Zirve Eki - ISTANBUL REstate

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Gayrimenkul Zirvesi 10
building in the first place. And in the US, on average, we have
buildings lasting about 48 to 52 years depending on which
metropolitan area you are looking at. So, this becomes a really
big issue from the energy perspective. So, how do we make
a difference in this whole story? Well, we can talk about new
buildings. I go to lots of conferences around the world and
we hear lots of stories about green building and it is very very
important. But we need to understand that new buildings only
represent about 1 to 1.5% of the stock of real estate on an
annual basis. So that means in the US it will take about roughly
a hundred years to replace all the existing buildings. Secondarily,
there is probably 74 municipalities in the US that now mandate
the new buildings have some form of energy efficiency or
some sort lead design criteria. So, I would to say that I think
the new product is in good shape. I think going forward we
are in pretty good shape with buildings in the US and in other
parts of the world. The problem is we have a stock of existing
buildings commercially in the US that are 4.2 million numbers
of buildings in size. So we have this huge existent inventory
of buildings almost 75% of which were built before the 1990s.
So we have this huge base of energy consuming buildings that
we need to deal with. And that is what energy efficiency
improvements are all about. So, why other opportunities: (1)
because of the stock we have and energy prices. I am going
to show you some charts in just a little bit about what is
happening with energy. I think everybody knows that story.
Potential for operational savings. If I can create energy efficiency
in my building, so it consumes less that saves me money, and
where does that saved money go. It goes right to the bottom
line and what happens to that bottom line. It gets capitalized
in the value. So if I can create more energy efficient building
it goes directly to creating more value. And guess what people
pay for in the investment world; value, cash flow. So it is very
very important to link these energy efficiency savings not only
with carbon output but with value creation in buildings. So
the question is do they pay? It is easy to sit here and say, this
15 Haziran 2010
is great. I lectured last week in New York. I am going to show
some slides on the Empire State Building in a minute. We are
talking about this and the institutional investor sitting in the
audience say yeah, that is all great, that is good, I would like
to build green buildings and I would like to retrofit buildings
but does it pay? Show me the numbers, as they say. And we
have very little data available to us to do that at this point in
time. So as one of the punch lines of this little presentation is
we need to get access to more information, have more people
participate in this initiative so we can prove that the numbers
matter. Okay, I am going to use it - a simple example. I have
actually done research on ten or twelve other buildings but I
am going to use the Empire State Building just because (a)
everybody else has talked about New York, many of you
probably know the story here. Empire State Building was
completed in 1931. And up until 1972 it was the tallest building
in the world. It has gone through some ownership changes
over time and recently it has gone through a major retrofit, a
half a billion dollars being spent to retrofit the entire building.
And it is a very interesting case study because they have gone
from the energy perspective, the energy upgrade perspective.
So there are some very current numbers I can share with you
about how this has worked and some novel econometric ideas
that are coming out of this. It was a half of billion dollar capital
improvement project. They stepped back and they said for that
half a billion dollars I get zero energy efficiency because it was
93 million of that five hundred million that was going to be
allocated towards energy related capital budget. No increase
in energy efficiency. So they came back and have done a fairly
extensive study to say what happens if we think about energy
related items. That increases the budget from 93 million by 13
million additional dollars which takes the entire project to 106
million and now they have a 38% energy savings. So by just
increasing this retrofitting budget to include energy items, the
savings go from zero to 38 percent. That is a huge number and
it is very visible because they are sharing all this information
with everybody that is interested. How did they go about this?
First, identify the opportunity so they have gone into a very
detailed they replace the glass. They put argon, inert gas and
other reflective material and seal them back up, and the tenants
don't miss a day. Amazing idea saved them 4000 dollars per
window. And there is over 6300 windows in the Empire State
Building. Huge amounts of savings here, so it is thinking on
little more creatively about how we do these retrofits. And
again I will just hit you down to the bottom here. The original
budget was 94 million dollars for energy related things. They
raised it up to 106. That is an increase of 13.2 million dollars
of investment. And what they got for that was 4.4 million
dollars of energy reductions immediately. That is a three-year
payback and I challenge any of you in the investment world, in
the corporate world, in the construction world to show me very
many projects that have a three-year payback. Pretty impressive
results. So, now the quick question is how do you monetize
this. So I've talked about the savings. What do you do with
those savings? How do you create money out of those savings?