BOMA Focus: Getting Green, Protecting Green

"We have to be stewards of our environment. We're doing that with green issues," David Hewett, chairman and chief elected officer for BOMA International, said during a state of the industry overview as part of the North American Commercial Real Estate Congress and Office Building Show, which wraps up today at the Dallas Convention Center at 650 S. Griffin St. after making its first stop in the city in two decades. "That green word gets some of us nervous, but it's a reality we have to live with today," he added.

The harsh reality is energy costs rose 9% last year across the board. The fix can't be a Band-Aid nor can the need be dismissed as a passing phase. Through a series of in-depth educational sessions, industry leaders got an "A to Z" education on the problem, remedies and financing cap-ex programs to raise building efficiencies.

"If we continue to ignore the energy crisis, we will not have a future that's bright," said Volker Hartkopf, professor of architecture at Carnegie Mellon University in Pittsburgh, where the world's first intelligent building with a geothermal and solar thermal energy system is planned for the campus. Key to the planning is to decrease the heating load and transfer it to the cooling load. "If we can do this in Pittsburgh, you can imagine what you can do in Las Vegas or California," he said.

Studies show that 75% of the energy for commercial buildings is electric and 65% of the use is HVAC driven. On average, $2 per sf is spent for electricity costs, making it a Top 3 operating expense, said Walt Homan, president and CEO of Walnut Creek, CA-based Mach Energy. Rates are rising 5% to 15% annually, but he pointed out that it's a controllable expense via energy-efficient measures that run the gamut from new chillers to simply adjusting the time for kicking in equipment.

Despite the red flags for the world's energy reserves, executives at one session said the energy costs really aren't impacting decisions about whether to buy a building or take a bye. If anything, it could end up as a value-add in a new owner's plan.

In sync with the energy meetings, BOMA kept the focus on "green" for convention-goers, who ran a gauntlet of back-to-back meetings for the capital markets in a bird's eye view of fundamentals, 1031 exchanges, TIC participation and the impact of new market paradigms on asset and portfolio management.

"We thought when the stock market started to improve, we'd see capital moving out of the real estate sector," said Jack Minter, national director of investment sales for Dallas-based Trammell Crow Co. "But, they're staying in because the returns are better in the real estate sector. The stock market is still volatile."

Minter explained that real estate's improving fundamentals didn't start the flood of capital nor did it create the pricing run-up. "But, the fundamentals will continue this trend," he said.

Minter estimates there is $2.5 trillion aimed at leveraged real estate investments--more capital than possibly space to sell. If deal flow continues at its current pace, he's predicting this year will bring $280 billion in one-off sales nationwide as investors swarm to the coasts to acquire core assets and look to the Midwest and Southwest to fulfill their value-add plays.

Among Minter's predictions is another "three or four" mergers as public companies get gobbled up by privately built, investment tills in a quid pro quo scenario. "This is the way to go if you're trying to move buildings," he said. "And it's a great way to put out a lot of money. The public to private trend, I don't see it slowing down."

But, the capital markets sector has its red flags as well. "I'm very concerned about the demand side," Minter explained. "With that much capital chasing returns, it might get out of kilter. The only thing that might stop it is the debt market." And if that doesn't do it, he said there's also a chance that "we're going to start running out of things to buy."