You are on page 1of 15

CERTIFICATE

PROGRAM

Developed by:

With generous support from:

WEEK 2

REAL ESTATE STRATEGY AND


ENERGY DECISIONS: PART 2

WEEK 2: LEARNING GOALS

Identify the factors that affect the value of a real


estate asset
Categorize a real estate investment in terms of asset
strategy
Understand basic energy terminology
Understand how to read a utility rate schedule and a
utility bill
Describe the factors and systems that are included in
a building conditions assessment
Differentiate between the different types of energy
efficiency improvement strategies

WEEK 2: READINGS
The Energy Management Handbook (Doty & Turner)
Chapter 18: Electric and Gas Utility Rates for C & I Consumers

The Real Estate Game (Poorvu)


Appendix A: Notes on Property Types

Recognition of Energy Costs and Energy Performance


in Real Property Valuation, IMT & Appraisal Institute
(2012)
CUNY BPL Building Performance Toolkit

WHAT FACTORS AFFECT THE VALUE OF A


REAL ESTATE ASSET?
Physical attributes
Quality (A, B or C)
Structure and size
Location
Age and condition
Environmental
Tenant base
Tenant quality
Vacancy rate
Lease-related
Lease type (gross, modified gross/hybrid,
net), term, expiration
Base rent and base rent escalations
Recaptured expenses and real estate taxes
Capital expenditures (CAPEX)

Photo: PublicDomainPictures, via Pixabay.

WHAT FACTORS AFFECT THE VALUE OF A


REAL ESTATE ASSET?

Photo: PublicDomainPictures, via Pixabay.

Market
Market area (primary vs.
secondary, accelerating vs.
idling)
Physical, legal and social
constraints
Supply conditions and demand
Market cycles
Market factors (vacancy
rates, absorption rates,
market rents, new
construction starts)
Causes
Economic
Capital appreciation
Property improvements
Cash flow

AEP Real Estate Asset Matrix

HOW DO YOU CATEGORIZE REAL ESTATE


INVESTMENTS?
Opportunistic
Improve amenities/
systems (Question Marks)

Value-Added
Medium-term hold
(Stars)

Core
Long-term hold
(Cash Cows)

Distressed
Identify improvements or
sell (Dogs)

Exercise: Using the interactive AEP Real Estate Matrix, click and drag each of the
AEP Portfolio properties into the quadrant where you feel it belongs. Explain your
reasoning for each of the properties.

DO YOU KNOW YOUR ENERGY BASICS?


Energy Terminology
Energy units most commonly
used
Btu per sq. ft. = any building
Kilowatt-hours (kWh) per sq. ft. =
lighting
Kilowatts per ton = chilled water
efficiency
Watts per cu. ft. of airflow per
minute = HVAC systems
Electric demand vs. electric energy
Demand = power in kilowatts (kW)
Energy = consumption in kWh

Photo: VY (Public Domain), via Pixabay.

WHAT DO YOU NEED TO KNOW ABOUT


ENERGY BILLS?
Electric bill components:

Review
Using a property from the
AEP Portfolio, visit the
website for propertys local
electric utility company to
find the applicable rate
schedule. Review the rate
schedule, using Chapter 3 in
the Guide to Energy
Management as a reference,
to understand the different
terms.

Demand
Consumption
Power factor
Sales tax

Electric rate structures


Customer classes and rate
schedules (residential, commercial
and industrial)
Classes vary in complexity
of energy use, amount of
consumption and priority of
need
Different rates apply to
different classes

Rate schedule terms

WHAT SHOULD YOU KNOW ABOUT


ENERGY BILLS?
Common Components Of Electricity Rate Schedules
Energy charge actual amount of electricity consumed
Flat rate constant rate charged for all energy used
Declining block charges one price for the first kWh used
and less for next increments
Increase block where more is charged per increment as
the consumption level increases (not widely used)
Fuel cost adjustment surcharge passed on to customers
when utility pays more than expected for primary fuel (can
also reduce rates)
Demand charge used to allocate the cost of the capital
facilities which provide the electric service; may be hidden
in the energy charge or separated out. For large customers,
usually based on kW demand load
Demand ratchet charges a customer for creating a large
kilowatt demand in only a few months of the year
Power factor assessed when a large customer has a poor
power factor

HOW ARE OTHER ENERGY COSTS BILLED?


Natural gas: Rate schedules are similar in structure to
electric rate schedules, but place customers into
interruptible priority classes instead of charging for peak
demand
Fuel oil: Billing schedules for fuel oils vary widely by
geographic region; priced at a flat charge per goal, set by
market conditions
Steam and chilled water: In some areas, customers can
purchase instead of generating their own; typically
charged for the energy itself and the demand
Water and wastewater: Often related to facility energy
costs, so monthly bills should be analyzed for consumption
patterns and possible reduction/cost control measures

WHAT IS ADDRESSED DURING A BUILDING


CONDITIONS ASSESSMENT?
A conditions assessment helps you develop a plan for
what to replace in the building, and when.
Physical and design attributes

Key building characteristics, such as floor area,


equipment used, plug loads, special activities and space
types

Energy cost information

Purchase cost of electricity, fuels, steam, compressed


air, chilled water and other utility bill information from
accounting systems or bill-handling services
Output or utilization data

Occupancy levels, operating hours, number of shifts, etc.


Climate variables available from local weather
stations or may be tracked on-site, including:

Heating and cooling degree days

Altitude and barometric pressure


Financial data revenue and sales figures

WHICH SYSTEMS ARE INVOLVED IN A BUILDING


CONDITIONS ASSESSMENT?
Heating and cooling systems
Mechanical systems
Water systems
Lighting
Building envelope
Insulation levels
Masonry conditions
Glazing, fenestration, etc.
Air tightness of windows and
doors
Window efficiency
Energy loads
Equipment
Water heating
Plumbing

WEEK 2: IN-CLASS EXERCISES


1. Choose a property from the AEP portfolio and imagine that you've
been hired to perform a building conditions assessment. What
characteristics of the property would you be examining? Which
systems would you be looking at? Based on the age, size, and
other available data about your chosen property, what conditions
would you expect to find?
2. Consider the properties in the AEP Portfolio, and sort them
according the quadrants of the four-square matrix. In 2-3
sentences, explain the reasoning that caused you to assign the
properties to each of the quadrants. Submit your write-up below.

WEEK 2: HOMEWORK

Using what you've learned this week, choose a building from


the AEP Portfolio and identify one advanced technology that
would be appropriate as an energy conservation measure.
Explain how your proposal will affect the building's valuation,
in addition to operating costs. Be sure to detail the reasons
behind your choice, and submit supporting documents, if
appropriate, such as cash flows or other financial projections.