Using Data to Drive Modernization for Next-Level Portfolio and Asset Resilience in Commercial Real Estate
Despite the digital world that most people live in today with smartphones, smart TVs, and myriad other apps and connected devices, much of the built environment remains a laggard when it comes to embracing the latest innovations.
That reputation is well deserved given some of the natural impediments: roughly two-thirds of commercial real estate buildings in the United States were constructed before 1990. Updates to aging structures are generally costly; and when upgrades do occur, building control systems are not typically at the top of the priority list.
Yet that picture is clearly changing. Landlords are recognizing that building modernization is a necessity to remaining competitive in today’s marketplace—not only as a means to address operational and financial vulnerability, but also to future-proof buildings amid changing market conditions.
Modernization is anchored in data and advanced technology—internet of things (IoT) sensors and data analytics powered by artificial intelligence and machine learning. When commercial real estate owners evaluate where to prioritize that investment, they tend to be made in occupant-facing areas (e.g., lobbies, elevators, keyless entry, and so on). Energy efficiency upgrades are better focused in the area that also has the potential to generate the biggest value and return on investment (ROI) such as streamlining building operations for financial, operational, and climate impact. Many owners have already picked off the low-hanging fruit of installing LEDs, and upgrading equipment where budgets allow. Modernization—and specifically, the ability to leverage tools to take a deeper, more granular dive and capture more operational data—is allowing owners to identify hidden inefficiencies, reduce energy use, and boost net operating income (NOI).
Brenden Millstein, CEO and cofounder of Carbon Lighthouse, stated in an interview, “Software and hardware technology have advanced significantly over the past five to 10 years, making energy efficiency a more viable, cost-effective consideration for CRE [commercial real estate]. In fact, the cost of energy efficiency is $0.025/kWh versus $0.20–$0.30/kWh utility rate in areas like New York and Hawaii—it just makes business sense.”
Carbon Lighthouse, a ULI Greenprint Center for Building Performance Innovation Partner, is an energy savings-as-a-service firm that helps optimize building systems so that they waste less energy, reducing a building’s carbon footprint and delivering cost savings. The backbone of Carbon Lighthouse’s approach is in deploying a network of sensors that feed data to the company’s patented CLUES software, an artificial intelligence (AI) platform that identifies, analyzes, and recommends opportunities to save energy. Carbon Lighthouse engineers then work with on-site teams to implement the recommendations and continue to monitor performance over time to ensure ongoing savings.
Data Empowered Decision-Making
On-site teams tend to rely on once-a-month meter reads, utility bills, or energy use intensity (EUI) from basic software dashboards to provide information on energy use. However, Matt Ganser, executive vice president of engineering and technology at Carbon Lighthouse, comments, “While useful for general benchmarking, these static points fail to capture the causation of dynamic load shifts stemming from changes in occupancy or ambient conditions, and certainly cannot explain why a bill is suddenly and permanently higher, which makes it difficult to truly understand and optimize building operations.” He continues, “To be truly actionable, data often needs to be continuous and granular, penetrating far deeper than the utility meter, and usually must capture a variety of ambient and occupancy regimes.”
Accelerating digital transformation across the commercial real estate industry will require a mix of updated equipment, smarter control algorithms, and, of course, data. Data is playing a bigger role in decision-making in commercial property investment and asset management. In this case, access to accurate data and analytics on dynamic energy use and equipment performance has become a game-changer for further advancing energy efficiency by providing critical information to optimize on-site operations.
For example, Carbon Lighthouse leverages artificial intelligence and machine learning to capture and analyze a staggering amount of previously inaccessible data—millions of individual data points—to detect patterns and quantifiable scenarios for recommended improvement. CLUES layers in 100 building-specific data streams per site along with other relevant data, such as building occupancy, location, weather patterns, and energy use behaviors, to develop thousands of potential energy use scenarios. Some adjustments are one-off changes, such as replacing a piece of equipment. However, most recommended improvements—about 80 percent, according to Carbon Lighthouse’s R&D team—are ongoing optimizations that occur in real time.
To date, CLUES has analyzed over 100 million square feet (9.3 million sq m) of commercial real estate and 5 billion points of data in over 700 buildings nationwide, which has helped unlock more than $150 million in energy savings for clients and eliminated more than 243,000 tons of carbon.
Business Case for Modernization
Carbon Lighthouse was founded with a fundamental mission of stopping climate change by eliminating the carbon footprint of commercial buildings, which, according to the Energy Information Administration, accounts for as much as 40 percent of carbon emissions in the United States. Although many people share a similar goal, the big selling point for modernization continues to be the ROI. Modernization strategies have a direct and indirect impact on building and company value with improved energy efficiency and cost savings, as well as the added incentive of helping to raise benchmark ESG scores.
According to Carbon Lighthouse, its clients typically see 10 to 20 percent whole-building savings while optimizing only with existing equipment. Even high-performing assets achieve an average of 5 to 10 percent savings, while low-performing assets have an opportunity to realize between 20 and 100 percent savings.
For example, Carbon Lighthouse worked with L&B Realty Advisors to analyze its One Biscayne Tower, a class A office tower in downtown Miami, to enhance its existing energy efficiency measures and leverage data-based machine learning to ensure future incremental energy use savings over time. Step one was conducting a thorough analysis. Carbon Lighthouse worked with on-site property engineering and management teams to assess One Biscayne Tower’s existing HVAC and lighting systems. The team deployed hundreds of sensors throughout the 674,000-square-foot (62,600 sq m) property that yielded more than 34 million data points. A CLUES analysis of the data revealed new opportunities to further enhance the energy efficiency, such as:
- Providing better visibility and control of existing HVAC equipment (duct pressure, air/water supply temperatures, chiller staging automation) and central plant conditions based on building electrical demand and outdoor air conditions, while still optimizing tenant comfort;
- Taking steps to isolate energy zones during after-hours and on unoccupied floors; and
- Performing an LED lighting retrofit in common areas with new controls.
The projected savings of those energy-efficient changes and investments was 132 percent in the first three months, with projected lifetime savings of about $500,000. “For the first three months of our service, Carbon Lighthouse delivered more energy savings than projected at One Biscayne Tower, giving us confidence that we are not only achieving current savings in energy usage and cost, but using the most advanced technology on the market that will yield further improvements over time,” says Corinne Hoffman, an asset management director with L&B.
Carbon Lighthouse also used CLUES to model the building energy performance of 6000 Shoreline, a 140,000-square-foot (13,000 sq m) building comprising office and life sciences lab space in San Francisco for the Carlyle Group. The goal was to create a business case for boosting NOI through clean-energy action. A key part of the project involved identifying the interconnectedness of the property’s lighting, heating, and cooling systems and performing upgrades to them. Carbon Lighthouse engineers implemented advanced controls and ongoing monitoring for variances so they could work with ownership to take corrective action as the building changed. Some of the key efficiency measures implemented included the following:
- Upgrading internal and external lighting with high-efficiency LED lamps;
- Implementing programming logic to enable dynamic optimized start sequence of air handling units (AHUs); and
- Implementing a duct static pressure reset (DSP) strategy to more effectively control AHU fan speed and reduce energy consumption.
Because of the concentration of life science labs, it was critical that all the efficiency measures be implemented without disrupting work. Overall, the changes have generated an ROI of 23 percent and improved NOI, as well as eliminated an estimated 103 metric tons of carbon. The Carlyle Group’s managing director of U.S. real estate, Dave Kingery, said in the firm’s 2018 sustainability report, “Not only do solutions like these improve cost efficiency, but the physical upgrades also signal to tenants and prospective tenants that our property and property systems are best in class.”
Will COVID-19 Accelerate or Slow Modernization?
Investing in upgrades and new systems in the current post-COVID economic downturn could very well be a tough sell for asset managers only factoring in the upfront costs. Yet, there is a clear value proposition that poses a strong argument for acting sooner rather than later. Utilities represent the biggest controllable cost for building owners. In addition, recommended COVID measures for reopening are increasing overall expenses (such as cleaning, HVAC upgrades/operations, increased elevator cycles, and so on) are creating some unique operational challenges for commercial buildings.
In particular, COVID has created dramatic changes in acceptable population density within office buildings. The phased reopening for many businesses has involved bringing back fewer employees and/or creating staggered shifts to allow for social distancing and to reduce congestion in key areas such as building entrances and elevators. Those unusual daily fluctuations in usage directly affect how buildings are managed and operated.
Portfolio managers, building owners, and facility management teams alike are working to figure out how the future of work will affect their properties. How do they optimize HVAC systems when tenant needs shift? How do they protect against lower occupancy and potential loss of revenue? How do they ensure that changes in building operations actually make buildings safer and build tenant confidence to return? How can they maintain, or even improve, energy efficiency and the environmental footprint in the context of new operating demands?
“The same technologies, data, and insights that enable Carbon Lighthouse clients to optimize operations under normal circumstances can also help CRE determine the best reopening strategies for each asset—balancing the health and safety of occupants and the financial goals of the business,” said Ganser.
Those building managers who succeed in the new post-COVID landscape will need to rely on data, artificial intelligence, and machine learning that allows them to make real-time adjustments to equipment such as lighting and HVAC systems to optimize energy use while maintaining tenants’ comfort.