Hotel Case Study: Welcome Upgrades
By Anne Cosgrove
From the May 2014 issue of Today’s Facility Manager
The Hilton Los Angeles/Universal City hotel is located within walking distance of several major film studios, the Universal Citywalk Hollywood shopping and entertainment center, and Universal Studios Hollywood theme park, which attracts more than six million visitors a year. This proximity to such popular attractions challenges hotel management to adhere to the highest hospitality standards.
Built in 1983 and opened the following year, the 23 story facility contains nearly 500 guest rooms, including nine suites, and 32,000 square feet of meeting space. Additional amenities include a lobby bar and restaurants, an outdoor pool, a business center, and a fitness facility.
In November 2013, the Hilton Los Angeles/Universal City rolled out a package of facility improvements that have delivered savings of about $30,000 in electricity costs per month. Based on multiple system audits and careful evaluation, the project encompassed many areas of the hotel. These included HVAC system upgrades, energy efficient glass, LED lighting in certain spaces, and low-flow plumbing fixtures.
To fund this $7 million project, hotel management used PACE (Property Assessed Clean Energy) financing. Commercial property owners can use this financing mechanism to pay for up to 100% of energy efficiency and renewable energy projects; the loan is repaid as part of the property’s tax assessment for up to 20 years.
The idea for the project was conceived at a professional workshop attended by the building owner’s sustainability manager. After hearing information on PACE financing, the manager got in touch with the Chapter of the National Electrical Contractors Association/International Brotherhood Chapter 11, and that team brought the Los Angeles (LA) County PACE Program into the conversation.
Initially, the aim was to implements modest upgrades, but eventually the project scope was expanded significantly, and this Hilton retrofit became the largest PACE project to date.
Steve Thompson, director of property operations at the Hilton Los Angeles/Universal City, says, “The PACE funding allowed us to do a lot of improvements in a very short period of time.”
He notes there was significant need for equipment replacement, which included chillers, pumps, building automation, and lighting. “A good deal of the mechanical equipment was original to the building,” he explains, “and we were depleting small portions of our capital every year to keep it running. Replacing equipment would have required quite a bit of our capital, so the PACE funding enabled us to do the mechanical and other improvements while reserving our capital for a major public renovation in the future.”
Initially, the goal with the PACE funding was to focus on “low hanging fruit” upgrades that offered a quick payoff. However, the hotel’s executive board saw an opportunity to expand the scope of work to encompass upgrades with a longer payoff, including improvements such as elevators and control systems. Meanwhile, the availability of tax incentives, set to expire in early 2014, was a factor in increasing the scope of work.
Overall, the hotel’s owner identified the following advantages of PACE: 100% financing for energy efficiency improvements as well as water conservation improvements; long-term financing; preservation of borrowing capacity through off-balance-sheet financing; and non-recourse financing.
Wheels In Motion
Once the decision was made to pursue PACE funding, the hotel team sought a financing partner. That firm was Structured Finance Associates, which then designed a financing solution that best fit the Hilton’s needs. Since PACE is based on the property tax assessment mechanism and is senior to any mortgages on a property, the LA County program required the consent of an existing lender before PACE financing could be used. During the financing process, Sun Hill Real Estate (the property owner) made a decision to refinance its existing loan with a new lender, Deutsche Bank. After successful refinancing, Deutsche Bank recognized the value proposition of PACE and consented to the project.
The contractors on the project were selected through a competitive bidding process and ReNewAll, an LA County PACE project developer, assisted the Hilton in the selection process by pre-screening and interviewing candidates. Located in Los Angeles, ReNewAll worked with Thompson and others from the Hilton to coordinate with contractors in developing an integrated energy savings plan. This unified approach helped to maximize the increases in projected savings and decreases in the overall energy costs.
“Our biggest concern was the actual payback of the offset in energy savings,” says Thompson, “and we validated this in multiple ways. On the mechanical side, we are looking at a payback of approximately three years.”
Meanwhile, the LA County PACE program requires that facility owners complete an ASHRAE level 2 audit detailing the savings estimated for each improvement to be paid for by PACE. Given the extensive scope of the project, two different audits were conducted. The first audit was undertaken by Gexpro, a firm located in Downey, CA, to identify the retrofit opportunity and potential scope of work.
A second audit was conducted by San Francisco based Leading Edge Consulting Services LLC. Before the start of the project, the LA County PACE program had an independent third-party auditor review the Leading Edge audit to provide a professional opinion regarding the assumptions made and the estimated savings expected. In addition, Structured Finance Associates then commissioned a third-party audit to be conducted by Partner Energy to confirm the assumptions and results that had been collected by the Hilton team.
Improvements In Action
Once the installation of new equipment and fixtures began, the process was relatively quick. Work began in earnest in August 2013, and the project was complete in November. “We did about 10 years of work in three months,” quips Thompson. “The large equipment was delivered quickly, and we did this in the cool time of the year, which minimized disruption to operations. That is important to consider in a business that runs 24/7.”
When asked about which improvements stand out from an operations standpoint, Thompson says adding automation capabilities to the hotel’s central plant was significant. And another notable upgrade are the ultra high-efficiency fan motors installed in guest room fan coil units. “This has dramatically reduced energy usage and has aggregated usage to almost 500 units. That is a significant savings. And these were a direct replacement, so installing them had minimal impact on the building,” he says.
In the hotel ballroom, LED lighting was chosen to replace the existing lamps. “We replaced 500 watt lamps with 27 watt LEDs, and there’s more light in there,” says Thompson. “And, previously I would spend about $2,000 each month to replace lamps in the ballroom. I’m not doing that now.”
The low-flow fixtures in the guest rooms are also having an impact on water reduction. Currently, the hotel is not under water use mandates, “but we are expecting it,” says Thompson. He has already focused on reducing consumption—down from five million gallons per month three years ago to 2.5 million gallons per month currently. The recently installed guest room fixtures (dual flush toilets, 1.2 gpm sink aerators, and 1.7 gpm showerheads) are helping to reduce that number further.
Incentives And Rebates
While PACE funding was the primary driver behind financing the project at Hilton Los Angeles/Universal City, the initial energy audit identified a number of rebate opportunities on the state and federal levels. The Los Angeles Department of Water and Power offered $80,000 in incentives for replacing an old chiller. On the federal level, the Section 179D of the Internal Revenue Code for Commercial Building Tax Deductions allowed for the deduction of 40 cents per square foot to install LED fixtures.
When the project’s completion was announced, Mark Davis, the facility’s general manager, noted, “PACE is the only funding mechanism credible in providing verifiable information to our investors, and therefore is the ideal tool for us to move forward in becoming the gold standard in sustainable hotels.”
This article was based on an interview with Thompson, and literature from LA County PACE.