout all of the elements of our culture is that if you can’t measure it, you can’t manage it. We want to measure the value of these things where we can. Some of it as in the aesthetic and the art are hard to measure. It still has great value for us. When we’re dealing with buildings like the one in Boston that we saw or the Empire State Building, we really want to ask ourselves how to measure the performance of that building, how to be able to know if we’re making progress against the baseline of carbon consumption and carbon emission or energy consumption or energy savings. In the spirit of wanting to get from the art of the city to the science of the technology to the measuring and the managing of that and the reduction of that energy consumption and carbon emission, we thought it would be a good idea to bring chuck Laitner onto our stage remotely by Telepresence. I think Chuck is in New York. We’ll get him on the screen. Chuck Laitner by the way, as you know from the programme is the chairman of SVP Global Real Estate and also the chairman of ULI Greenprint Center for Building Performance. He’s joined on this stage by Uwe Brandes, vice-president for initiatives at Urban Land Institute. Uwe, the floor is yours.

Uwe Brandes

Thank you, Gordon. ULI has been a friend of this convening for 4 years. It’s always great to come to this event. Of course, it’s great to come to this event in San Francisco, this great creative city, and I look forward to attending and participating next year in Toronto. My name is Uwe Brandes, senior vice-president of initiatives at the Urban Land Institute.

It’s been a very special year at the Urban Land Institute. We’ve been celebrating our 75th anniversary and we’ve had a theme of programming across the institute titled “What’s Next?: Real Estate in the New Economy” It’s so great to be here and be part of the conversations as part of this convening that really are beginning to change the nature of the real estate industry itself, in some cases, in very new ways. Over the course of this year, we have brought in a separate nonprofit into the Urban Land Institute founded as the Greenprint Foundation. It is now the ULI Center for Building Performance. I’m here joined via Telepresence by the chairman of the Greenprint Center Charles Leitner. Chuck spoke briefly last year as well at the Meeting of the Minds. Chuck, I can’t say enough about him. He’s really bringing an incredibly new perspective to how big data is generated through small data, that is, small data looking at performance of buildings and then thinking about how that information can really be aggregated up into a new source of information for the real estate industry to act on. With that, Chuck, I’d like to turn it over to you. Talk a little bit about the Greenprint Center formation and also, what would be very exciting next week at the ULI fall meeting of releasing the Volume III report which would be the first report issued by the Greenprint Center since the merging with the Urban Land Institute. Chuck, it’s great to see you up on the screen. Take it away.

Charles B. Leitner III

Great. Thank you, Uwe, for the introduction. It’s a pleasure to be here again. As Uwe said, I had the opportunity to spend a few minutes with this convening last year via Telepresence −thanks to Cisco− when you were all in Boulder, Colorado. It’s good to be back. Sorry I’m not there in person but happy to be in front of you anyway and talking about the progress we’re making at Greenprint. I know you’ve talked about a lot of different things over the last day-and-a-half or so. Gordon, I’ll try and tie these comments with what you’ve been covering and what you think are the important messages here. We have some slides to share. I’ll go through those quickly. As Uwe said, we’re about to release the Greenprint Performance Report, 3rd Volume. I’m so excited about still being here in many ways to start developing what’s critically important in any data analysis and that’s the time series, a constant commitment to generate quality data and information over time so it becomes useful as we try to develop real benchmarking tools for the real estate industry.

I’ll spend a minute on the next slide here after the introduction on the “who” of Greenprint, who Greenprint is. As Uwe said, we’re originally founded as a nonprofit. We thought that was a very important way to start this initiative. Although our members were very much for-profit real estate investors, owners and financial institutions that are in real estate for financial return, our organization is not organized to generate a profit. In fact, we spent a lot of time convincing the IRS and did so successfully on the eve of our acquisition by the ULI that we should not only be seen as a nonprofit but also be seen as a 501(c)(3) charitable nonprofit as opposed to a trade organization because we really were committed to a greater good benefit from our efforts. That’s a very important part of who we are. The practical part of who we are is, like I said, an organization of real estate owners, essentially, the piece of built environment pie that deploys investment capital in the real estate market. Our approach is to catalyze the capital side of the equation as you look at the broader built environment, and create that connection between performance in environmental terms and performance in financial returns. That really, at least in this piece of the pie, we believe is the holy grail in terms of getting things to move forward. We are about leadership and commitment, collaboration and, more importantly, action. This is a list of our membership, a strong representative cross-section of the major players in global real estate investment marketplace. Committed to being global, we think this is very much a global issue. As with every real estate challenge or property challenge, you have to think globally and −at the risk of sounding cliché− act locally. That cliché does apply to this energy and environmental opportunity and challenge. Our membership is diverse but committed to doing something that we think makes Greenprint somewhat unique and that is contributing performance data. The CEOs of this group do not necessarily wake up every day thinking about energy and environmental data but they do think about financial data all the time. So we try very much to create a construct that was analogous to what real estate investors are used to in terms of performance measurement. They’re very much used to very transparent, very robust, very consistent financial metrics so we tried to use that analogy to develop tool that is useful for the industry and has benefits to the environment.

On the next slide, we have a group −I hope a growing group− of sponsors and partners. Greenprint is very much about collaboration and partnering. Part of the importance of being nonprofit is that Greenprint is not in this to create value in the entity of Greenprint; we’re in this to collaborate, partner, work together wherever it makes sense to do so. The faster we get to where we’re trying to go, the better. We firmly believe that the fastest way to do that is to collaborate. We have a great partnership, for example, with the London Better Building Partnership which is a public/private partnership that had great success in London measuring carbon emission performance in the office portfolio in partnership with the mayor’s office there. So we collaborate on London data so people can benchmark in London and also benchmark London against other parts of the world. Members can do the same thing. We’re looking for more of those anywhere we can find them, quite frankly. The NRDC has been a great partner in the US through their Center for Market Innovation. We’re doing a lot of case study and demonstration project work with them. On the right of this slide, we developed an innovation partnership construct that we also hope will grow, which really helps us with folks like Cisco, as an example, with educational content, best practices, and new technology and how important connecting to those things is when it comes to performance measurement.

Once we’ve established the “who”, we can go on to the next slide which is a conclusion. I won’t spend too much time on this. We have very significant people with our member organizations making a lot of commentary about how much more important environmental performance is becoming when measuring investment performance, when assessing value whether it’s value in real estate assets, corporate assets or what-have-you. We have a lot of these out there. I think people are hearing more and more from very significant folks that the connection is upon us. It’s exciting.

The next slide really gets into what I start to call the “what” of Greenprint. Uwe mentioned a report. We’re releasing a report publicly next week Volume 3. A lot of interesting metrics that I want to share quickly with you, things that we’re really seeing that were starting to show some very exciting signs of progress, with the caveat that this is still very early days. Gordon talked about small data versus big data as did Uwe. In real estate, we certainly believe you have to start at the basic building block of any sort of analysis −which is at the building level− and then build from there. Bottom-up is really the important way to approach this. It doesn’t happen overnight unfortunately. Although, I think some of the growth metrics that you’re seeing in our report Volume 3 really speak to a reason why I’m excited. Significant growth is upon us, I think, in terms of this initiative. Our membership has grown significantly from 18 to 29 participating members.

The next slide shows some other aspects of our report that are important to look at as well. You can see we’re geographically diversified. We’re trying to build a portfolio that mirrors the investment universe for the real estate investment industry. That starts at the global level and can be broken down into any regional or property-type sub-metric index that you like, so real flexible data but starting with data that, again, comes from the ground up −the buildings themselves. The Greenprint portfolio is not an investment portfolio in a practical sense. It’s a virtual portfolio, if you will, that’s made up of properties from multiple different investors that we’re using to track performance both at an individual property level. In this diverse portfolio, we have major regions of the world represented. In those regions, we have the major cities represented. Not coincidentally, those cities are also the cities that are the most attractive and targeted investment cities and investment markets for the investment organizations that play in the real estate asset class.

The next slide breaks this down a little bit further. These are pages right out of our Volume 3 report that we will have in full next week as Uwe said. These give an idea of what the capability and potential is for this portfolio. We very much wanted to show people what is so they could dream about what could be because we still have a long way to go to get the amount of data that’s statistically relevant. Again, we’re growing dramatically here. You see we’ve had a terrific growth in the US particularly over the last year. There are some reasons for that. We still have a long way to go in Asia. There are some reasons for that as well. Generally, the trend is strong growth in the database from a regional perspective as well as a from a property-type perspective. We do track data in the major investment “food group”, if you will, of real estate: office buildings, shopping centers, multi-family properties, retail properties, and hotels.

The next slide is also a page that comes out of our report that gets a little bit deeper into what we’re trying to do as far as measurement. We’re really trying to set a path toward reduction of, in this case, energy consumption so our portfolio in a year-over-year basis has experienced a 4.4% reduction in energy consumption. You’ll notice our properties are a little bit smaller −1,600 here− than the overall properties we have in the survey which is about 2,600. Anybody who’s tried to build a database knows a big part of the process is cleaning the data. We had almost 4,000 properties submitted this year. For a variety of reasons, almost 1,000 of those are sitting in our holding tank, if you will, going through quality control for next year. That could be quality control in terms of energy, quality control for simple things like building areas, occupancy levels, and all the things that are really important. So cleaning data is a big part of this project, not necessarily the most sizzling part of this project.

As we work through that data, we now have a time series. We can like-for-like analysis which is the only way you can build a useful performance measurement tool. In real estate, like any other asset class, any other comparative opportunity, you have to compare properties to other properties that are alike. You have to define those things and that’s why the industry participation is so important in establishing those definitions. What is like-for-like? Does a building in New York have a comparative metric to a building in San Francisco or even London? Our answer to that question is yes. In particular, those are major financial markets. A lot of the buildings in those markets are dominated by trading floor operations, for example. Comparing those buildings to each other has a relevant value whereas you might logically think it’s better to compare New York buildings to New York buildings. That’s really not necessarily true because of the diversity of property type in a market like New York. That like-for-like analysis is really important.

A fun thing around this is you can start talking about equivalents. The next slide is the other key metric that we established which is emissions and where we’re going with this portfolio so far in emissions. I’m always reluctant at this stage in the game to say that these are absolute statements about what’s happening in the real estate industry because, again, we want to get more and more data so these numbers become more and more legitimate over time. But the good news is we are already off to the right direction, which is a reduction in carbon. The equivalence that that reduction really leads to is helpful because −as people certainly in the United States understand− carbon can be an interesting topic, somewhat politically-charged topic from time to time. It’s certainly not the case in Europe and Asia but that being said, you’re helping people relate emissions to other important metrics. It’s a little bit fun but also relevant. Those who spend time with these equivalents know that these are not huge numbers but reduction that equates to over a billion barrels of oil being saved, getting 89,000 cars off the road, planting nearly 12 million trees. These things help with our membership and our constituency. They take carbon from an abstract and put it into practical analysis.

The next slide will take you a little bit further into our report. This is the speculative part of Greenprint. I know this conference tends to, for good reason, want to really talk about the future, want to be aspirational, and speculate about what could be. This is our speculation of what we think we can create with a very robust database. We really see an index and a series of sub-indices coming off the back of this effort where people can actually use this database and use the index to do real benchmarking of performance the way they want to do it, not any different than the financial markets created −things like the Dow Jones Industrial Average, the S&P 500, the Lipper Bond Index, and so on. In real estate, we have things like the NCREIF Index in the private side and we have the NAREIT Index on the public property operating side. We want to make this analogous and complementary to those financial tools so people making financial decisions about properties and investments can correlate between energy performance and financial performance. We’re reluctant to go out on a limb right now and say green buildings are more valuable than brown buildings. There’s a lot of dialogue about that. Our theory is eventually, the markets determine that. Instinctively, our members know it’s going to happen so let’s measure it, make sure we understand it, use this type of benchmarking, and make access to this benchmarking available to as broad a cross-section of market as possible. I think as we get the numbers up, this could be really exciting. I wouldn’t be surprised as you can see from 2009 to 2010, we actually went up and then went down in 2011. There’s going to be some volatility in these numbers early, primarily caused by the smaller database. We’ll normalize this more over time as we get more and more data and get them cranked into this thing. We are very open-ended with this so we’re going back with historical data so we can build our base with more information. You probably wouldn’t get away with that if this were actually an index where people are actually trading on. That’s not what we are. People aren’t trading on this index; maybe someday they will. As we get more data, we open the door to our members to give us historical data as well so that our base does change but it becomes more representative of the market going forward. So we expect a lot of volatility early. We really think this will start to normalize and be very useful if we can keep growing the data like we have able to do.

The next is really just the summary of where we’re going but the previous slide really sums it up in a nutshell what we’re trying to do. We really believe we’ve experienced that in this industry in the financial side of things, the transparency, quality controls, standards, best practices, all have to be part of the evolution that needs to take place. I like to think optimistically that we’re in the middle of a revolution where this thing is really starting to open people’s eyes. The conversations are really starting to ramp up. I think the beginnings of what we’re experiencing on the data side which is all voluntary and the growth we’re experiencing on that makes me believe that there’s really going to be a J-curve in this activity as opposed to a smooth slope forward. We’re going to really start to see some interesting connections and interesting work in the real estate investment marketplace that help drive change and make the world a better place to live.

I really appreciate the time. I don’t know, Gordon, if I have some Q&A but thanks for giving us the opportunity to talk to the group.

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