Performance Formula: Hire for Fit

Just came across this performance formula, which is a function of 3 basic concepts:

The Real Estate Industry Lens: Real Value of Greening on the Valuation and Appraisal of Sustainable Properties

“SAME ANGLE, DIFFERENT LENSES” SUSTAINABILITY SERIES

Cross-Industry Analysis on the True Impacts of Sustainability

The Real Estate Industry Lens: Real Value of Greening on the Valuation and Appraisal of Sustainable Properties

written by Isilay Civan, BArch, MSc, PhD², LEED® AP O+M, Senior Strategy Consultant & Location Leader at HOK Chicago Consulting

as published in the Network, Pg15: http://edition.pagesuite-professional.co.uk//launch.aspx?eid=e2b9fd8b-6dba-4c60-878c-250ee57ba272

As more and more companies begin to invest in greening their portfolios; either as isolated implementations, or through a strategic approach that deals with the entire building/portfolio; there are heightened market-wide expectation of increased value from such improvements. The question remains, however, whether such expectations are being realized. 

From the investors’ perspective, frequently posed questions include: Are we seeing greater demands for green buildings where we can reasonably anticipate an increase in sale prices or rental rates (along with higher absorption and occupancy rates) for longer periods? How about the accountability for and comparability of such findings? Are the simple payback and return on investment calculations we have been using to assess the real estate’s value adequate to determine how much value we can add to the built environment through our sustainability efforts? If not, what is a better way of quantifying the real value of sustainability so it can be realized in savings or shown as proof for good standing, lesser risk, and maintained value for longer durations?

Building owners and occupants are interested in knowing whether green buildings truly provide healthier and more productive built environments. Some environmentally-concious occupants are also concerned about what happens to their individual contributions. For instance, what happens to the sorted recyclables if there is not a robust recycling program at the city level? Do such disconnected efforts still amount to something meaningful or are they worth the investment of time and money?

Studies show that if there is even a perceived disconnect among a series of activities which may make the efforts less useful than initially assumed, exisiting and potential support may be seriously diminished and may end up damaging the organization’s PsyCap (Psychological Capital: the positive and developmental state of an individual as characterized by high self-efficacy, optimism, hope and resiliency, which is argued to be the ultimate competitive edge for organizations at the employee level).

Consider the investor’s perspective on realizing unassailable benefits from greening his portfolio - ultimately a higher valuation. This is dependent what his/her view of sustainability is. If it is a hit and run approach (i.e., grab the low hanging fruit with minimal investment), that is exactly what will be gained - quick gains in a short time frame.

For these efforts to turn into more consistent, longer-term value-added factors, they need to have preset strategic goals (with specific key performance measures (KPIs) attached to each).They need clearly identified action items with measurable metrics and a corrective action plan, to change operation if certain measures are not met. These need to be tracked and to become part of the 5-year strategic plan of the company. This way, a predictive assessment of the property can be made to strategically align the resources and avoid premature obsolescence through repetitive deferred maintenance items that bring the property’s value down.

This is not to suggest that value can only be achieved through substantial capital investments. If one approaches sustainability in a more strategic and comprehensive way, there will be many more opportunities to achieve higher levels of sustainability at a lesser investment, with savings that can be realized over a much longer period. In a strategic approach, rather than simply picking some strategies that meet your budget allocation, you need to choose the ones that potentially achieve three things: 1) help meet the KPIs that you have established; 2) create synergies for multiple savings opportunities; and 3) act as stepping stones for the next best-in-line opportunities for gradual improvements to create a positive ripple effect and bring in further savings at lower costs.

The simplest example is periodically comparing your capital expense (CAPEX) plan with your operational expense (OPEX) plan to assess the optimum timing of building’s system component replacements - when the useful life and the operational cost break even. This gives you the ability to plan for replacements, while continuing to stay sustainable without interruptions to the process. When properly documented, these activities may also raise the value of the building. However, the current accounting principles in real estate valuation do not allow for the recognition of such increase-in-value aspects of the sustainable efforts.

Moreover, we continue to make investment decisions based solely on simple payback or ROI calculations. For the most part, these calculations not only exclude the full life cycle aspect of the buildings or the building systems, they also don’t consider any health, productivity, or consolidated benefits that go beyond the cost savings that may be realized from an isolated initiatives (e.g., connection to nature, workplace design, alternative work, etc.).

 

I suggest that we use the increasing market pressure of greening our buildings to seek a change for better recognition and quantification of the added value to these buildings by virtue of sustainability factors. Start by addressing value considerations beyond the traditional cost savings into our financial statements and ROI calculations. This can strengthen the ability to showcase the long-term potential of greening our built environment and pave the way for improved access to funds for sustainable improvements. Not to act now may potentially hinder governmental support (rebates and incentives) and tenant/investor interest in sustainability. This will make it more challenging when incentives become mandates and penalties are imposed for not adhering to the rules and regulations that are then in place.

To achieve a healthier and more productive built environment, the idea generation and concept development stages should involve strategic thinking, clearly defined goals and a truly integrated design process. Only then can you achieve efficiently run systems with optimized performance. The earlier in the process such concepts are considered, the easier it becomes to achieve truly sustainable goals.

Friday Humor

Looking at Data in 3D

A brilliant way of looking at data and discovering potential linkages between what may initially look like unrelated topics!!!

"Same Angle, Different Lenses" Sustainability Series

Cross-Industry Analysis on the True Impacts of Sustainability:

A Refresher on Obsolescence and Greenwashing

by

Isilay Civan, MSc, Ph.D.s, LEED AP

Senior consultant and the location leader for the HOK Chicago Consulting Group

(as published in http://bit.ly/13AtkzI)

 

In the September 2009 issue of the network, I identified facilities as corporate assets that need to be regularly monitored for numerous types of obsolescence (physical, economic, functional, technological, social, legal/ political, and market), to reduce the risk of premature value depreciation and loss of productivity. I suggested the (then) still rising phenomenon of “green building” strategies as the potential structure for businesses to utilize and green their built environments moving forward.

 

Four years later, this quarterly column will be analyzing the topic of Sustainability from various angles. Even the harshest critics now agree that the concept of sustainability is here to stay and the sooner you get familiar with its true impacts, the better. Additionally, a virus I’ll call “FOBLO” is fast spreading. What started as “FOMO” (Fear of Missing Out) in the social media arena, has progressed into “FOBLO” (Fear of Being Left Out) in the sustainability arena. Today, companies, regardless of industry, simply cannot afford being left out and are under constant pressure to take some kind of sustainability ‘steps’. Many of these claims are still borderline - greenwashing at best. With enhanced (but still mostly voluntary) standards and guidelines paving the way for ‘transparent’ and ‘accurate’ reporting and validation, there is an increased need to understanding true sustainability and being able to distinguish it from false claims. Another strong push may be the fact that, if you do not start cleaning up your act now, your competitor may call you out on such issues – especially in the ‘red ocean’ markets, where competition is fierce.

In subsequent issues, this column - a cross-industry analysis on the true impacts of sustainability - will be entitled Same Angle, Different Lenses. But first, a refresher on The 7 Sins of Greenwashing by Terrachoice, part of the Underwriters Laboratories (UL) Global Network.

The Seven Sins

1 SIN OF THE HIDDEN TRADE-OFF

A claim suggesting that a product is ‘green’ based on a narrow set of attributes without attention to other important environmental issues.

Paper, for example, is not necessarily environmentally- preferable just because it comes from a sustainably- harvested forest. Other important environmental issues in the paper-making process, such as greenhouse gas emissions, or chlorine use in bleaching may be equally important.

2 SIN OF NO PROOF

An environmental claim that cannot be substantiated by easily accessible supporting information or by a reliable third-party certification.

Common examples are facial tissues or toilet tissue products that claim various percentages of post-consumer recycled content without providing evidence.

3 SIN OF VAGUENESS

A claim that is so poorly defined or broad that its real meaning is likely to be misunderstood by the consumer.

‘All-natural’ is an example. Arsenic, uranium, mercury, and formaldehyde are all naturally occurring, and poisonous. ‘All natural’ isn’t necessarily ‘green’.

4 SIN OF WORSHIPING FALSE LABELS

A product that, through either words or images, gives the impression of third-party endorsement where no such endorsement exists.

Fake labels.

5 SIN OF IRRELEVANCE

An environmental claim that may be truthful but is unimportant or unhelpful for consumers seeking environmentally preferable products.

‘CFCfree’ is a common example, since it is a frequent claim despite the fact that CFCs are banned by law.

6 SIN OF THE LESSER OF TWO EVILS

A claim that may be true within the product category, but that risks distracting the consumer from the greater environmental impacts of the category as a whole.

 Organic cigarettes are an example of this, as is the fuel-efficient sport-utility vehicle.

7 SIN OF FIBBING

Environmental claims that are simply false.

The most common examples were products falsely claiming to be Energy Star certified or registered.

The Seven Sins cited above are still all-too-relevant and need to be watched at every step of the way while pursuing sustainability; and hence, been recited here once again as a cornerstone to all the topics that will appear in this column. Expect the following subjects to appear in the upcoming Issues, in no particular order that they may be written and/or come out, depicting the various angles I will use to explore the subject of true sustainability:

 

- Real Estate Industry

- AEC Industry

- Facility Management Industry

- Urban Planning Perspective

- Legal Implications

- Technology Angle

- Healthcare Industry

- Aviation Industry

- Hospitality Industry

- Retail Industry

Please feel free to reach out to me at isilay.civan@hok.com for ideas/subject suggestions on any additional sustainability issues which you would like us to explore.