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Building Owners Toss Equipment for New Technology

It’s not an easy decision to choose to replace a building’s heating and cooling system or lighting equipment with systems that use state-of-the-art technology. But many property owners and managers are finding it in their best interest to do exactly that, according to a new report from the Urban Land Institute (ULI).

Much of the nation’s commercial real estate stock consists of older buildings with outdated designs, equipment, and infrastructure, according to the report, New Tools. New Rules. The obsolete equipment can drive up maintenance and energy costs.

But not only is a retrofit project costly, it can also be difficult to finance. Building operating funds usually can’t cover the cost of replacing existing systems. And many commercial lenders are unwilling to provide three- to five-year financing for the projects.

To make matters worse, the process of identifying, installing and financing technologically sophisticated equipment is also hindered by a lack of easily accessible and standardized data and verification practices, according to the ULI study.

Still, over the next decade, commercial building retrofits are projected to become a $190 billion market, with spending estimated at $19 billion per year. Meanwhile, commercial building owners face annual energy costs of $100 billion, or about $1.40 per sq. ft. That’s based on more than 72 billion gross sq. ft.

Those soaring energy costs and the potential savings made possible with new equipment and software, typically an annual savings of 5% to 60% of current energy costs, depending on a building’s age, design, and condition, are driving the retrofit trend. Upgrading building management systems, replacing HVAC equipment, swapping out old windows for new ones, and other steps can slash energy bills dramatically, according to ULI.

One step at a time

Many managers take an incremental approach to upgrading a structure, perhaps starting with lighting. In the case of a boiler or chiller, even though a system is operating as intended, the owner stands to benefit if the equipment is replaced. This can be the case even in buildings only 15 years old, according to ULI. For instance, the retrofit of the Adobe corporate headquarters in San Jose, shows that replacing some elements of functional building technology within five to 10 years of original construction can have a positive return.

The U.S. General Services Administration (GSA), the federal government’s real estate specialist, has been distributing portions of the $5 billion at its disposal from the 2009 federal stimulus bill, funds intended for retrofitting federal facilities. GSA is creating hundreds of precedents for aggressive energy reduction strategies, from using solar and geothermal systems to integrated space planning that takes into account telecommuting habits, ULI reports.

At the state level, New York is providing new data showing that retrofitting can pay off. The New York State Energy Research and Development Authority documented savings among 19 projects in 93 buildings with 3,900 multifamily units in all. About two-thirds of the buildings attained savings of 20% or more, based on an analysis of billing records.

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