White Paper: Economics of Sustainability in Commercial Real Estate

The IFMA Foundation — a global leader in education and research for
professionals in the built environment — has released “The Economics of Sustainability in Commercial Real Estate,” a practical, real-world study of the incentives and motivations of real estate managers to invest in energy efficiency retrofits. The white paper explains why some investments are made over others and presents an economic framework to evaluate competing capital investment decisions, including decisions between energy efficiency upgrades and cosmetic improvements.

Among the paper’s findings:

  • Commercial building owners often find the best return on investment in sustainable upgrades before a significant lease rollover;
  • Public perception is a driving factor for many public companies considering energy efficiency improvements; and
  • Owners are more likely to invest in energy efficient upgrades when tax incentives are in place.

The paper includes a case study on energy efficiency retrofits at the Empire State Building, where project managers aim to reduce energy use by 38 percent. The case study details the eight projects selected among dozens and describes how managers arrived at a 38 percent energy savings goal.

Relevant industry questions answered by the paper include:

  • How does an energy efficiency improvement project get implemented?
  • Who is the driver behind energy efficiency projects?
  • What financial metrics are used to determine if a retrofit investment makes economic sense?
  • How does a real estate manager choose among competing capital investments?

The study’s authors are Kristian Peterson, director of consulting for Sustainability Roundtable, a member-based, shared-cost consulting and research consortium focused on real estate portfolio optimization geared toward greater sustainability; and Ross Gammill, director of commercial due diligence for Allonhill, a third-party due diligence and credit risk management provider.

Peterson and Gammill interviewed decision makers throughout the real estate management chain, including property managers, asset managers, portfolio managers, and institutional owners and investors. They explore primary and secondary drivers of investment decisions and present a financial model to compare competing alternative capital investments.

To request a copy of the report, send an e-mail to tfm@groupc.com with the words “Eco of Sustainability” in the subject line of the e-mail.