The building efficiency field has never been as promising and full of opportunities as it is today.
The proliferation of energy disclosure laws and rating systems has brought greater understanding of the potential savings embedded in our built environment. The price volatility of energy and water, as well as greater awareness of the economic externalities associated with their consumption, further highlights resource efficiency as a pressing issue.
The proverbial nucleation event has been the emergence of utility analytics platforms in the marketplace. Advances like cloud computing, powerful and flexible open-source development tools, practically ubiquitous internet connections, remote sensors and smart meters have enabled entrepreneurial startups and established companies alike to develop innovative solutions and services to uncover efficiency opportunities. (Two recent reports by Greentech Media and The Cleantech Group offer nice overviews of the field.) Real estate owners and managers now have access to more data and more tools than ever before.
But herein lies the challenge: Data is not information, and information is not intelligence.
Unfortunately, these distinctions are often lost in the excitement of novel technologies and product introductions vying for market prominence. For property owners, data becomes a disservice if it is not presented as business intelligence that addresses stakeholders’ interests.
A major error of the building efficiency industry is assuming that savings gained from efficiency upgrades are akin to arbitrage opportunities — in other words, that stakeholders will seek to capture the benefits of savings opportunities once they are recognized. However, inertia has proven to be a major problem.
The industry is still only in the nascent stage of market growth: IDC recently found that the global smart buildings technology market has seen “several years of slower-than-expected growth,” with larger gains yet to come.
Two major factors have contributed to market underperformance. First, the cost to collect and organize utility and building data traditionally has been high. That has been a significant barrier to addressing building performance issues. Second, the derived information can be expensive to implement and results difficult to verify. It’s hard for many building owners to clearly understand the value in efficiency.
The building efficiency industry is at a critical juncture when it comes to addressing this cost-benefit imbalance. Today’s web-based analytics platforms are lowering data acquisition costs through access points like Green Button, existing building information systems and an infrastructure of utility data importers like at my company, WegoWise. However, the value of the derived information still falls short of what’s needed to prompt building owners to take action.
Why? Perhaps the efficiency industry needs to revisit a basic question: Do property owners care about the efficiency of their buildings?
Well, actually, no. They generally do not. They care about the net cash flow generated by their capital assets and seek ways to maximize that number.
We currently maintain more than 21,000 buildings in our database and support more than 1,000 customers in understanding the efficiency of their properties. In our interactions with these customers — among them some of the most forward-thinking and efficiency-aware owners, managers and lenders in the market — much of the conversation rightly revolves around their real estate business, not the efficiency business. If improving a building’s efficiency is the easy and obvious way to achieve higher positive cash flow, then they will pull that lever.
Our job as building analytics vendors is to deliver a process whereby the data we collect, analyze and present as intelligence respects the underlying real estate business. That means vendors need to understand how real estate owners evaluate acquisitions, finance the purchases, plan and execute their operations and position assets for exit — and map their data analytics to support these objectives.
In short, let’s stop selling efficiency, or even selling savings. Let’s sell the act of making more money.
With this perspective in mind, a clearer set of deliverables emerges.
Put performance first. Owners ultimately are driven by the performance of their portfolio and not just particular assets within it. Unless the analysis can speak to how individual asset quality can affect overall portfolio performance, the information is incomplete.
Examine the whole building. Building performance is not just about energy. Owners need to manage across all utility consumption categories like water, sewerage and even trash.
Integrate efficiency into deals. Building efficiency will not become a significant part of an owner’s thought process unless it is integrated into the acquisition, financing and divestiture equations. With utility expenditures accounting for about one-third of a building’s operating budget, building performance information can provide clarity to multiple parties in the real estate market.
- Buyers can mitigate the acquisition risk of a property and perhaps even lower the financing costs by verifying historical utility expenses, anticipating future bills and estimating possible operational savings.
- Lenders can ascertain and further refine a property’s pro forma financial statements using a more robust set of utility cost projections to enhance the loan-underwriting process, thus minimizing risk while maximizing flexibility in terms.
- Owners and managers can better control building operating expenses, plan capital improvements, and offer demonstrated building performance to prospective tenants.
- Tenants can better understand the complete cost of a lease by accessing verified utility spends.
- Sellers can quantify the value that could be derived from owning and operating a more efficient building and thus command a price premium for the asset.
The building performance industry is poised to transcend its traditional role as simply purveyors of efficiency information. With the volume and richness of data on the built environment now available, the industry has the opportunity to become an integrated node of business intelligence for the real estate market.
Only by framing building efficiency as added value to all the stakeholders can we scale as an industry and capitalize on our strong momentum. Software-as-a-service? Let’s think about intelligence-as-a-service.
This article was originally printed in Greentech Media on June 4, 2014.
Andrew is a Managing Director at Boston Community Venture Fund (BCVF), a subsidiary of Boston Community Capital, the principal investor in WegoWise. At BCVF, he has invested, monitored or served on the boards of portfolio companies including Zipcar, Acelero Learning, SelecTech, ThermoEnergy and TracRac. Andrew has a doctorate from MIT in Technology, Management and Policy, where his research focused on materials processing and technology commercialization. He also holds masters’ and bachelor’s degrees in Material Science and Engineering from MIT and Johns Hopkins.