The Return on Investment of LEED®

Office building owners want to introduce sustainability features but need to show that strategies will produce a reasonable return on investment. Here’s how one team got the gold in Denver.

By Myra Napoli and Paul Schloff, Jones Lang LaSalle

The mandate for green commercial buildings shows no sign of abating. Corporate tenants are as focused as ever on energy efficiency and reducing their carbon footprint. Regulations and incentives at all levels of government are driving owners to consider sustainability strategies. Despite these forces, however, most owners are resistant to the idea of making an investment in sustainability without knowing what the financial benefit will be. The current tight credit market has made it even more important to show a short payback in terms of lower energy costs.

With that in mind, J.P. Morgan Asset Management retained Jones Lang LaSalle to conduct surveys of several of the buildings in its portfolio of properties acquired for various investment partnerships. The buildings selected for surveys were considered possible candidates for LEED® certification, and it was Jones Lang LaSalle’s task to estimate the cost of attaining enough points to earn various levels of certification, as well as the measurable benefits of doing so, such as reduced energy costs.

These LEED “gap assessments” resulted in a number of initiatives to pursue certification. Seventeenth Street Plaza, a 667,000-square-foot office building in Denver’s Financial District, was the first of these processes to be completed, resulting in LEED Gold certification awarded in early 2009.

Both J.P. Morgan Asset Management and Jones Lang LaSalle have made corporate commitments to sustainability. Executives at both firms recognize that one of the most significant ways they can reduce environmental impacts is by retrofitting buildings in their portfolios to align with LEED criteria that promote energy and water efficiency, enhanced waste management and occupant health and well-being. Most important, both firms recognize that the key to making sustainability work is to quantify the financial benefit to owners.

J.P. Morgan Asset Management had purchased Seventeenth Street Plaza on behalf of institutional investors in 2000, and had awarded the property management assignment to Jones Lang LaSalle soon afterward. The building was considered a good candidate for certification because it is a prestigious building that had been acquired with the intention of making significant system upgrades in order to maintain its trophy status.

Jones Lang LaSalle devised a plan to harness and improve the building’s efficiency which focused on continuously assessing and optimizing building systems, minimizing waste and purchasing sustainable and healthy building products. It also took advantage of Xcel Energy’s Demand Side Management utility rebate progam.

While the plan focused on building improvement efforts rather than green initiatives, by choosing the “greener” options, Jones Lang LaSalle saved money as well as increased the tower’s efficiency. In fact, within three years many of the investments had paid for themselves, achieving US$223,000 in annual savings and an additional $95,000 in utility rebates. Building operations are now so streamlined that even with utility cost fluctuations, operating expenses have been consistent for the last five years. This was the first step on the road from green to gold.

Innovation and creative thinking was the key to harnessing the building’s potential. Some initiatives were simple changes like replacing all fluorescent bulbs with low-mercury bulbs that met EPA standards and then negotiating a three-year warranty with a lamp supplier to eliminate the need to purchase more bulbs for the duration of the warranty. Other initiatives involved setting up systems to reduce environmental impact and promote efficient operations like implementing a recycling program that redirected 219 tons of waste away from landfills. This also encouraged the building’s largest tenant, Xcel Energy to introduce the same system across its 350,000 square feet Denver portfolio.

Also introduced were more complex systems like the installation of a weather satellite-controlled landscape irrigation system to control water usage according to local weather conditions. The overall program was a great success and reduced energy use by an average of 4.08 million KwH annually, equating to about 2,148 metric tons of greenhouse gases avoided each year.

With these innovative sustainable systems in place, the property was in a good position to achieve an ENERGY STAR® rating. So in 2003, Seventeenth Street Plaza won its first rating under the joint program with the EPA and U.S. Department of Energy’s rating system. And with continual improvements it has achieved the rating for the past five years, with last year’s score topping 94 out of 100.

With the operational aspects of the building running smoothly and the initial green initiatives serving their purpose, it was time to step up a gear. J.P Morgan Asset Management was keen for its asset to achieve LEED® certification. The industry standard for green buildings could enable the firm to better meet the needs of current and prospective tenants, as well as give the building the edge over competing local buildings and new builds coming to market.

Earlier this year, Seventeenth Street Plaza managed by Jones Lang LaSalle’s Myra Napoli, the General Manager and Chief Engineer Curt Godes, has become the first multi-tenant property in the Rocky Mountain Time Zone to earn LEED® Gold Certification. The property is one of only 17 existing office properties in the USA to have earned LEED Gold certification under the Existing Building or Operations & Maintenance (EB-OM) standard. This is one of the top accolades in LEED certification and proves that investment in efficient processes and green alternatives can pay positive dividends.

J.P. Morgan recognizes that a sustainable, resource-efficient building is attractive to tenants, as it reduces utility costs and promotes the health and well-being of employees. In the current competitive office market, these operational and productivity benefits represent a powerful differentiator for Seventeenth Street Plaza and provides a powerful tool for attracting and retaining tenants in a challenging leasing environment.