Reducing Energy Cost Increases Real Estate Value

March 14, 2012 - PRLog -- The Big Green Zero White Paper Reducing Energy Cost Increases Real Estate Value explores how commercial real estate owners can turn energy pennies into increased equity dollars.

Background

This White Paper starts by noting that,according to the Environmental Protection Agency’s Energy Star program, energy use is the single largest operating expense in commercial office buildings. Energy bills in commercial buildings often represent one-third of a typical operating budget. And, according to the U.S. Department of Energy, utilities are the single largest controllable cost in multifamily housing, typically ranging from 25 to 35 percent of overall operating costs.

Reducing Energy Expense

Big Green Zero has recently performed energy assessments in 80 commercial real estate properties. Throughout these studies, three findings have been consistent:

First, simple energy efficiency improvements can reduce energy cost by 20% to 40%.

Second, a capital investment is seldom necessary. Most energy efficiency improvements can be integrated into the normal repair and maintenance cycle and paid for through budgeted repair and maintenance expense.

Third, the return on investment for an integrated energy efficiency/solar package often makes sense in cases where the ROI for solar, alone, does not pencil.

Three Case Studies

The three case studies discussed in the full-text white paper identified opportunities to reduce energy cost ranging from 35% to 41%. If the required improvements are made with a one-time capital investment, the period required for return of investment will range from 4.3 to 8.9 years. However, if the recommended projects are completed and budgeted within the normal Repair and Maintenance cycle, the period required for return of investment will range from 0.9 to 1.8 years.

Turning Energy Cost Pennies into Asset Value Dollars

ENERGY STAR data indicates that a 10 percent decrease in energy use can lead to a 1.5 percent increase in net operating income (NOI). On this basis, for a 200,000-square foot office building that pays $2 per square foot in energy costs, a 10% reduction in energy expense would translate into an additional $40,000 of NOI. At a capitalization rate of 8.0%, that energy cost savings would increase asset value by $500,000.

Extending this example, a 30% percent reduction in energy expense (which is typical of Big Green Zero Energy Assessment findings), would increase asset value by $1.5 million.

By reducing energy cost, a commercial real estate owner can increase asset value. At Big Green Zero, we call this process Turning Energy Pennies into Equity Dollars.

View the full-text White Paper Reducing Energy Cost Increases Real Estate Value at
http://www.biggreenzero.com/news/reducing-energy-cost-inc....

# # #

Big Green Zero reduces energy cost for businesses and commercial real estate owners. Our proprietary energy assessment process typically identifies opportunities to reduce energy cost by 20 - 40%, consistent with making minimal (and sometimes no) capital investments.

Big Green Zero helps commercial property owners turn energy cost savings pennies into equity dollars.