Experience the Power of the BOMA Network
January/february 2010
Tenant Retention Protecting your Building’s Most Important Assets
Plus: Building Engineers—Beyond the Boiler Room 2009 in Review Health Reform and Healthcare Real Estate
January/February 2010 Volume 6, No. 1
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Beyond the Boiler Room
Tenant Retention Laura Horsley
Looking for energy management success? Look to your building engineer.
What are you doing to protect your building’s most important assets?
For advertising rates and information, contact Paul Hagen at Stamats Business Media 866-965-4205. Connect with BOMA Join BOMA on Facebook
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Follow BOMA on Twitter: BOMA Chair Jim Peck @ JimPeckBOMA
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BOMA President Henry Chamberlain @ HenryBOMA
POSTMASTER: Send address changes to: The BOMA Magazine, Attn: List Department, 1101 15th St., NW, Suite 800, Washington, D.C. 20005. Undeliverable U.S. copies should be sent to: The BOMA Magazine, Attn: List Department, 1101 15th St., NW, Suite 800, Washington, D.C. 20005. Return undeliverable Canadian addresses to: PO Box 875, STN A, Windsor, ON N9A 6P2.
MESSAGE FROM THE CHAIR
Supporting commercial real estate during the worst recession in decades; it was a year to remember.
Recovery may be in sight for the construction industry, but is the office market keeping pace?
LEGISLATIVE UPDATE Climate change and carried interest news; plus, survival strategies from the NAC/ ROC Conference.
30 RESEARCH CORNER
STATE & LOCAL UPDATE
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The issues you need to pay attention to in 2010.
CODES & STANDARDS UPDATE
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LEADING THE WAY
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AROUND THE INDUSTRY
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29 TRENDS TRACKER
Opportunities Ahead.
ICC Codes Hearings wrap-up—what happened and what’s ahead for owners and managers; green building code news; BOMA’s Ron Burton recognized.
BOMA Vice President Lisa Prats @ LisaPratsBOMA Volume 6, No. 1 The BOMA Magazine January/February 2010, (ISSN 1532-4346), Copyright 2010. The BOMA Magazine is published bimonthly in January/February; March/April; May/June; July/August; September/October; and November/December by the Building Owners and Managers Association (BOMA) International, 1101 15th St., NW, Suite 800, Washington, D.C. 20005; Telephone 202-3266300; Fax 202-326-6377; www.boma.org. Periodicals Postage paid at Washington, D.C. and additional mailing offices.
Lindsay Tiffany
DEPARTMENTS
Join BOMA on LinkedIn See BOMA on YouTube: www.youtube.com/ bomainternational
Special Feature: 2009 Year in Review
Ray Congdon
Cracking the NOI equation: Strategies for asset value enhancement. Danny Prosky
Healthcare reform and healthcare real estate: What’s the prognosis?
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TRADE TOOLS
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BUYERS’ GUIDE
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CONFERENCE CONNECTION
Karrie S. McCampbell—BOMA leader extraordinaire, intrepid chef. BOMA says goodbye to a great leader; PBS gets a new assistant commissioner; Real Estate Roundtable releases its Sentiment Index for 4Q09.
EYE ON EDUCATION
Case study: Learn how Pacific Medical Buildings streamlined its procurement and accounts payable process. Check out the latest industry products and services.
Innovation and cost savings frame offerings at The Every Building Show.
GREEN SCENE Kelly F. Duke
The versatile green roof—make it pretty, make it functional, make it work for you.
January/February 2010 BOMA 3
Message from the Chair
Opportunities Ahead There’s a lot of discussion of late about strategies to enhance asset value. Reducing operating expenses, finding new revenue streams or even just holding onto current revenue is more important, and more challenging, than ever. This issue’s feature story, Asset Revival, page 17, examines the way owners and managers are creating value in their buildings by looking at where it all begins and ends—with our tenant customers. Learn how a blend of innovation and backto-basics helps ensure tenants are happy— and staying put. Success in today’s marketplace, and keeping your tenants in your buildings, is really about having access to the tools to ensure your building is a prime asset. As we begin a new year, BOMA is dedicated to making sure that you have those tools. In 2009, property professionals from across the country turned to the BOMA 360 Performance Program to help differentiate their buildings in the market. Behringer Harvard recently had its Bank of America building in Charlotte designated and Jason Mattox, Behringer’s chief administrative officer, noted: “The BOMA 360 designation is a badge of honor that exemplifies best practices and creates a wonderful goal for other properties in our portfolio. It proves we are way above the mark.” Discover more about the program at www.boma.org/ GetInvolved/BOMA360. It doesn’t stop there. BOMA’s educational offerings and research tools are also helping commercial real estate professionals navigate a difficult market. The new online Experience Exchange Report (EER) allows you to fine-tune your analysis of your asset’s efficiencies by drilling down into the line item detail of every income or expense measure. Be sure to participate in the 2010 EER Survey at www.bomaeer.com. It’s easy, and it’s how we ensure you have the best and most comprehensive data.
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BOMA will continue to set new standards in the coming year. The recent release of the Gross Areas of a Building: Methods of Measurement and the highly anticipated new office standard, Office Buildings: Standard Methods of Measurement and Calculating Rentable Area, are already helping BOMA members do their jobs better. Watch this column for more standards to be released in 2010. Recovery will be slow and the year ahead will probably hold many of the challenges of the past year. But the smartest way to take advantage of opportunities is by joining the industry’s best business network at the industry’s most important gathering, the BOMA International Conference and The Every Building Show, June 27-29 at the Long Beach Convention & Entertainment Center in Los Angeles County, Calif. This is the one conference that commercial real estate professionals have included in their 2010 budgets because it’s the industry’s premier education and networking event, with the collective brain trust to solve just about any problem. We’ve retooled this year’s conference, giving you access to the same great content through a more efficient schedule. Go to www.bomacon vention.org to learn more. Finally, as we put together our strategies for recovery, let’s not forget that what happens on Capitol Hill and in city halls across the country will have a significant impact on how successful we are. At press time, the House had passed a bill that would almost double the tax on carried interest. In a couple weeks, BOMA members will be bringing this and other issues straight to Capitol Hill legislators during the National Issues Conference. We need your support. Thank you for your continued commitment.
James A. Peck, RPA, FMA Chair and Chief Elected Officer
Publisher: Lisa M. Prats, CAE Editor: Laura Horsley Associate Editor: Lindsay Tiffany Contributing Editors: Karen W. Penafiel, CAE, Ronald Burton, James Cox, Lorie Damon, Ph.D Designer: Amy Belice Published by: Building Owners and Managers Association (BOMA) International
BOMA International Officers Chair and Chief Elected Officer James A. Peck, RPA, FMA CB Richard Ellis Albuquerque, N.M. Chair-Elect Ray H. Mackey, Jr., RPA, CPM, CCIM Stream Realty Partners, LP Dallas, Texas Vice Chair Boyd R. Zoccola Hokanson Companies, Inc. Indianapolis, Ind. Secretary/Treasurer Kent Gibson, CPM Zions Securities Corporation Salt Lake City, Utah President and Chief Operating Officer Henry H. Chamberlain, CAE, APR BOMA International Washington, D.C. Call for Nominations: Vice Chair and Executive Committee Members BOMA International’s Nominating Committee is seeking candidates for the position of vice chair and for five members of the Executive Committee to the Board of Governors. For further information, contact Ann Coslett at acoslett@boma.org.
The cost for The BOMA Magazine is $75 a year for subscribers and $50 a year for BOMA International members. Publication of advertising should not be deemed as endorsement by BOMA International. The publisher reserves the right in its sole and absolute discretion to reject any advertisement at any time submitted by any party. Material contained herein does not necessarily reflect the opinion of BOMA International, its members or its staff.
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www.creeLEDrevolution.com January/February 2010 BOMA 5
legislative UPDATE them to oppose increasing the tax on carried interest. Visit BOMA’s Legislative Action Center at http://capwiz.com/ boma.
PAC at Work With the 2010 elections less than a year away, campaigns are getting into full swing, and BOMAPAC is continuing its rapid pace of supporting members of Congress who support the real estate industry. This, of course, wouldn’t be possible without the generous support of the BOMA membership! With your help, we have made recent contributions to the following real estate leaders on Capitol Hill:
Climate Change Action Postponed to 2010 OVER THE SUMMER, the House of Representatives passed a broad climate change and energy bill. In the Senate on September 30, Barbara Boxer (D-Calif.), chair of the Environment & Public Works Committee, and John Kerry (D-Mass.) introduced S. 1733, the Clean Energy Jobs and American Power Act. While 2009 came to a close without Senate floor action, progress was made in the committees and the Senate hopes to bring it to a vote during the first quarter of 2010. Both bills include a section on strengthening energy-efficiency requirements in building codes, and, while BOMA International is supportive of the current code development process, we oppose the federal preemption of the voluntary, consensus-driven codes development process proposed in the legislation. BOMA International is a voting representative on the ASHRAE 90.1 committee, and we believe the current process works well without the Department of Energy or Environmental Protection Agency playing a larger role to set arbitrary efficiency targets or develop a national building code. BOMA will continue to communicate to Congress that the current codes development process works, and the country would be better served by focusing resources on helping state and local governments train codes officials and enforce existing building
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codes. Both bills also include an incentive program for retrofitting buildings, which we strongly support.
Tell Your Senators to Oppose a Tax Increase on ‘Carried Interest’ In December, the U.S. House of Representatives voted 241-181 in favor of tax legislation that extends $31 billion in expiring tax cuts, including a one-year extension of the BOMA Internationalsupported 15-year leasehold improvement depreciation timeline that was set to expire at the end of 2009 at press time. Unfortunately, to partially offset the cost of these tax breaks, the bill also includes a tax increase on the “carried interest” of a partnership, increasing the tax from the 15-percent capital gains rate to that of ordinary income (almost 40 percent). During floor debate, House Republicans focused on the negative impact this would have on the commercial real estate industry and job creation. The bill now heads to the Senate, and, at press time, it was expected to have a difficult time getting through with carried interest included as a revenue raiser. BOMA will remain vigilant in opposition of this tax increase, while at the same time working to find a way to extend the 15-year depreciation timeline for leasehold improvements. Contact your Senators today and tell
U.S. Senate • Bob Corker (R-Tenn.) serves on the Banking, Housing, & Urban Affairs Committee and the Energy & Natural Resources Committee. • Chuck Grassley (R-Iowa) is the Ranking Minority Member of the Finance Committee. • Johnny Isakson (R-Ga.) is co-chair of the Senate Real Estate Caucus and a long-time real estate professional. • Harry Reid (D-Nev.) is the Senate Majority Leader. • Chuck Schumer (D-N.Y.) sits on the Senate Finance Committee, which oversees the nation’s tax, trade, social security and healthcare legislation. • Richard Shelby (R-Ala.) is the ranking member of the Banking, Housing, & Urban Affairs Committee.
U.S. House of Representatives • Spencer Bachus (R-Ala.) is the Ranking Minority Member of the Financial Services Committee. • Dave Camp (R-Mich.) is the Ranking Minority Member of the Ways & Means Committee. • Eric Cantor (R-Va.) is the House Minority Whip. • James Clyburn (D-S.C.) is the House Majority Whip. • Geoff Davis (R-Ky.) serves on the Ways & Means Committee and holds a leadership role within the Republican Conference as a Deputy Whip. • Jim Matheson (D-Utah) sits on the House Energy and Commerce Committee and successfully passed an amendment to the energy and climate change legislation on the House
floor on our behalf to temper the most onerous provision in the advanced energy codes section of the bill. • Richard Neal (D-Mass.) co-chairs the Congressional Real Estate Caucus and is a member of the Ways & Means Committee. • Cliff Stearns (R-Fla.) sits on the House Energy and Commerce Committee.
Survival Strategies and Reluctant Market Top NAC/ ROC Fall Agenda BOMA International’s National Advisory Council (NAC) and Regional Owners Council (ROC) convened in Chicago on Oct. 29-30 to converse with experts, share thoughts on marketplace trends and commiserate with industry colleagues and peers. The National Advisory Council is made up of senior executives from the nation’s largest companies that own and manage commercial real estate and is chaired by John Oliver, managing director, Wells Real Estate Funds. The Regional Owners Council is comprised of owners and equity partners of single or regional market commercial real estate and is co-chaired by Shelley Bade, principal, SL Bade & Associates, LLC, and Larry Soehren, vice president and COO, Kiemle & Hagood Co.
It’s Nice to be Relevant Again “When you buy low and sell high, property management professionals are not really needed,” echoed several attendees. “It’s nice to be relevant again.” The “basics” of good management, skilled managers and cost containment/ reduction practices are more important than ever in this economy.
It’s Not All Bad News; the Economy IS Recovering Bob Bach, senior vice president and chief economist for Grubb & Ellis, predicts a slow recovery from the recession but believes the jobless recovery will not be as long as the last one because companies will have to staff up quickly after massive layoffs. He sees improvement for commercial real estate by the end of 2010 but with negligible growth until 2011. He also warned that a “double dip” recession like we experienced in the late ’70s/early ’80s is possible. Apartments will lead the recovery sequence followed by industrial, retail and finally office. Although vacancy rates continue to rise
During the NAC/ROC meeting, Bob Bach, senior vice president and chief economist for Grubb & Ellis, warned of a possible “double dip” recession.
in all four sectors, this increase is slowing down, indicating that the economy is improving. For the office market, he predicts that vacancies will peak the first half of 2011. Bach also reported that leasing activity is still decreasing for office and industrial, but average lease terms are starting to lengthen because there are good deals to be had. Rental rates are still coming down and sublease space is increasing, although slowing down. As for investments, transaction volume is at an alltime low and cap rates are going up. Five hundred billion dollars ($500 billion) in CRE loans per year are maturing, but this will start to gradually decline. A surge of distressed assets will hit the market in 2010 and many will be snapped up by offshore investors.
What are the Dollars Chasing? NAC Chair John Oliver, Jim Postweiler, managing director of Jones Lang LaSalle, and Nick Stolatis, director of Asset Management for TIAA-CREF, led a panel discussion on where the dollars are, and what is needed for deals to be done. Postweiler observed that investment and sales activity is slow and the CMBS market has long dried up, but the market is beginning to improve. The mindset now is to try to work things out with lenders vs. foreclosure, which is different than what happened in the ’90s. Stolatis agreed, quipping “a rolling loan gathers no loss.” The panel concluded that commercial real estate has lost value, but the big question remains by how much? And how long can/should we hang on?
Survival Strategies: Sticking to Our Knitting Sam Delisi, senior managing director, CB Richard Ellis, and Joe Magdziarz, vice president of the Appraisal Institute, were featured in a Survival Strategies panel. Delisi reported that CBRE’s first focus is on taking care of existing clients, “sticking to our knitting” and paying attention to the basics. He said CBRE is focused on training its people to understand what is going on in the marketplace and predicted they will be well-positioned when the market bounces back. Magdziarz reported that the Appraisal Institute is spending time getting its members up to speed on distressed assets and the value of green, whether it includes certification or merely good property management practices that can yield just as much value, if not more.
Green Proving Ground Speaking of green, Bob Peck, commissioner of GSA’s Public Buildings Service, described how the GSA is implementing sustainable practices in its buildings to evaluate what works and what does not. For example, there is no air conditioning in the San Francisco Federal Building because there are only a couple of days per year that it gets hot enough to need it. President Obama has challenged GSA to achieve a zero carbon footprint in government buildings by 2020. BOMA plans to work closely with GSA to take this knowledge and disseminate it to the private sector. For more information about membership in NAC or ROC, contact Karen Penafiel kpenafiel@boma.org or Pat Areno pareno@ boma.org.
January/February 2010 BOMA 7
state & local update
Challenges Abound for CRE Advocates at the State and Local Levels COMMERCIAL REAL ESTATE’S ADVOCATES will need to be even more engaged in 2010, as policymakers will face tough challenges at the state and local levels. The national economy may be stabilizing, but state and municipal economies are still reeling from the recession. While the economy will be on the top of lawmakers’ to-do lists, they will also be dealing with many other issues impacting the commercial real estate industry. Here is a look at those issues:
General Fund expenditures by at least four percent. Similarly, the economic downturn greatly impacted the fiscal soundness of the nation’s cities. The National League of Cities reported that cities faced a 2.9-percent budget deficit in 2009 due to a decline in tax revenues. As state and local revenue collections typically lag behind a national economic recovery, revenues will remain depressed throughout fiscal year 2010 and into fiscal years 2011 and 2012.
Budget Issues—Budgets dominated the political landscape in state capitals and city halls across the country in 2009 and will continue to do so in 2010. According to a report from the National Governors Association and the National Association of State Budget Officers, states reduced General Fund expenditures by 4.8 percent and expect to reduce FY 2010
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This need to generate revenue will create a flurry of activity on the tax front at the state and local levels. To fill these gaps, lawmakers will be forced to make tough decisions either by cutting deep into sacred programs or dramatically increasing taxes. Business interests will be the hardest hit. California’s real estate advocates will face three state-wide ballot measures this fall that will enact split roll property taxes and change the way commercial properties are taxed in the state. Telecommunications—Mandatory access legislation has the potential to resurface in 2010. State-level legislative forced access attempts became less frequent in the last few years due to a move to the regulatory arena. Ohio’s real estate community was put on notice last fall when a carrier of last resort bill (COLR) was introduced. Senate Bill 162 exempts an incumbent local exchange carrier from providing basic local exchange service or any service to occupants of multi-tenant real estate where the real estate owner takes action to benefit
another service provider. The real estate community opposes any expansion of COLR relief as the telecommunications marketplace is clearly working. While this may be an isolated occurrence, commercial real estate advocates should monitor their legislatures for similar developments. Energy Performance Benchmarking— State and local governments are moving to require commercial building owners to use the U.S. EPA’s ENERGY STAR® Portfolio Manager rating system to benchmark their building’s energy performance. At press time, the City of Seattle was considering an ordinance that would establish a standard for regular energyperformance benchmarking, disclosure and reporting for commercial and multifamily buildings. Specifically, building owners will be required to benchmark the energy performance of each building and provide the City with an energy benchmarking report. Building owners would also be required to release building energy performance information,
parties as part of the sale. Washington, D.C., now requires its commercial buildings to benchmark energy performance using Portfolio Manager. BOMA International does not advocate for mandates of any kind; however, we have consistently worked with EPA to educate our members on the value of benchmarking. For more information, please visit: www.boma.org/Train ingAndEducation/BEEP/Pages/ estardates.aspx upon request, to any current or prospective tenant, buyer or lender involved with an application for financing or refinancing of the building. The proposed ordinance reinforces the requirements of a state law that mandated similar requirements using the Portfolio Manager rating system. Many state and local governments have also pursued such requirements. California requires its utilities to provide energy data in a format that is compatible with EPA’s Portfolio Manager. It further requires building owners to disclose benchmarking data to prospective
Fall Elections—The fall elections will be a significant focus for many state lawmakers. Voters in 37 states will go to the polls to elect governors next year. Democrats will defend 19 of those seats, while Republicans hope to hold onto 18. The Republican Party is also looking to recapture its lead in governorships, capitalizing on their wins in New Jersey and Virginia in 2009. Forty-six (46) states will hold legislative elections. Nationwide, 1,155 state Senate seats and 4,598 state House seats will be up for grabs. Municipal and county governments will also hold elections.
January/February 2010 BOMA 9
Codes & standards update
BOMA Successes at ICC Public Hearings THE FIRST STEP in the International Code Council’s 2009-2010 code development cycle—Public Hearings before the committees charged with recommending action on more than 3,000 code change proposals—was held in Baltimore, Md., from October 24 through November 11. BOMA’s code advocacy team was largely successful in
representing the interests of commercial real estate despite the growing influence of powerful groups lobbying for fundamental and costly shifts in this country’s building regulations. BOMA led critical efforts to keep a number of unnecessary and costly changes out of the ICC Codes, averting regulatory requirements that would have cost BOMA members well over $7 billion. These avoided costs included proposed mandates for more passive fire protection systems, blast-resistant elevator and stair shaft walls, extensive retrofits of whole building electrical systems, costly fire separation walls on all floors in virtually all tenant spaces and retroactive installation of sprinklers in existing buildings. BOMA also secured modifications to many code changes recommended for approval to mitigate the excessive cost of new requirements for rooftop vegetation areas or “green roofs,” emergency responder radio frequency systems in existing buildings and alternatives to mandatory installation of vestibules at all building entrances.
The U.S. Department of Energy (DOE) teamed with energy and environmental groups and the ever-present product interest groups to push for significant increases in energy efficiency and the introduction of green/sustainable building provisions. DOE’s goal of reaching 30-percent savings over the 2006 ICC Energy Conservation Code (IECC) will be realized if the majority of DOE’s major proposals recommended by the energy committee in Baltimore are approved by the ICC voting members later in 2010. While BOMA supported many of DOE’s proposals, others negatively impacting existing building retrofits, tenant finish-out projects, upgrades to HVAC, lighting and window and door replacement earned BOMA’s opposition, as well as the opposition of many groups representing those who must pay for these measures. BOMA defeated other major new provisions that would require automatic lighting control on all circuits, extensive building commissioning prior to occupancy, the addition of an appendix including a “stretch” code far beyond IECC requirements and mandatory
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Supply Line 2010 is the most efficient and effective way for you to reach distributors and cleaning professionals from Maine to Florida and every state in between. Over 2,000 owners, managers, and decision-makers attended the 2008 event. “The NJSSA show has performed above our expectations again. It is a nice mix between the U.S. ISSA show and the ISSA Interclean show for us as suppliers to the jan/san market.” —Scott Jarden, Jarden Enterprises
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10 BOMA January/February 2010
on-site renewable energy to satisfy five percent of building energy use for both new and existing buildings undergoing major renovations. This code development cycle concludes in 2010 with final action hearings in May and October. BOMA continues to work with its coalition partners and those with opposing views to reach compromises on many of the most troubling issues. Importantly, DOE and its allies have agreed to work with BOMA to resolve our concerns with the commercial building energy proposals before they are heard again in October. A detailed report of the results of the ICC hearings in Baltimore can be found on the BOMA Web site at www.boma.org.
189.1 Green Building Code Approved By ASHRAE The American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) project committee developing the first green building code for commercial buildings—Standard 189.1—has now completed its work with
an overwhelming vote to approve the code for publication. The ASHRAE Board of Directors followed suit in December by giving final approval for the code to be published early in 2010. The development of this green building code—BSR/ASHRAE/IESNA/USGBC 189.1—is the culmination of an almost three-year effort, including a final year of multiple meetings and online work by the completely reformed project committee empanelled late in 2008. The committee was reconstituted to include a more balanced representation of interests, including two voting seats representing real estate interests (BOMA and the National Multi Housing Council), as well as several practicing design engineers with direct building owner input. BOMA was able to gain compromises favoring the commercial real estate industry on many proposals that did not meet reasonable cost/benefit analysis or that posed irreconcilable implementation challenges. BOMA is now working with ASHRAE and others to support implementation of 189.1 for “green” projects in local and state jurisdictions.
BOMA’s Ron Burton Receives NIBS Award BOMA Vice President of Codes, Standards & Regulatory Affairs Ron Burton was honored by the National Institute of Building Sciences (NIBS) with its 2009 Institute Member Award. Burton was cited for his “strong advocacy supporting building professionals, his work to achieve high-performing buildings and his efforts to advance the understanding and use of high-performance standards to improve building delivery.” BOMA continues its long-standing NIBS membership with seats on several NIBS committees, and the participation of BOMA Past Chairman John Kelly on the NIBS Board of Directors. Learn more about NIBS and its programs and initiatives at www.nibs.org.
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January/February 2010 BOMA 11
leading the way
Karrie S. McCampbell, CPM BOMA Leader Extraordinaire, Intrepid Chef
A SENIOR VICE PRESIDENT of the Central Region with Transwestern in Dallas, Karrie McCampbell provides leadership to management teams responsible for up to four million square feet of space. Her volunteer leadership work with BOMA on the local and national level would fill the rest of this page, but the very short list of her involvement includes serving on government affairs committees for BOMA/Dallas, Texas BOMA and BOMA International. She is immediate past president of BOMA/Dallas, second vice president of Texas BOMA and a current member of the Executive Committee of BOMA International.
You’ve held just about every volunteer position there is with BOMA/Dallas and Texas BOMA. What drives you to be such a dedicated ambassador for BOMA? I’ve been a BOMA member for more than 22 years, and what has always impressed me is the quality of the people in the organization. It’s like having an immediate huge family. It’s just such a worthwhile organization that advances the knowledge base of the real estate manager. One of my best experiences was cochairing the committee to bring the BOMA International Conference to Dallas in 2006. We worked very hard and received so many great compliments from BOMA folks from around the country. We had a great Welcome Party at Gilley’s, and what we found is that you can do a great party and not break the bank. Chairing that committee really launched my involvement to the next level.
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What advice do you have for other CRE women seeking leadership positions? I don’t know if more women are coming into the industry or if more are just being recognized. If you work hard, have a passion for what you do and are committed to your industry, you will be recognized for your efforts. My advice for women, or men for that matter, is to get involved. Find your passion or interest and become the smartest person that you can on that subject and you will succeed. It’s also good to be a mentor for others coming up. My BOMA mentor was C. J. Butler, a past president of BOMA/Dallas and, at the time, my boss. He would encourage us and say, “If I’m paying your dues, you have to get involved; you can’t just sit there.”
What are some of the challenges you are facing in this market? Right now, the greatest challenge is declining capital. Our biggest hurdle this year has been creating a budget for each asset that provides a little bit of cash flow for the owner. Without cash flow, everything stops. We’ve had to get creative to save more money in the buildings. We might try to block bid contracts across the entire portfolio to realize savings in certain categories or get a new energy contract to help save money. Even the little things we do help. We challenged our engineers to see how much energy they can save. Just changing light bulbs in the common areas to save kilowatts helps.
What are some of the key advocacy issues and how do you work with legislators on the local level?
We are always trying to get more energy-efficiency incentives for our buildings. If you can tell your owner that your payback just went from four years to two years because of an incentive, that’s a nice carrot to dangle out there. Plus, if I can put a more efficient chiller in my building, then I’ve got all those people doing that work and that can only help the economy. In Texas, a portion of BOMA’s membership dollars supports a full-time lobbyist on Texas BOMA’s behalf. He keeps tabs on everything that goes on. Every bill submitted is reviewed by him and his team and he makes sure that nothing gets snuck in that might be harmful to building owners. That’s why I always tell people that their BOMA membership is so important, because it helps support that watchdog. Now we actually have legislators coming to us and asking for BOMA’s support.
We understand you are quite the chef and you love to entertain. What is your ideal dinner party—who is in attendance and what’s on the menu? Everyone says they want Abe Lincoln or Elvis at their dinner party. Honestly, I don’t want any special guests. I love cooking for my dear friends and family or anybody that appreciates great food and wine. In the summertime, it’s about grilling; in the winter, I might cook a tenderloin and lobster tails. My friends all say I make the best salad dressing, ever. It’s my grandmother’s recipe—a combo of garlic, sugar, salt, pepper and really good oil and balsamic vinegar. Bon Appetit!
Around the industry
BOMA Says Goodbye to a Great Leader BOMA AND THE GREATER SEATTLE AREA lost a beloved leader and friend this past November with the passing of Jack Dierdorff, BOMA International president from 1977 to 1979. Dierdorff was at the helm soon after BOMA International moved from Chicago to Washington, D.C. The issues of the day included rent control and the energy crisis of the ’70s, and Dierdorff knew moving to D.C. would put BOMA in a position to be a critical voice representing commercial real estate before lawmakers. In a 2007 interview with The BOMA Magazine, Dierdorff remarked on the move: “We smartened up and moved to D.C. to be closer to Congress.” Professional competency was important to Dierdorff, and the Real Property Manager (RPA) designation was initiated during his term. He made a point to become an RPA himself to help make the
case to other industry professionals. He recalled, “I took the courses and qualified for the RPA, so when I went around and talked up the program I knew what I was talking about.” Dierdorff was born in Wolf Point, Mont., in 1918, grew up in North Dakota and eventually moved to Seattle. He enlisted in the Army after Pearl Harbor was bombed and served his country in World War II. In the 1950s, he helped form University Properties, which later became Unico Properties. Later in his career, he helped form Sekotac Investments. Jack’s history with BOMA is rich with accomplishments and in making a difference in the lives and careers of so many people. He is survived by Wanda Dierdorff, his wife of 64 years. They have three sons, one daughter and nine grandchildren.
Jack Dierdorff, 1918-2009 BOMA International President, 1977-1979
Remembrances may be sent to: 101 Club Foundation, PO Box 1709, Seattle, Wash. 98111-1709. Continued on page 14
January/February 2010 BOMA 13
Around the industry
More Buildings Attain BOMA 360 Stamp of Excellence
Roger Zino, president of ValleyCrest Landscape Maintenance, accepts the Judges Award.
ValleyCrest Honored for Landscape Projects ValleyCrest Landscape Companies was honored with 14 landscape awards at the 40th annual Green Industry Conference awards presentation and reception in Louisville, Ky., this past October. ValleyCrest received a prestigious PLANET Judges Award, as well as 13 PLANET Environmental Improvement Awards from the Professional Landcare Network, a national landscape industry association. An additional award was bestowed on Burton S. Sperber, ValleyCrest founder, chairman and coCEO, who received Lawn & Landscape Magazine’s 2009 Leadership Award. For more information, visit www.valleycrest. com.
In December, BOMA International announced the latest buildings to receive the BOMA 360 Performance Program designation, a groundbreaking new program designed to recognize commercial properties that demonstrate best practices in building operations and management. These new buildings join the growing number of best-in-class buildings to receive the BOMA 360 designation since its inception last spring. “In this challenging market cycle, it’s more important than ever for property professionals to demonstrate to stakeholders and tenants that their assets are superior performers. The BOMA 360 Performance designation is a key indicator that speaks to a building’s excellence in operations and management,” remarks BOMA International Chair James A. Peck, RPA, FMA, senior director of asset services, CB Richard Ellis. “These buildings join an elite group of designees from across the country that are established market leaders, and we’re very excited to confer this new class with the 360 designation.” The BOMA 360 Performance Program is an online selfassessment that evaluates properties on six major areas of building management. The holistic nature of the BOMA 360 Performance Program means that every aspect of building performance is assessed and scores are based on how buildings meet an extensive checklist of best practices. The program comes at a critical time, as building owners and managers are looking to differentiate themselves from competition in a distressed market. The new class of BOMA 360 buildings includes:
R
14 BOMA January/February 2010
171 17th Street in Atlantic Station Atlanta, Ga. Owned by: Atlantic Office Acquisition Company, Inc. Managed by: Carter & Associates
330 North Wabash Chicago, Ill. Owned by: 330 N. Wabash Avenue, LLC Managed by: Prime Group Realty Trust
400 & 450 N. Brand Boulevard Glendale, Calif. Owned by: MetLife Real Estate Investments Managed by: Cushman & Wakefield of California, Inc.
735 North Water Street Milwaukee, Wis. Owned by: Compass Properties, LLC Managed by: Compass Properties, LLC
1300 Clay Street Oakland, Calif. Owned by: OCC Venture, LLC Managed by: Shorenstein Realty Services, L.P.
Accenture Tower Minneapolis, Minn. Owned by: California State Teachers’ Retirement System Managed by: CB Richard Ellis
Continental Towers Rolling Meadows, Ill. Owned by: Prime Group Realty Trust Managed by: Prime Realty Group Management, L.L.C.
Granite Tower Denver, Colo. Owned by: Cumberland Office Park, LLC Managed by: Granite Properties, Inc.
Las Colinas Corporate Center Irving, Texas Owned by: Piedmont Office Realty Trust Managed by: Piedmont Office Management
Melton Named Assistant Commissioner for Public Buildings by GSA
Marathon Oil Tower
Lawrence A. Melton has been selected as the U.S. General Services Administration´s assistant commissioner for the Public Buildings Service´s (PBS) Office of Facilities Management and Services Programs. In this position, Melton will oversee and manage PBS´s building operations and tenant services. Melton has been acting in this position since January, and, during this time, he has led a nationwide effort to improve how GSA manages its 361 million-square-foot inventory and provides services to its one million tenants. Among Melton´s current priorities are the implementation of a Smart Buildings initiative to improve performance across the GSA portfolio and a wellness strategy responding to the needs of building tenants.
Houston, Texas Owned by: Hanover Real Estate Partners Managed by: Transwestern
One Newport Place Newport Beach, Calif. Owned by: Met Life Insurance Company Managed by: Cushman & Wakefield of CA, Inc.
Wachovia Financial Center Miami, Fla. Owned by: 200 South Biscayne TIC I & II, LLC Managed by: Cushman & Wakefield of Florida, Inc.
For more information on the BOMA 360 Performance Program, visit www. boma.org/GetInvolved/BOMA360.
Continued on page 16
January/February 2010 BOMA 15
Around the industry
Genea Named One of America’s Most Promising by Forbes Genea Energy, a clean tech company focused on optimizing energy consumption and net operating income (NOI) for commercial office buildings, has been named by top business magazine Forbes to its America’s Most Promising Companies list for 2009. Genea’s Building Optimization Platform is the first to combine energy management with building automation, business process and portfolio-wide analytics for a fully integrated solution. Genea and the 19 other businesses on the list are described by Forbes as “small, dynamic companies with the kind of growth potential that makes venture capitalists salivate.” The 20 companies scored highest after undergoing an exhaustive examination by Forbes and experts hired by the magazine, and, therefore, have a better shot at raising capital than their peers, according to Forbes. “For our company to be recognized like this is gratifying for our entire team and to me, on a personal level,” says Doug Schneider, Genea Energy’s chief executive officer. “Forbes saw in Genea a special potential for growth, and that just echoes what our management team has been saying all along. We have a very special business—we’re just beginning to see its potential, and that’s exciting.” For more information about Genea Energy, visit www.genea energy.com.
RER Report: Sentiment is Up but Property Values Still Falling The Real Estate Roundtable recently released its “Sentiment Index” for the fourth quarter of 2009. The report indicates that commercial real estate distress is far from over, with property values still falling and capital markets still extremely weak. An overwhelming majority of the 100-plus respondents in the Q4 survey said property values are down today vs. a year ago, although the percentage declined to 77 percent from 93 percent in the previous quarter. Respondents were far from optimistic about future valuations, with 71 percent saying they expected values to remain “about the same” or to erode even further in the next 12 months. Despite the challenges still ahead, all three indices tracked by the survey—future conditions, overall conditions and current conditions—have risen considerably since the near-collapse of financial markets in Fall 2008. The overall index increased to 63, up 15 points from the previous quarter. View the full survey at www.rer.org.
RPA/FMA/SMA/SMT ACCELERATED COURSES Jan 27, 2010 Feb 24, 2010 Mar 24, 2010 Apr 14, 2010 Jun 22, 2010 Jul 28, 2010 Aug 25, 2010 Sep 15, 2010 Sep 29, 2010 Oct 13, 2010 Nov 3, 2010
16 BOMA January/February 2010
Asset Management Design, Operation & Maintenance Part I Budgeting & Accounting Design, Operation & Maintenance II Ethics Is Good Business ShortCourse Law & Risk Management Real Estate Investment & Finance Technologies for Facilities Management Fundamentals Of Real Property Administration Facilities Planning & Proj Mgmt Environmental Health & Safety Issues
Tenant Retention AND LEASING STRATEGIES
BOMA • Kingsley REPORT
BOMA Kingsley REPORT Practical Industry Intelligence for Commercial Real Estate
Tenant Retention and Leasing Strategies Winter 2010
Asset Revival
Tenant Retention and Leasing Strategies for a Soft Market By Laura Horsley “Back to basics” is a message that has been repeated often since the credit crisis came to a head in the fall of 2008, dragging commercial real estate completely and unequivocally into the worst recession since the Great Depression. With lending and development coming to a virtual dead stop, focus has moved away from the quick flip and fat profit and zeroed in on the assets themselves. Today, reducing operating expenses, finding new efficiencies and seeking out revenue opportunities—no matter how meager—is paramount. But the most important “back to basics” message may be coming from tenants and prospective tenants, and what’s at stake may be the difference between an asset’s survival and an asset’s revival.
Be Proactive The economics of asset survival would seem pretty straightforward: If you can increase revenue and decrease expenses, you can survive most market cycles … although the current cycle is challenging that premise. With landlords scrambling to keep their vacancy rates under 15 or even 20 percent, it would seem that tenant relations have never been more important. The truth, however, is that the best run properties are successful because tenant relations have always been important, not just during a crisis.
Being proactive is key. Fixing a problem that a tenant reports is great, but preventing that problem from happening in the first place is even better. Glen Fernald, managing senior vice president, director of management services for Transwestern’s Mid-Atlantic Region, explains how tenant councils help Transwestern stay one step ahead of potential problems. “We use the tenant councils to meet with the tenants on a regular basis and involve them in decisions involving the operations of the building so that they are part of the process and the solutions,” he says. “In this way, we avoid just responding when there’s a problem.” Tenant councils are also a great tool for managers who want to be proactive but aren’t able to visit individual tenants on a weekly basis to get a sense of how things are going. “The councils can help supplement regular tenant visits,” adds Fernald, who stresses that monthly or semi-monthly tenant council meetings cannot replace one-on-one interaction. A program at CB Richard Ellis (CBRE), called “CBRE @ Your Service,” helps their managers take a very proactive approach towards anticipating a tenant’s needs and helping them with any number of requests they may have during their tenancy, which can range from selecting interior landscape vendors to choosing an office supply company. “The idea behind the program is Continued on page 18
January/February 2010 BOMA 17
BOMA • Kingsley REPORT
Tenant Retention AND LEASING STRATEGIES
“We don’t buy buildings, we buy tenants. Although most owners and managers don’t have the luxury of choosing the perfect tenants, they certainly have a say when it comes to keeping them.” Patrick Freeman, SVP, Wells Real Estate Funds that tenants can access this information with one call to the building management and we will put them in touch with appropriate companies who we have a good relationship with, are adequately insured and offer favorable pricing,” explains Tim Ballas, managing director of Asset Services for CBRE in the San Francisco Bay Area. There’s no charge for the “CBRE @ Your Service” referral program and Ballas hopes the service ultimately serves as a very tangible reminder to tenants that CBRE and its clients will go the extra mile for them, making it that much harder to leave. “It gets to the heart of the stickiness of a building,” explains Ballas. “Once tenants are in the space and feel very well taken care of, they won’t want to leave.”
Eliminating the Guesswork A scientific way to gauge tenant happiness is by conducting regular tenant surveys across a broad range of management and operation areas. Patrick Freeman, a senior vice president with Wells Real Estate Funds, counts on tenant surveys to give his company the concrete benchmarks and metrics to know exactly how they are performing in
18 BOMA January/February 2010
areas important to their tenants, which include Fortune 500 companies such as Coca-Cola Enterprises, GE and Ernst & Young. “We try to remove as much of the vagueness from the process of tenant retention as possible,” says Freeman. “We do that by using Kingsley and then evolving our own metrics and studies around the areas the survey results tell us are important.” For Freeman, key drivers of the survey come from the data the company receives on responsiveness and proactive communication with tenants. “Kingsley helps us understand how we communicate, with whom we communicate, how frequently we communicate and what means we use to communicate—those pieces are key to helping us understand both what we are doing and what we ought to be doing in that critical area.” In the area of responsiveness, Wells has created metric tools based on data available from Angus management software that allow the company to track tenant work orders and tenant requests around several defined metrics, such as hot calls, cold calls, general HVAC calls, janitorial requests and plumbing requests. This tool allows Wells to drill deeper into the metric areas where they receive their highest number of tenant calls and requests.
Leasing Strategies Tenant retention is the ultimate goal, but the other side of the tenant relations equation, tenant loss, is a reality owners and managers are struggling with across the marketplace. The cost of vacant space runs much higher than just lost rent; there are also the brokers’ commissions, tenant improvement buildouts and marketing costs associated with empty space. The lost revenue and myriad of costs associated with vacancies make leasing strategies that much more critical. Having vacant space as market-ready as possible so that a prospective tenant or their broker can envision how the
space will lay out is a prerequisite and just smart marketing. Ballas explains the concept of “white boxing” that is often used at CBRE properties: “We do a complete demolition below the ceiling, with the remaining walls and floors painted. It’s a very clean, crisp look that allows a prospective tenant to easily envision a plan.” Fernald also extols the importance of keeping the property looking good, which doesn’t have to require a big budget. “It doesn’t take a lot of money to assure that your vacant space is always in show condition,” he notes. “Most tenants will come in and want to reconfigure the office, but it’s hard for them to visualize what the space will look like if you can’t show them a space that’s built out to building standard. If, in an industrial park, you have several vacancies with 10 percent office build-out, in at least on one of those spaces make a point to paint, carpet, replace ceiling tiles, etc., so you can show them what it will look like.” Fernald encourages someone from the property management team to accompany the leasing agent when a space is being showed. “A colleague of mine is fond of saying, ‘It’s the leasing professional’s job to get them in the space; it’s the management professional’s opportunity to make them feel comfortable and explain how the space will
“If a tenant is asking me for help, what do I get as a landlord? Maybe I can get more term or some form of enhanced collateral on the lease.” Perry Schonfeld, Principal, LBA Realty
Tenant Retention AND LEASING STRATEGIES
Soft Market Concessions—Bend without Breaking Rent relief, expensive tenant improvements, “blend and extend”—the softer the market, the more tenants and prospective tenants will be asking for concessions. The conversation will come up, but it is a dialogue that should never be one-sided. Perry Schonfeld, principal with LBA Realty in Irvine, Calif., explains that the call for rent relief is a tricky one that requires a clear set of rules. “If a tenant is requesting rent relief, they are going to have to answer some questions and be transparent,” says Schonfeld, who looks at several variables, including whether a tenant is current with rent payments, is transparent with financial statements and provides a pro forma for getting back on track. Ultimately, the restructure has to be mutually beneficial. “It has to be bilateral,” adds Schonfeld. “If a tenant is asking me for help, what do I get as a landlord? Maybe I can get more
term or some form of enhanced collateral on the lease.” Fernald is seeing more emphasis on extending existing leases—the classic “blend and extend”—which can be beneficial for both sides. “If a tenant is coming up for renewal in the next year or two or three, now might be a good time for that tenant to approach the landlord, or vice versa, to extend that to a 10-year lease with some adjustments to rent,” he suggests. Another scenario Fernald is seeing more often is where a tenant on a short-term lease has more space than needed. In these scenarios, a mutually beneficial solution might be to reduce the space and extend the lease. Tenant improvements ( TIs) are especially tricky in this market where a robust TI can make all the difference in a prospective tenant’s willingness to sign a lease, but availability of capital is more of an issue than it has been in the past. “Everybody is looking to minimize how much capital gets deployed, and that’s true on both sides of the equation, for both the tenant and owner,” states Ballas, who says “the TI question is not necessarily a zero-sum game for tenants, who usually need to contribute something, especially if they relocate.” Making TIs work is a collaborative process. From the owner and management perspective, alternatives to expensive TIs might include using free rent as an offset and/or being resourceful about
The BOMA•Kingsley REPORT is written and published in conjunction with Kingsley Associates, www.kingsleyassociates.com.
January/February 2010 BOMA 19
BOMA • Kingsley REPORT
meet their needs.’” This strategy allows prospective tenant to get a good sense of the customer service they can expect if they lease the space, and establishes a positive rapport from the beginning. It also doesn’t hurt to have management personnel there from the beginning to answer any questions that may arise.
the design by involving the architect early in the process to reuse existing elements rather than knocking everything down and starting over. Sticky points in the TI process can occur when tenant representative brokers pursue TI dollars, which are not required, as a value that the tenant should receive. Ballas believes landlords need to stand firm in these situations and attempt to reach agreement on the market value of the space first, then negotiate TIs needed from there. “Since the owner took the initial development and leasing risk, the value of not having to improve a particular space belongs to them and shouldn’t be part of the negotiation and given away. The fact that we may not have to spend $50/ square foot to refit a space is the owner’s benefit, not the tenant’s.” Regarding the restructure of existing leases requested by struggling tenants, Ballas sees his clients pursuing a recapture of unfavorable options contained in leases as a trade for what the tenant might be requesting on economics. “In some cases, there may be an opportunity to enhance the future value of the building by voiding options that provide for early termination or a renewal at a reduced rate from the then current market,” he explains. The best way to avoid this debate altogether is clearly to keep the tenants you already have. Back to basics is more than a return to the fundamentals of tenant relations; it is about reassessing asset value. Consider the Wells’ approach to buying a building: “We don’t buy buildings, we buy tenants,” says Freeman. “Although most owners and managers don’t have the luxury of choosing the perfect tenants, they certainly have a say when it comes to keeping them.”
Beyond the Boiler Room Building Engineers are the Keystone to Energy Management Success By Ray Congdon, LEED-AP, FMA, OPMP Here’s a scene that is becoming more and more common: As the property manager of a downtown high-rise concludes the financial briefing to the leadership team, the building’s operating engineer prepares to deliver the annual energy results. The presentation opens with a graph indicating the reduction in kBTUs for the portfolio and the associated changes in the Energy Use Index (EUI). This is followed by an overview of the EPA ENERGY STAR® Portfolio Manager score, accompanied by an updated ASHRAE bEQ grade and finally the direct impact on carbon emissions through carbon accounting spreadsheets. The leadership team is pleased because they know these numbers translate to a positive impact on the bottom line, as well as increased marketing opportunities and legislative compliance. The building operating engineer then gives a high-level overview of the operational changes the engineering team accomplished to support the numbers. In my position as an engineering director with the world’s largest commercial real estate services firm, I am tasked to provide much of the data identified above, and in conversations with my peers, I am learning I’m not the only one.
The Time is Now By now, most of us are familiar with the numbers: U.S. buildings consume approximately 39 percent of primary energy, which includes approximately 70 percent of the electricity generated in the United States. In addition, buildings are responsible for approximately
38 percent of U.S. carbon dioxide emissions. These statistics, coupled with our national goals of striving for reduced dependence on fossil fuels (as well as increased awareness on climate change), have catapulted our industry to the center stage of energy management and resource conservation. On the legislative front, there have been significant advances in energy conservation, including building labeling and energy disclosure mandates in buildings. Energy data disclosure through the EPA ENERGY STAR Portfolio Manager has been mandated in California and Washington, D.C., as well as other locations in the United States. Both the U.S. House of Representatives and Senate have been working on energy legislation, and, in early 2009, HR 2454, The America Clean Energy and Security Act of 2009 (ACES), passed in the House. In addition to requiring more stringent energy codes and standards, ACES also provides for a national building energy labeling program, offers incentives for energy-efficiency retrofits and establishes the groundwork toward a federal cap-and-trade system. The Senate has been working on their version, which they hope to bring to the Senate floor for a vote early in 2010. Regardless of where you stand on these issues, property professionals who begin preparing now will position themselves for success no matter what happens to the legislation. In his Presidential Address, Bill Harrison, 2008-2009 president of the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE), recognized the significant
In order to be successful in a sustainable world, the operating engineer must not only have extremely high technical skills, but must also know how to operate buildings efficiently and be able to analyze and report financial impacts resulting from their actions.
20 BOMA January/February 2010
work in the design and construction of high-performance buildings. He went on to identify how future successes in energy conservation in buildings will come from experienced building operators. Harrison shared stories of buildings he has visited across the country and talked candidly about how discouraging it was to encounter building equipment being operated and maintained inefficiently. Specifically, he noted, “Improved operations are always dependent on improving the knowledge of the building operators, and development of the basic information required for effective training has to be a high priority for ASHRAE.”
The Benefits of Training and Designations ASHRAE has already taken significant steps in support of these goals. ASHRAE Standard 180P, Standard Practice for Inspection and Maintenance of Commercial Building HVAC Systems, was published late in 2008 and, at the same time, ASHRAE introduced a new certification, the Operations and Performance Management Professional (OPMP). The intent of the OPMP certification is to identify operators who demonstrate a comprehensive understanding of the efficient operation and maintenance of building systems. Property professionals seeking to provide increased operational value to their stakeholders can rely on this designation to identify individuals well versed in efficient building performance. BOMA has also recognized the impact that skilled operators can have on the bottom line and supports that by dedicating three of its “BOMA 7-Point Challenge” initiative points to building operations. Point three specifically addresses training by stating: “Provide education to your managers, engineers and others involved in building operations to ensure that equipment is properly maintained and utilized.” Through this
the people who operate and maintain them in energy-efficient technologies and practices. The concept is simple: Technologies save energy, and so do the people who work with technologies,” she says. There are two levels of education through the BOC, with Level II building on skills from Level I and also providing advanced operating efficiency curriculum. The BOC currently serves more than 6,000 building operators in 22 states across the country. A 2006 report published by the American Council for an Energy Efficient Economy, What Building Operators are Saying about BOC Training by Marjorie McRae and Beatrice Mayo, chronicles savings attributed to operators who achieved BOC certification. Results were based on 13 operations and maintenance measures for which impact estimates were available. The report indicates these operators were able to conserve a minimum of .40 kWh per square foot.
The Proof is in the Energy Savings
Market Transformation initiative, BOMA pledged to continue to develop education programs for building owners and managers, acknowledging “the result could provide returns of up to a 30-percent reduction in energy consumption and costs.” BOMA International also recently added an entire track of education dedicated to building engineers to the conference education programming of the BOMA International Conference, which will next be held in Los Angeles County, Calif., in June. Leading the way for building operator education, with an emphasis on energy conservation, is the Building Operator Certification (BOC) program. The BOC began in the Pacific Northwest in the 1990s and grew out of a popular building operator training series. Cynthia Putnam, project director with the Northwest Energy Efficiency Council (NEEC), explains: “The goal was to improve the efficiency of the region’s commercial building stock by training
Several years ago, I accepted a position as chief operating engineer for a small portfolio of medical office buildings. Initial analysis of the buildings indicated the prior operators lacked the skill, motivation and/or resources to efficiently maintain and operate the facilities. Base-lining the facilities in EPA ENERGY STAR Portfolio Manager confirmed that analysis. We began an aggressive two-year campaign to increase efficient operations and maintenance of the facilities, and it was during this time that a commitment was made to provide operating engineer education. Over the two-year period, significant work occurred, including
implementation of a new Computerized Maintenance Management System (CMMS), a service contract with the controls contractor, financial investment in energy-reduction projects and lease evaluation that led to utility submetering for some tenants. As a result of this focus on operations, energy consumption was reduced, on average, by more than 22 percent. One of the properties earned the EPA ENERGY STAR rating, and, during the same period, was awarded the International TOBY Award in its class, one of two properties that earned a TOBY award. In a presentation to the owner’s leadership team, results of the initiative revealed the operational improvements yielded not only enough savings to pay salary and burden for the entire operating engineer team, but also returned additional run-rate savings. As we continue down the path toward environmental sustainability, legislative mandates, building labeling requirements and increased operational costsavings directives, there should be no doubt the keystone in this process will be the building operating engineers. The days of the operator adjusting valves in the boiler room is history. In order to be successful in a sustainable world, the operating engineer must not only have extremely high technical skills, but must also know how to operate buildings efficiently and be able to analyze and report financial impacts resulting from their actions. Investing in training on the efficient maintenance and operation of their buildings must be a top priority for property professionals who want to succeed in this new direction.
About the Author: Ray Congdon, LEED-AP, FMA, OPMP, is director-group health with CB Richard Ellis Global Corporate Services. He can be reached at Congdon.r@ghc.org.
Education and Certification Resources for Building Engineers Building Operator Certification, www.theboc.info Operations and Performance Management Professional certification, ASHRAE, www.ashrae.org Optimizing Building Operations—Tools for Building Engineers education track, 2010 BOMA International Conference, www.bomaconvention.org
January/February 2010 BOMA 21
O F F I C E B U IL D IN G S : S TA N D A R D M E T H O D S O F M E A S U R E M E N T A N D C A L C U L AT IN G R E N TA B L E A R E A ( 2 010 )
GET INTERACTIVE!
The interactive downloadable format includes hyperlinks, expanded definitions, and 45 full-color illustrations.
THE
BOMA STANDARD THE NEW OFFICE MEASUREMENT STANDARD IS HERE
There’s a reason everyone calls it “The BOMA Standard.” In 1915 it was the first floor measurement standard and today it still sets the standard for measuring office space. Now BOMA International introduces the latest version of this landmark standard, Office Buildings: Methods of Measurement and Calculating Rentable Area (2010) .
NEW FEATURES INCLUDE: • A new Single Load Factor Method. This new calculation, “Method B,” applies to the occupant area of each floor to determine the rentable area and is the same for all floors of a building, i.e., all tenants are allocated the same percentage for calculation of amenities and service areas. • More options. Choose either the new Method B or the measurement methodology of the 1996 standard, referred to as “Legacy Method A.” • Regional leasing practices. Allows for enclosure requirements and limited unenclosed circulation; i.e., walkways and outdoor lobbies. Great for tropical climates. • Measurement clarity. Introduction of new terms to simplify and clarify the process of measurement, including a step-by-step sequence that includes boundary line definitions.
ORDER THE NEW OFFICE STANDARD TODAY AT HTTP : //SHOP.BOMA.ORG
22 BOMA January/February 2010
BOMA Sets the Standard. Order BOMA’s floor measurement standard, Office Buildings: Methods of Measurement and Calculating Rentable Area (2010) , or the other measurement standards from the BOMA family of standards– Gross Areas of a Building: Methods of Measurement (2009) ; Standard Methods for Measuring Floor Area in Industrial Buildings ; and Unified Approach for Measuring Office Space: For Use in Facility and Property Management .
2009 Year in Review
By Lindsay Tiffany
Social Media BOMA brought up-to-the minute news and information on legislative, regulatory and codes activities; trends; and forecasts through its primary communications vehicles, The BOMA Magazine and e-News. BOMA also joined the social media revolution, utilizing innovative tools like YouTube, Facebook, LinkedIn and Twitter to reach the commercial real estate industry.
Join BOMA on Facebook Join BOMA on LinkedIn See BOMA on YouTube: www.youtube. com/bomainternational Follow BOMA on Twitter: BOMA Chair Jim Peck @ JimPeckBOMA BOMA President Henry Chamberlain @ HenryBOMA BOMA Vice President Lisa Prats @ LisaPratsBOMA
Supporting Commercial Real Estate in a Down Economy 2009 was a challenging year for commercial real estate, as the credit crisis spread from the residential real estate market to all sectors of the economy. The distressed market impacted nearly every facet of the industry; lending became harder to secure; the rise in unemployment brought a rise in vacancies along with it; and commercial real estate firms were forced to reassess their strategies for success. BOMA International committed its resources to advocating for critical policies on Capitol Hill and providing industry professionals with the tools and information to survive the downturn. In 2008, BOMA International was one of the first real estate organizations to testify before Congress on the effects of the credit crunch on commercial real estate. In March 2009, BOMA was called upon again to testify on the challenges of leasing and building during an economic crisis. BOMA International 2008-2009 Chair Dick Purtell testified that the U.S. property market faced its worst liquidity challenge since the Great Depression. “We are faced with the dual challenge of developing strategies to stop the downward spiral and restoring confidence in markets,” said Purtell.
BOMA International 2008-2009 Chair Dick Purtell testifies before Congress.
Throughout the year, BOMA International continued to lobby with our association colleagues for financial solutions to restore credit capacity and liquidity to the marketplace. In August, the U.S. Treasury and the Federal Reserve extended the Term Asset-Backed Securities Loan Facility (TALF) for commercial mortgage-backed securities (CMBS), helping prevent defaults on economically viable commercial properties, increase the capacity of current holders of maturing mortgages to make additional loans and facilitate the sale of distressed properties. BOMA also developed a platform of resources and information to help property professionals get through the downturn. BOMA debuted a series of Webinars over the course of the year aimed at helping commercial real estate professionals plot a successful course through the challenges of a distressed market. Webinars offered strategies for leasing, tenant relations and tenant retention, which are crucial to preserving asset value. BOMA also continued to build out Rx Resource Exchange, a section of the BOMA Web site launched in 2008 featuring books, interactive tools, educational programming and career resources focused on weathering the recession. Continued on page 24
January/February 2010 BOMA 23
2009 BOMA Year in Review
t men ure e as e a of mble ar s d n tho renta ldi bui g d me ice off dar l atin stan calcu d an gs :
Greening the Way
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and Being Recognized BOMA 360 Performance Program designees.
Positioning You for Success: Now More than Ever Despite the challenges posed by the recession, BOMA continued to roll out new programs and products to help property professionals survive the economic downturn and position them for success once market conditions improve. In May, BOMA launched the BOMA 360 Performance Program, a groundbreaking building designation program designed to recognize commercial properties that demonstrate best practices in building operations and management, while reinforcing an asset’s value. The 360 designation demonstrates to owners, tenants and prospective tenants that a building is managed to the highest standards of excellence. It also provides property management companies with a strategic tool to differentiate their assets, especially important in today’s distressed market. For William F. Moebius, senior vice president and director of energy and sustainable operations with Stream Realty Partners in Dallas, Texas, the stamp of excellence the designation implies is why his company chose to participate. “The most important benefit of the program is that buildings are recognized for incorporating a very broad range of best practices. Owners and tenants can take comfort in the fact that the management team has excellent, industry-leading systems and practices in place.”
Recognizing that sustainability and energy efficiency are cornerstones of excellence in property management, BOMA continued to lead the way in the green arena in 2009. In April, BOMA was honored by the Environmental Protection Agency (EPA) with a 2009 Climate Protection Award, the EPA’s highest honor, recognizing exceptional leadership, outstanding innovation, personal dedication and technical achievements in protecting the climate. BOMA received the award for the success of several programs, including the BOMA Energy Efficiency Program (BEEP), the 7-Point Challenge, BOMA´s Green Lease Guide and the BOMA Energy Performance Contracting (BEPC) model. BOMA is the first real estate association in nine years to receive this honor. The EPA honors didn’t stop there. BOMA also received the 2009 ENERGY STAR® Award for Sustained Excellence— the third consecutive year that BOMA was recognized by ENERGY STAR. BOMA is still the only commercial real estate association to receive this honor. BOMA also worked with government officials, commercial real estate executives and other industry groups to launch the U.S. Department of Energy’s (DOE) Commercial Real Estate Energy Alliance (CREEA), a collaboration of commercial real estate owners and operators who have volunteered to work directly with each other and with DOE to create lasting change in the energy consumption of commercial buildings in the United States.
Pandemic Preparedness When the H1N1 virus (commonly referred to as “swine flu”) broke out in late spring, BOMA was at the ready to assist members with their pandemic preparedness. BOMA updated its pandemic preparedness Web site; reported extensively on H1N1 in The BOMA Magazine and other communications; and added new information to the pandemic flu brochure Pandemic Influenza: Are You Prepared?
24 BOMA January/February 2010
Albuquerque Mayor Martin Chávez, BOMA New Mexico President Leslie Yardman and BOMA International Chair Jim Peck.
Setting Industry Standards [ i ]
BOMA continued to set the standard in 2009 by releasing two new building measurement standards, building on BOMA’s legacy as the go-to source when measuring space to calculate leases, allocate building expenses and compare occupancy. The release of the highly anticipated Office Buildings: Standard Methods of Measurement & Calculating Rentable Area improved upon the 1996 version of the landmark floor measurement standard, widely referred to as “The BOMA Standard.” The new interactive publication has several key enhancements that simplify the methodologies, clarify gray areas and make it more user-friendly. The single biggest change to the standard is that it now includes two methods for calculating rentable area. Method A, or the legacy method, allows users the option outlined in the 1996 standard. Method B, or the single load factor method, provides property professionals with a methodology that allows them to use a single load factor for all floors of a building—something BOMA members asked for. The new office standard is a downloadable publication featuring hyperlinks throughout the document’s text, expanded definitions and 45 full-color illustrations. BOMA International also released Gross Areas of a Building: Methods of Measurement that provides a uniform basis for measuring both the construction gross area and the exterior gross area of office, retail, industrial, single- and multi-unit residential, hospitality, entertainment, public and institutional buildings. The Gross Areas Measurement Standard is also in an interactive downloadable format featuring 37 illustrations and 19 definitions of measurement terms.
2009 BOMA Year in Review
A Growing Environmental Relationship with City Hall 2009 was another important year for the 7-Point Challenge. A core goal of the challenge is to decrease energy consumption by 30 percent across portfolios by 2012, as measured against an ENERGY STAR “average” building score of 50. Since its inception in 2007, the 7-Point Challenge has received widespread acceptance from the private sector, with more than 120 member companies and local associations representing more than two billion square feet of office space endorsing the Challenge. In 2009, BOMA strengthened its green outreach with cities and municipalities by bringing awareness to the role commercial real estate plays in reducing energy consumption. Several cities stepped up to endorse the Challenge, including Atlanta, Albuquerque, Orlando and Phoenix.
The Power of the BOMA Network As the industry faced growing economic turbulence in 2009, the importance of the BOMA network became clearer than ever. BOMA continued to expand the global base of that network by welcoming the British Council for Offices and the Property Council New Zealand into the BOMA family. The year’s best networking and information-sharing event, the BOMA International Conference, featured a program rich with strategies for weathering the credit crisis and leveraging existing opportunities. BOMA International President and COO Henry Chamberlain delivered the 2009 State of the Industry address, stressing the importance of exceptional building management and operations to help counter the effects of the credit crisis. Renowned journalist Dr. Fareed Zakaria discussed the political, economic and technology transformations that have redefined the global marketplace. The industry’s premier education was presented in five strategic tracks, with more than 40 sessions. Top suppliers exhibited the latest products and services at The Office Building Show, featuring the Green Pavilion and ENERGY STAR Showcase of eco-friendly products. The industry acknowledged 14 properties as the best of the best in building operations and management internationally at The Office Building of the Year (TOBY) Awards. During the ceremony, James A. Peck, RPA, FMA, senior director in the Albuquerque office of CB Richard Ellis, was sworn in as 2009-2010 BOMA International chair (pictured above, left). Other 2009-2010 BOMA International officers elected include Ray H. Mackey, Jr., RPA, CPM, CCIM, as BOMA chair-elect; Boyd R. Zocolla as vice chair; and Kent C. Gibson, CPM, as secretary/treasurer. Healthcare real estate professionals also leveraged the power of the BOMA network, as nearly 450 attendees gathered in Philadelphia for BOMA’s 2009 Medical Office Buildings and Healthcare Facilities (MOB) Conference. Thought leaders from healthcare real estate companies and hospital systems addressed key issues before the industry, such as the financial wherewithal of health systems, whether the “recession-proof” label many have given healthcare real estate is valid, “clinic” models for ambulatory care, emerging hospital-employed physician models, CMS reimbursements and the effects of potential healthcare reform under a new Administration and Congress. Continued on page 26
Not Your Father’s Benchmarking Tool— a New EER Commercial real estate’s premier income and expense reporting source, the Experience Exchange Report (EER), underwent several major enhancements in 2009— thanks to collaboration between BOMA International and Kingsley Associates to produce the landmark benchmarking report. The EER transitioned from book and CD-ROM formats to a completely online interface, allowing users to customize data and query information more nimbly. The new search tools make it easy to generate reports and analyses, export data to Excel and create custom charts and graphs. The new EER features 15 million data points, reports for 100 markets and an all-market report for 27-plus markets.
Thank You BOMA 2009 Partners Cornerstone Partners AlliedBarton Security Services IB Roof Systems Kimberly-Clark Professional* Naylor ThyssenKrupp Elevator Trane
Leadership Circle Partners ISS Facility Services SIEMENS UGL Unicco ValleyCrest Landscape Maintenance
Supporting Partners Acuity Brands Lighting Nalco Orkin Commercial Services
January/February 2010 BOMA 25
2009 BOMA Year in Review
Showing YOU the Money
The Bottom Line Benefits of Your BOMA Membership BOMA President Henry Chamberlain, House of Representatives Majority Leader Steny Hoyer and BOMA Chair Dick Purtell at the National Issues Conference in March.
The Voice of Commercial Real Estate on Capitol Hill BOMA continued to serve as the voice of commercial real estate on Capitol Hill in 2009. In March, BOMA members brought commercial real estate’s critical message to lawmakers as part of BOMA’s National Issues Conference (NIC) in Washington, D.C. Attendees took part in more than 120 meetings with members of Congress and their staff as they outlined BOMA’s 2009 legislative agenda, including commercial real estate’s stake in issues such as leasehold depreciation, capital gains taxes, carried interest taxes, energy and climate change policy and “card check.” In addition to meetings on Capitol Hill, attendees heard from the second most powerful member of the House of Representatives, Majority Leader Steny Hoyer (D-Md.), as well as Reps. Mike Rogers (R-Mich.) and Steve Driehaus (D-Ohio). In October, BOMA International and the National Real Estate Organizations (NREO) hosted the launch of the 111th Congress Senate Real Estate Caucus, with a special briefing focusing on the state of the real estate industry. Honorary CoHosts and Senate Real Estate Caucus Co-Chairs Sens. Ben Cardin (D-Md.) and Johnny Isakson (R-Ga.) gave the opening remarks, and BOMA International’s Henry Chamberlain moderated a dynamic panel discussion on the state of the real estate industry. BOMAPAC is a keystone of BOMA’s legislative success in Washington. Funds raised through BOMAPAC help re-elect political candidates for federal office who know, understand and support real estate’s issues. In 2009, BOMA members raised more than $50,000 and supported 14 members of Congress so far in the 111th session.
Looking Ahead 2009 was a difficult year for just about everyone in commercial real estate, and many of those challenges will carry over into 2010. The glimmer of recovery is before us, though, and we have the tools to take advantage of those green shoots. The BOMA 360 Performance Program will continue to showcase operational excellence in best-in-class buildings across the marketplace, giving owners and managers a way to stand out from the crowd. On the advocacy front, we have some tough tax battles ahead and each of us must show lawmakers that a healthy commercial real estate industry is the backbone of a strong economy. We will continue to help property professionals stay competitive as they track building performance through the new online EER. Look for BOMA to continue to use social media tools like YouTube, Twitter, Facebook and LinkedIn as a means to engage BOMA members and industry professionals in the most important issue of the moment.
26 BOMA January/February 2010
BOMA International’s advocacy and codes teams helped secure key legislative victories recently that are helping save commercial real estate industry billons:
Brownfields Remediation Tax Incentive Signed into law by President Bush as part of the Emergency Economic Stabilization Act of 2008, the provision retroactively extended the Brownfields remediation deduction (expensing) for an additional two years. Savings to the industry = $600 million over two years.
Energy-Efficient Commercial BuildingsTax Deduction Legislation passed in 2008 extended tax deductions for energy-efficient upgrades to commercial buildings first passed in the Energy Policy Act of 2005. The new legislation extends the deduction an additional five years through 2013. Savings to the industry = $887 million over five years.
Leasehold Depreciation Another provision in the Emergency Economic Stabilization Act of 2008 included a retroactive extension of the 15-year depreciation timeline for leasehold or tenant improvements for an additional two years. Savings to the industry = $500 million over two years.
Additional Annual Construction Costs Avoided from Energy Code Changes During the most recent ICC Codes Meeting, BOMA was successful in getting the proposed blanket 30-percent increase to the International Energy Conservation Code disapproved. Annual savings to the industry = $990 million.
Lost Lease Income Avoided Billions in lost lease income were avoided with BOMA’s alternatives to NIST/World Trade Center proposals requesting additional elevators in the 2009 ICC Building Codes. Annual savings to the industry = $630 million.
Building Owners and Managers Association International, 1101 15th Street, NW, Suite 800, Washington, DC 20005, (202) 408-2662, www.boma.org
Put the power of the BOMA network to work for you. “ Gathering together the top individuals from every facet of the commercial real estate industry, in one location, made the BOMA conference a priceless networking opportunity for me. I came away feeling encouraged, recharged and full of new ideas for managing property efficiently and successfully in these challenging times.” Cindy Duncan Senior Real Estate Manager AMB Property Corp. Tukwila, WA
We’ve maximized the impact and value of the BOMA International Conference & The Every Building Show by designing a new schedule a r o u n d t w o d a y s i n s t e a d o f t h re e , g i v i n g y o u t h e o p p o r t u n i t y t o m a k e t h e m o s t of your time at BOMA 2010 while eliminating some of the travel cost. Plan to attend the commercial real estate industry’s premier conference and tradeshow. Put the power of the BOMA network to work for you. Registration for BOMA 2010 opens December 1.
2010
INTERNATIONAL CONFERENCE &
THE EVERY BUILDING SHOW Long Beach Convention & Entertainment Center
June 27-29, 2010 | Los Angeles County, CA
www.bomaconvention.org
January/February 2010 BOMA 27
TM
Green Scene
Types of Green Roofs Intensive—accessible, park-like gardens with conventional trees and plants requiring irrigation and ongoing maintenance Extensive—involve a blanket of lowmaintenance plants like sedum, succulents, ornamental grasses or ground cover and are typically not accessible to the general public Semi-intensive—a combination of both intensive and extensive components A green roof with sedum and a drip irrigation system ensures water efficiency at the University of La Verne in California.
The Versatile Green Roof By Kelly F. Duke
THE BEAUTY OF A ROOFTOP GARDEN is hard to resist. Building owners looking to transform unused rooftop space into functional, visually impactful areas can expect added property value and aesthetic appeal from a green roof. As a result, rooftop gardens are being incorporated into virtually every type of commercial structure. From an environmental and building maintenance standpoint, green roofs serve many functions. They moderate and detain stormwater runoff, supplement insulation to reduce heating and cooling costs and increase urban biodiversity by adding habitats for birds and beneficial insects. Green roofs also mitigate the broader problem of urban heat island effect, where high daytime ambient air temperatures remain elevated after sunset due to accumulated heat radiating from dark and non-vegetated rooftops. The protective layer of a green roof can also extend the life of the waterproofing system by shielding it from the degrading effects of sunlight. Eaton Vance, an investment management firm headquartered in Boston, Mass., was interested in the social and aesthetic appeal of a green roof. When its 310,000-square-foot office building underwent a full retrofit, the company added an outdoor entertaining space. The landscaped roof deck with 200 flowering perennial plants, a 350-square-foot blanket of blooming sedum and numerous potted planters filled with Skyline Honey Locust trees affords employees and visitors colorful foliage in an urban high-rise environment. While the social and aesthetic benefits of green roofs can be obvious, many
28 BOMA January/February 2010
are not intended for the general public. Often the purpose is to meet sustainability goals, such as reducing energy costs, improving air quality and conserving water. To reduce urban heat island effect, energy consumption and stormwater runoff, the University of La Verne in California selected GreenGrid®, a modular green roof system manufactured by Weston Solutions, for a 700-squarefoot green roof at its new campus center near Los Angeles. Pre-grown trays with drought-tolerant sedum varieties were installed along with a drip irrigation system to provide maximum water efficiency. Protecting the roofing membrane with a green roof has major longterm cost benefits; studies show that the lifetime of the waterproofing membrane can be doubled. If installed on a new building, a green roof should be viewed as a part of the whole roofing system. For some roofing
Green Roof Benefits • Offer new outdoor amenity space and aesthetic value • Capture and direct rooftop stormwater runoff • Supplement a building’s insulation, reducing heating and cooling costs • Moderate ambient air temperature beyond the building to reduce urban heat island effect • Improve air and water quality by filtering and reducing pollutants • Increase wildlife habitats and biodiversity in urban settings • Respond to market demand for more green space in urban areas
system manufacturers, this integrated approach is a prerequisite to their warranty of the roofing installation. It is critical that the installation and long-term growth and maintenance of the plantings do not compromise the waterproofing layer of the roof component. An example of this is the U.S. Census Bureau headquarters in Suitland, Md., which includes 53,000 square feet of extensive green roof that was installed using American Hydrotech’s proprietary monolithic system. Adherence to the roofing manufacturer’s details and specifications was a prerequisite to American Hydrotech’s warranty of the green roof system. The roof areas are accessible only for maintenance purposes. This green roof detains a portion of every rain event as the primary source of water for the sedum plants. Excess water flows through the roof drain system and is collected along with other storm runoff into a retention pond, which supplies the on-site irrigation system. Building owners or managers considering a green roof should examine the site and the building as a whole to see where the environmental impact and life-cycle costs are located. Green Roofs for Healthy Cities (www.green roofs.org) offers an online calculator to help compare roofing alternatives and determine whether energy savings and reduced operating, maintenance, repair and replacement costs justify the initial cost of a green roof. Be sure to consult an experienced landscape contractor or landscape architect who can help identify all of the variables that go into building a green roof.
About the Author: Kelly F. Duke is vice president, pre-construction services for ValleyCrest Landscape Companies. He oversees the design, installation and maintenance of many of the company’s green roof projects. He can be reached at kduke@valleycrest.com.
trends tracker
Construction Industry to Stabilize in 2010, Though Office Sector Lags AFTER TAKING A BATTERING from the “Great Recession” in 2009, the construction industry will begin to see stabilization and early signs of recovery in 2010. Renowned economists and construction industry experts shared this modestly optimistic news as they addressed the crowd of AEC (architecture, engineering and construction) industry executives at McGraw-Hill Construction’s Outlook 2010 Executive Conference this past October in Washington, D.C. The conference program featured in-depth analyses from experts on the credit market, the effects of the financial stimulus, the building materials market and the general economic and construction industry forecasts for the coming year. Robert Murray, vice president of economic affairs, McGraw-Hill Construction, presented the 2010 Construction Outlook and projected that the industry will turn the corner in 2010. Construction starts will rise by 11 percent in the coming year, following several years of contraction. In 2009, total construction starts were down 25 percent, following shortfalls of 13 percent in 2008 and seven percent in 2007, according to the McGraw-Hill report. Stabilization will be helped by the economic stimulus bill, the American Recovery and Reinvestment Act of 2009, of which $130 billion of the $787 billion is earmarked for construction projects. The stabilization of the financial sector will also aid recovery. While the overall forecast for construction is positive, commercial buildings will lag in recovery. According to the McGraw-Hill report, the commercial building sector dropped a staggering 54 percent in 2009, following a decline of 26 percent in 2008, bringing activity down a total of 66 percent from the most recent market peak in 2007. Murray predicted construction starts in the nonresidential building sector (which includes retail, office, hotel, manufacturing, institutional, educational and healthcare facilities) will fall another
four percent in 2010. Healthcare facilities and institutional buildings are the only sectors expected to gain, by three and two percent, respectively. The office building sector is expected to be particularly hard hit in 2010, facing a further decline of nine percent. Noted Murray, “The decline in employment numbers is a key indicator for commercial buildings, and the numbers indicate that demand for office space is down.” Murray also cited the ability to refinance the huge wave of commercial mortgages coming due in 2010 and 2011 will be paramount to a turnaround in the sector. Several experts agreed that, while stimulus dollars will bolster gains in public works and other institutional buildings, the stimulus will have little effect on the office market. Congresswoman Eleanor Holmes Norton (D-D.C.) also spoke about the economic stimulus plan and the important role the U.S. General Services Administration (GSA) has to play in economic recovery. “By investing in infrastructure, we’re waking up a whole line of other players,” she said, noting that the stimulus will have a ripple effect on the AEC industry. She also emphasized the importance of smart growth: “We’ll have slower growth, but it will be sustainable and will be the kind of growth that made America a great power.” Global Insight’s Principal of Industry Practices John Mothersole addressed recovery. He compared this recovery to the one in 1982, citing that interest rates and taxes are likely to rise, “presenting the recovery with challenging headwinds.” All experts agreed that recovery will take time to gain traction, many predicting that it will be W-shaped rather than V-shaped, with a slight recovery and another drop off before returning to prerecession conditions. Mothersole ended by noting that “we’re at the bottom of the worst post-World War II recession, and when you’re at the bottom, the only place to go is up, albeit slowly.”
Is it Working? Women Construction Executives Speak Out on the Stimulus At Howrey LLP’s Women in Construction conference last October, a panel of construction executives answered the question on everyone’s mind: Is the stimulus working?
“The effects have been minimal. We’re finding that, once the stimulus money is dispersed, there are only a handful of projects that would be attractive for us to pursue.”
–Barbara Wagner, Esq., Clark Construction Group “We’re seeing minimal to no impact, and the numbers don’t suggest that there’s any significant increase in construction jobs.”
–Kay Lantrip, Skanska USA Building Inc. “No, it really isn’t creating any new opportunities in financing projects. The problem is that there isn’t demand for new space—current rents in the commercial market aren’t high enough to incentivize developers to spend money. Jobs will create the demand we need.”
–Keli Colby, Boston Properties
January/February 2010 BOMA 29
Research corner
Cracking the NOI Equation: Strategies for Asset Value Enhancement By Lindsay Tiffany DRIVING VALUE IN A DOWN ECONOMY is difficult, but in today’s market it is more important than ever. Asset value enhancement is a two-sided equation: decreasing expenses and increasing income. Doing both as effectively as possible will maximize a building’s NOI and ultimately increase the value of the property. By now, most property managers have implemented lean operating and management practices, and have cut costs as much as possible. The income side of the equation is less straightforward, as increasing a building’s revenue stream often requires strategic capital expenditures and a creative approach. Here are some strategies for asset value enhancement.
Protecting the Asset’s Rent Stream In today’s economic climate, understanding the vulnerabilities in an asset’s rent stream is vital. As more and more tenants face financial distress, acting proactively can help property managers mitigate their risk. Tim Ballas, managing director of asset services for the San Francisco Bay Area with CB Richard Ellis, explains that CBRE has developed a tool that assigns every tenant in their national portfolio with a risk rating. “To assign risk ratings, we ask ourselves four basic questions for every tenant in the building. What are the tenant’s current business prospects? What is their payment history? What is their source of funding? The fourth category is “other” information. This is oftentimes where the best information comes from because it’s based on an ongoing relationship the manager has with the tenant. It’s having a conversation and probing into their business model, not just walking around the space and seeing how many empty cubes there are.”
30 BOMA January/February 2010
Ballas notes that the rating tool is a great way to compare risk across markets and share positive information with key stakeholders. “In the end, the ratings give the asset manager or whoever is closest to the asset some validation about what they might already intuitively know about the tenants in the building. It also gives them an opportunity to provide ground-level intelligence to people down the line who are not as close to the property—maybe their boss who sits in another state, investors or other stakeholders.”
Smart Capital Improvements “You can’t increase revenue if you don’t maintain your properties appropriately in a condition to attract and retain tenants,” notes Cathy Stephenson, LEED AP, senior vice president and national director of operations with Grubb & Ellis Management Services. One of Stephenson’s asset managers developed a creative low-cost, high-impact approach to capital expenditures: rotating and reusing commissioned artwork between buildings to make the spaces seem fresh. “You always want an identity for your building so that tenants feel that the building is recognized. Artwork, in particular, can help to create the personality of the building. We can view artwork in one building, but it can take on a whole new life in another building as it’s reinstalled or broken up and used in a completely different, unanticipated way.” Stephenson also stresses that building managers should spend money where the effects are most visible. In places that are less visible, oftentimes a coat of paint and new carpet are all that it takes to make the space rentable. “If there is a first-floor retail space that is very visible, you want to do everything you can to make it look exciting and populated.
Maybe you have to bring in a short-term tenant to do that. But if you have some unusual space—maybe a back office space that doesn’t have a lot of appeal anyway—create a space without a lot of dollars that will attract smaller users or shared users. Go after tenant types you might not normally target. If it’s going to be vacant otherwise, any income is good income.”
New Revenue Opportunities Stephenson is also capitalizing on the opportunity to lease roof space to an unconventional tenant: solar energy providers. “One of the things we’re looking to do is to creatively use spaces in the building. In our big buildings, we’re leasing the rooftops to solar energy providers who install solar panels there. The energy providers then sell off the electricity or you can arrange to use it in your building.” Perhaps the most important thing for enhancing asset value in a down economy is creativity. Stephenson concludes: “In times like this, we really need to think outside of the box. We need to challenge ourselves to think about not just incremental change, but innovation that can spark the commercial real estate community to find new ways to differentiate buildings, reduce costs and attract tenants who are looking for something a little bit different. Sometimes all it takes is an inspired manager.”
Share Data. Improve Performance. Achieve Excellence.
Sharing your data is a smart business decision—and it’s easy. The 2010 Experience Exchange Report (EER) survey opens January 18. Submit your data today at www. bomaeer.com.
EYE ON EDUCATION
Healthcare Reform and Healthcare Real Estate: What’s the Prognosis? By Danny Prosky THROUGHOUT LAST SUMMER AND FALL, the U.S. Congress wrestled with healthcare reform. Healthcare systems, insurance companies and various healthcare workers—physicians, nurses and allied healthcare professionals—are watching as Congress continues to tackle this issue. Healthcare real estate practitioners are watching closely too, as any reform bill could have dramatic and sweeping impacts on not just how healthcare is delivered to patients, but in what types of facilities that care is provided and how they are developed, leased and managed.
Assessing the Primary Symptoms Most healthcare practitioners and healthcare real estate experts agree that, regardless of what form “healthcare reform” takes, it’s likely going to create opportunities for those who develop, own, lease or manage healthcare real estate. And that’s good news, because healthcare real estate, like office, retail, industrial and other asset classes, has had a difficult year. Most of the proposed reform plans aim to expand access to healthcare to more people, typically those who are currently uninsured. Increasing access to healthcare creates additional patients seeking healthcare services, and that creates additional demand for spaces in which to treat them. Because medical office buildings (MOBs) are typically much less expensive to develop and operate than hospitals themselves, most industry experts believe that even more procedures once performed exclusively in hospitals will be performed in MOBs.
Secondary Symptoms But while the prognosis looks promising, a number of factors could potentially complicate a speedy recovery for healthcare real estate. Two of the big issues are the cost of providing healthcare services and who will bear those costs. By and large, the economics of operating a healthcare system hinge on what’s known as a “payor mix”—those who pay for healthcare procedures, such as insurance companies, patients and Centers for Medicare and Medicaid Services (CMS) reimbursements. For nearly 20 years, CMS reimbursements have failed to keep pace with actual healthcare costs. So, most not-for-profit healthcare organizations receive approximately 50 cents in CMS reimbursements for every dollar they spend in providing care. Most of these systems’ operating margins are already thin, and if the reimbursement models change, they could significantly impact those systems’ financial health—which would, in turn, affect their ability to develop new MOBs. Another key issue is physician and nursing shortages. For many years, healthcare systems have expressed concern that physicians, particularly primary care physicians and certain other specialists, are or will soon be in short supply, and the same worry has long been expressed for nurses. Any shortage of physicians or nurses will make it difficult to meet any increased demand for healthcare services. And, since physicians are the primary tenants of MOBs, physician shortages could well present challenges for real estate practitioners. Many factors drive physician employment, and for the last
decade, real estate has played a key role in helping hospital systems recruit and retain vital physician staff, particularly as physicians’ incomes have been squeezed as they deal with shrinking CMS reimbursements. In many cases, hospitals have established joint ventures with physician practices to create clinical services (such as orthopedics, oncology or neuroscience), which serve as anchor tenants in MOBs. Such joint ventures have fueled very successful real estate enterprises for all parties—the healthcare system, the developer and the physicians. But, increasingly facing continued pressure on their CMS reimbursements and other rising costs for practices (such as malpractice insurance), hospital executives report that many physicians are seeking to become employed by the hospital system itself, rather than to remain in private practice. What this trend portends for healthcare real estate remains to be diagnosed. If all physicians are employed by the hospital, then the hospital essentially becomes the primary tenant in its buildings. Depending on how rating agencies view long-term lease obligations (i.e., as implied debt payments), increasing the hospital tenancy may complicate the hospital’s analysis of the benefits of monetizing those MOB assets. The hospital’s analysis of the benefits of developing new MOBs also becomes more complex, as the hospital has to consider its cost of capital vs. the costs to lease and its capital availability for more mission-critical capital projects. Like any complicated diagnosis, determining what impact treatment—i.e., healthcare reform—will have is not easy. Healthcare practitioners are watching and waiting to see what will come of proposed healthcare reforms, and once they know that, they’ll know whether the prognosis for healthcare real estate is as rosy as some have predicted.
About the Author: Danny Prosky is executive vice president of healthcare properties for Grubb & Ellis Realty Investors and 2009-2010 co-chair of BOMA’s Medical Office Buildings and Healthcare Facilities Committee. To learn more about healthcare reform and its impacts on healthcare real estate, plan to attend BOMA’s Medical Office Buildings and Healthcare Facilities Conference, May 5-7, 2010. To learn more, visit www. boma.org/TrainingAndEducation/ MedicalOfficeBuildings. View BOMA International’s Education Calendar and Event Calendar at www.boma.org, just click on “education” or “events.”
January/February 2010 BOMA 31
TRADE TOOLS [SOFTWARE]
Pacific Medical Buildings Enlists ‘Procureto-Pay Solution’ to Save Time and Money WHEN MEDICAL PROPERTY DEVELOPMENT AND MANAGEMENT FIRM Pacific Medical Buildings LLC (PMB) was looking to streamline its procurement and accounts payable process, it turned to Yardi’s Procure-to-Pay™, which combines Yardi Voyager™, Yardi PAYscan™ and SiteStuff, Inc. Procure-to-Pay has helped cut by 40 percent the time PMB and its property management subsidiary company, PMB Real Estate Services LLC, spend processing invoices while reducing the time and costs associated with procuring the company’s maintenance, Pacific Medical Buildings, including this property in Burbank, has implemented Yardi’s Procure-to-Pay.
repair and operating supplies. As a Voyager client, PMB leverages the property management and accounting database’s integrity, workflow and automation as a foundation for the Procure-to-Pay process. The integration delivers electronic invoice processing and automated, customized approval workflow with Yardi PAYscan. By including SiteStuff, the process enables a full procure-to-pay solution, from creation of the purchase order to ordering the supplies and paying the invoice—without the need for file transfers, uploads or synchronizations. SiteStuff, a wholly owned subsidiary of Yardi, provides commercial real estate clients, including PMB, an efficient way to order supplies via an online catalog. A purchase is initiated through SiteStuff, which sends an electronic invoice to PAYscan, which routes the invoice through an automated custom approval workflow. The process concludes with
payment of the vendor by electronic funds transfer, a step that PMB anticipates implementing soon. “Before we had this integration, we spent too much time on manual data entry and too much money sending invoices around our 10 office locations, and sometimes they got lost along the way,” says Ryan Ahlf, PMB’s controller. “Procure-to-Pay integrates with Voyager to centralize, streamline and expedite the process. Each approver can log in and see the invoice, and we can easily customize the approval workflow so each invoice goes only to the right people. As a result, we take 30- to 40-percent less time to process invoices than we used to, giving staff members more time for higher-value tasks. In addition, we saved a significant amount of money by eliminating invoice copying, storage and mailing, and by reducing invoice late fees. Procure-to-Pay’s automated process also makes us more efficient by sharply reducing opportunities for data entry errors, and it converts paper invoices from all of our vendors to electronic images.”
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32 BOMA January/February 2010
buyers’ guide
Buyers’ Guide to Building Products and Services PRODUCT
DETAILS Kimberly-Clark Professional* Launches Luxury Touchless Skin Care System Kimberly-Clark Professional* has introduced the Electronic Cassette Skin Care System, a touchless skin care system designed to provide the ultimate hand washing experience. The system is available with a complete line of Kleenex-brand luxury foam skin cleansers, including a fragrance- and dye-free Green Seal™-certified formulation, antibacterial, E-2 rated and instant hand sanitizers. It helps reduce cross contamination and the spread of germs via touchless dispensing and a sealed soap system that prevents contamination of the soap itself by bacteria, a problem associated with 25 percent of unsealed bulk soap systems.
For more information, visit www.kcprofessional.com
Schindler Boosts Elevator Efficiency with New PORT Technology Schindler Elevator Corporation has boosted elevator efficiency and energy savings with the Personal Occupant Requirement Terminal (PORT), a groundbreaking new technology for building transportation. The intuitive system functions as a two-way communication interface between the occupants and the environment, learning and adapting to the specific traffic patterns of each tenant to provide unparalleled occupant service. With the ability to integrate seamlessly with any elevator system, regardless of original manufacturer, PORT gives building owners the opportunity to provide their tenants with greener, stateof-the art technology. The system is suitable for a variety of high- and mid-rise buildings.
For more information, visit www.schindler.com
Design Lighting Systems in Minutes with Lutron’s GRAFIK Eye® Software Lutron Electronics Co., Inc. has released the GRAFIK Eye QS Wireless Design Tool, a fully customizable preset light and shade control system that provides convenient control, energy savings and enhancement to a building’s aesthetic. The user-friendly, flash-based Design Tool allows users to design a lighting scheme and add components, including wireless controls, wireless occupancy/ vacancy sensors, integration devices, window shade components, power modules and more. In addition, GRAFIK Eye QS Wireless is scalable, making it easy to add components and expand the system’s capabilities for a variety of applications.
For more information, visit www.lutron.com
Garland Offers Resilient Roof Walkway and Decking Products The Garland Company, Inc. recently introduced the Dura-Walk® plaza deck system, a family of elastomeric covering products for roofing areas that are used for walkways, decking or vehicular traffic. The system provides a complete line of two-component, liquid‑applied waterproofing membranes, along with a variety of support products, to properly handle specific roofing conditions. Dura-Walk surfaces are highly resilient and provide exceptional resistance to UV, ozone, chemical and temperature variations.
For more information, visit www.garlandco.com
West Chester’s New Lunar Foam Gloves Provide Protection and Comfort West Chester Holdings has introduced Lunar Foam Nitrile gloves, which combine comfort and protection for a variety of commercial building maintenance uses. The new lunar foam coating technology gives the gloves extra grip on wet or oily materials and better surface adhesion on dry applications. Antibacterial surfactants prevent odors and bacteria from forming. The gloves include a knit wrist for wearer comfort and come in a full range of sizes to ensure a proper fit and optimal dexterity. They are machine washable and silicone free.
For more information, visit www.west-chester.net
January/February 2010 BOMA 33
conference connection
Innovation and Cost Savings Frame Offerings at The Every Building Show By Lindsay Tiffany EXHIBITORS AT THE EVERY BUILDING SHOW this June will offer an array of innovative products and services to help property professionals improve operations and cut costs in 2010 and beyond. Here are a few highlights of what attendees can expect:
Prioritization Planning ValleyCrest will offer attendees something new through ValleyCrest’s Landscape Prioritization Plan. The plan outlines cost-saving renovations that can help building owners and managers determine where to spend their money to get the maximum ROI on their landscaping improvements. “By prioritizing the approach we take to servicing the property, including things like updating the irrigation system, changing the plant material and even the frequency of work, we can help a client reduce costs and maintain quality and aesthetics,” says Lorraine DiBacco, marketing manager with ValleyCrest Landscape Companies. “In these tough economic times, property managers and owners are faced with tough decisions on building services, such as trying to cut back on landscaping services while maintaining high tenant occupancy rates. Highquality landscape service drives property values and protects building owners’ and managers’ investments.” Visit ValleyCrest in Booth #721 and at www.valleycrest.com
Learn more about the 2010 BOMA International Conference and The Every Building Show at www. bomaconvention.org.
34 BOMA January/February 2010
Roofing Solutions
Number Crunchers
IB Roof Systems will feature a variety of roofing solutions for tradeshow attendees, with a focus on the cost and energy savings that white reflective roofs provide. “We really want to help property professionals look at what impact roofing can have on a building’s operations, besides keeping the water out,” says Jason Stanley, vice president of business development, IB Roof Systems. With that in mind, IB representatives will be briefing property professionals on the profound impact white reflective roofs can have on decreasing energy consumption and reducing the urban heat island effect— something increasingly important for attendees, as many municipalities are starting to mandate white roofing. Also on display will be a carbon- and energy-savings calculator that tabulates the cost and energy savings of an IB white reflective roof vs. a traditional asphalt roof.
Kimberly-Clark Professional* will have a variety of health, hygiene and cleaning products on display, with a new tool to help property professionals determine which products are right for their buildings. “We have developed some simple Web-based tools to help building owners and facility managers compare environmental impacts and cost-saving potential between different alternatives. We recommend the solutions with the lowest total impact, not just those with the most recycled fiber content,” observes KimberlyClark Professional* Customer Marketing Manager Peter Leahy. Kimberly-Clark Professional* representatives will also be telling The Every Building Show attendees about their new Forest Stewardship Council chainof-custody certification, which enables KC to support forest stewardship and continue to provide customers with a wide range of sustainable offerings
Visit IB Roof Systems in Booth #847 and at www.ibroof.com
Visit Kimberly-Clark Professional* in Booth #708 and at www.kcprofess ional.com
Eliminating the Element of Surprise (Costs) ThyssenKrupp Elevator plans to introduce tradeshow attendees to its new TKPlan, a detailed capital budget planning tool that will help clients better prepare for their vertical transportation capital expenditures. Explains ThyssenKrupp’s Director of Repair Development Stephanie Petkers: “By partnering with our clients and providing a consultative approach to upgrading, we’ll put them in the best position to weigh all their options in regards to their elevating equipment. We’ll discuss historical issues with elevators in their portfolios and also meet with them on a proactive basis to eliminate the blindsiding effect of unexpected elevator repairs and modernization.” Visit ThyssenKrupp Elevator in Booth #816 and at www.thyssenkrupp elevator.com
Integration Sensation Trane Commercial Systems, a division of Ingersoll Rand, will feature the strategic integration of Trane’s HVAC systems with Ingersoll Rand’s security systems. “This gives the building owner the opportunity to reduce installation and maintenance costs, while increasing functionality,” comments Trane’s Director of Strategic Relationships Scott Lenger. The integrated system works on a shared infrastructure, rather than having several low-voltage systems throughout the building, and features a singular user interface. The systems are also highly customizable, meaning customers pay for only what they need. “It’s also a benefit to property managers to have only one vendor and one point of contact for their HVAC and security systems. It really simplifies things for them,” adds Lenger. Visit Trane in Booth #342 and at www. trane.com
In these tough economic times, could your building use a competitive edge? Special Announcement –
Many firms are strug gling to ret ain
BOMA 360 Performance Program Renewal Fees Waived
tenants, reduce operating expenses and
BOMA 360 Performance Buildings conferred from June 1, 2009 to
enhance asset value. The groundbreaking
June 30, 2010 will not be required to complete the online renewal
BOMA 360 Performance Program™ can
application or pay the renewal fee in Year Two of the designation. Visit www.boma.org/GetInvolved/BOMA360 for information on guidelines and requirements.
help distinguish your proper t y in a demanding market. It ’s designed to validate and re c o gnize c ommercial properties that demonstrate best practices in all major areas of building operations and management. By achieving the BOMA 36 0 Per formanc e designation for your building, you demonstrate to owners, tenants and prospective tenants that your property is being managed to the highest standards of excellence. For more information on how the BOMA 360 Performance Program can give you an edge, please visit us at www.boma.org.
Apply anytime - applications accepted daily. The designation is conferred quarterly. To be included in the next class of designees, apply by March 1.
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