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u s in e s s a n d M a n a g e m e n t

Comprehensive Retrofits ofCommercial Office BuildingsChange in ownership use or iocai market conditions m ay iead an ownerto doacomprehensive retrofit toincrease valuetotenants investinfuture profitabiiity or ma ke up for past maintenanc e and capitai investment deferrai. hismarket is a huge opportunity for consulting engineersand the construction industry.

By H.M. Sachs Ph.D. Member ASHRAE E. Mendelsohn and K. AckerlyA comprehensive re t rof i t is arelatively new approachtore-vitalizing a property. Change inownership, use,orlocal market condi-tions may leadan owner to doacom-prehensive retrofitto increase valuetotenants, invest in friture profitability,ormake up for past maintenance and capitalinvestment deferral.

This market is a huge opp ortunity forconsulting engineers and the construc-tion industry. Acco rding toU.S.Depart-ment of Energy researchers,ifall U .S.businesses and institutions conductedcost-effective retrofi ts, theexpensewould be roughly 100 billion withafour-year payback, reducing energycostsfor most buildingsby2 5 % . srecently as 1995, the U.S. invested onlyabout 4 billion annually on commercialenergy-saving retrofits.

Because building systems are interde-pendent, a comprehensive or systematicrenovation se quence can yield su bstantialenergy use savings while improving theoccup ants' environment. For example,re-engineering a building's lighting sys-tem or installing better insulation or high-performance glazing reduces requiredcooling power. Equipment upgradestoimprove efficiency may have low incre-

mental costs, but they could result inabuilding with an oversized and obsoleteHVAC system. Therefore, the true cost-effectiveness of these me asures is dimin-ished without a whole-system approach.In a comprehen sive retrofit, the final stepis to reduce the size ofthe cooling systemto exploit the purchase price and operat-ing cost synergies from smaller, mo dern,and more efficient, equipment.

The technologies involvedincom-prehensive retrofits have been discussedextensively, and strategies are w ell under-stood. However, why do some buildingsreceive comprehensive retrofits, whilethe owners of others never consider theoption?We interviewed two experienced pro-fessionals in energy management to ex-plore what motivates owners and explainthe processforretrofittinginoccupiedbuildings. We asked Mark Jewell, CEOof RealWinWin and James D'Orazio,apartner at Vista Advantage, for their per-spective on four broad qu estions: Why dodecision makers become interested? Whomakes comprehensive retrofits happenand succeed? W hat are the concerns thatdrive action? How doe s one overcome the

inevitable obstaclesto getting approvalfor a project?

Several factors determine why retro-fits are considered and who drives theprocess. In simple terms, change growsou tofdissatisfa ction, which forcesbuilding owner or agenttobecome awareofa condition. Engineering assistancein response to the common complaint oftenant comfort problems often uncoverslarger issues. When solved, the resultcan dramatically improve the building'soperating efficiency.

Fixing errorsin energy managemensystems, for example, can greatly reducethe time that equipment run s, restore thefiinctionality ofaneconomizer cycle, odecrease the amount of outside air thatmustbeconditioned. When managerunderstand that comfort complaints areconnectedtocontrols, and equipm entwhich are connected to energy bills, thestage is set for action.

In turn,HV Cperformance can greatlimpact occupant productivity and tenantretention. D'Orazio notes that buildingswith high vacancy rates need solutions torestore profitability. In som e case s, a reaestate investor (e.g,, a large pension planthat holdsa large real estate portfoliowill mandate renewed focus on energyefficiency by its property m anagers, usingmetrics such as the US. EnvironmentalProtection Agen cy's EnergyStarbenchmarking scores (www.energystar.gov).

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Jewell observes that sometimes theon-site building engineer lobbies to havefaulty equipment (or its control system)replaced. It helps to have an energy evangelist inside the decision maker'sorganizationsomeone who can drivethe process without tolerance for delayor derailment, according to Jewell, Thiscould be a property m anager who knowswhat to look for, and is willing to al-locate resources and evaluate potentialsolutions. Solution vendors, includingenergy service comp anies, are often partofthe process,

D'Orazio suggests that facility ag-ing alone can be a driver for upgradingequipment. Owners may not be able toprofitably flip building s without mak -ing some capital investments.

For example, an owner may becomeaware of an obsolete CFC chiller. Thiscan be a vehicle for a more compre-hensive strategy that allows downsizingand a new, high-efficiency chiller, free-ing resources for other improvements.Clearly, comprehensive retrofits must bedriven by a compelling need and a soundbusiness case.Once a building owner has recognizedthe need for retrofits, the next step is forthe owner to understand investment op-tions within the context of a successflil,comprehensive system analysis, Jewellstresses that it's important to use a sys-tematic approach, with analyses thatevenhandedly address every buildingin a portfolio, so the best opportunitiesarise. The utility bill, sensibly dissectedand compared with benchm arks, revealswhat is broken, A low score on the EPA'sEnergy Star benchmark indicates furtherinvestigation is warranted.Project approval criteria must be de-termined at the beginning, and appliedconsistently throughout the process.Otherwise, buildings receive attentiononly if someone has the will to make ithappen.Once the process for choosing invest-ments is determined, including stipulat-ing a hurdle rate (the client's cost ofcapita l), then the objective is to sequen ce

individual retrofit measures so that eachbuilds on prior successes to maximize

comfort and efficiency. T he strategy is tominimize early capital investments whilebuilding confidence.Several obstacles to gaining projectapproval rest on how building owners,

building staff and retrofit specialists ap-proach energy management issues.Probably the most surprising obstaclewas noted by Jewell, who suggestedthat too many real estate investors as-sume their managers are focused on theenergy issue and proactively address-ing all improvement potential. Nothingcan be further from the truth, given thebelow-average Energy Star's and Build-ing Owners and Managers AssociationInternational's benchmarking scores seenin many third-party managed buildings.In approaching the building owner, itis imperative for retrofit vendors to thinklike financial specialists. Pointing outsimple payback isn't enoughneitheris showing internal rate of return or netpresent value, unless you rememberto include all of the project's costs andbenefits.It is imperative to use the owner'shurdle rate, holding period, and other

approval-related criteria from the outset.Given today's energy prices and theincreasing availability of financial andtax incentives, it is becoming easier tofind upgrades that make financial sense.However, these opportunities must bequantified and properly positioned in theowner's framework.For example, some owners prioritizereallocating tax benefits (for public agen-cies and non-profits), or will want to beable to lease equipment. For others, it is

advantageous that investments, such asdistributed generation, can be installedand owned by a third-party who sellsenergy to the building owner under astipulated formula price. However, deci-sion makers need to feel confident thatthe cost/benefit numbers came from anunbiased authority that understands thebusiness environment in which the build-ing operates.The building en gineer is potentially avaluable ally during the approval process,

but may feel threatenecl. Unless the build-ing staff is interested in adopting new.

advanced technologies, the operatingengineer may fear that vendor's presen-tation might call his/her competence intoquestion if it uncovers significant sa vingsopportunities. What if low-cost/no-costmeasures exist that the building staffcould have implemented sooner?

To avoid some of these obstacles,D'Orazio urges morepre-and po st-instal-lation m onitoring. This may be an area forutility assistance w ith the owner's permis-sion. Such data can provide evidencetothereal estate industry that owners who investin smart efficiency steps will be rewarded,because savings are real and robust.Multiple forces are converging to makecomprehensive retrofits an importantopportunity for consulting engineers.Background trends, including risingenergy prices, heightened homelandsecurity concerns, and increased inter-est in green rating method s, such asEnergy Star and US, Green BuildingCouncil 's Leadership in Energy andEnvironmental Design program, makeit easier for energy-saving retrofits toappeal to the competitive instincts andfinancial consciousness of commercialbuilding o wners.According to Jewell and D'Orazio,many factors can spur owners to carryout a comprehensive retrofit. The busi-ness question becomes how engineeringprofessionals can persuade the owner totake advantage ofthe business opportuni-ties offered by a comprehensive retrofit.Convincing ow ners is the first challenge.The next challenge is to document andcommunicate savings and cost-effective-ness to drive a growing business line.

knowledgmentsThe authors thank M ark Jewell, CEO,RealWinWin, Philadelphia, and Mr,James D'Orazio, partner. Vista Advan-

tage,Philadelphia, for their help.H.M. Sachs P h.D. Member ASHRAE

is director of the Buildings Program atthe American Council for an En ergy-EfficientEconomy ACEEE) inWashington.E. Mendelsohn andK.Ackerly arerespectively ormer and presentmembersoftheACEEEresearchstaff.

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