The Green Payback

Companies Reap Cost Savings While Helping Environment

by Paula Widholm

Anixter Inc.’s initial goals in pursing the U.S. Green Building Council’s LEED certification for a new distribution center in south suburban Alsip were to provide a healthy, employee-friendly work environment and to be a good corporate citizen.

But the Glenview-based distributor of electrical wire, cable and fasteners also got a financial reward by paying 25% less in energy costs than it did in its previous building.

In April 2007 Anixter received LEED certification for its distribution facility, which opened in December 2004. The nearly 500,000-sq-ft building is Anixter’s largest distribution facility and has approximately 300 employees who pick, pack, ship and receive Anixter products.

Since the building harvests daylight, Anixter pays $20,000 to $25,000 less per month in electrical bills than it did in its previous building of similar square footage, according to Karl Heitman, president of Itasca-based Heitman Architects, the facility’s designer.

And, Anixter achieved its initial goal.

“There’s more natural light, which is much healthier,” Heitman says. “The employees are more productive, there’s a lower absentee rate and production numbers are up.”

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Anixter estimates productivity has gone up 6% through reduced absenteeism and lower employee turnover.

“It’s a different environment,” Heitman says. “When you walk into the building, you just feel good in it, but you don’t know why. It’s the natural light that moves and throws shadows. It’s much more comfortable to be in. There’s natural ventilation, and a lot of fresh air coming through the building. Most regular buildings have stale air that is 16% more harmful than air on the outside.”

The building features 170 skylights along with numerous side panel windows. The air-management system, during the warm months, cools the interior at night and helps maintain the temperature during the day without the aid of air conditioning.

“The biggest impediment to having more green buildings is that the building’s value can’t be assessed because there aren’t enough comps in the marketplace,” Heitman says.

That will change once more green buildings come online. Heitman predicts a paradigm shift within the next five years among owners and developers away from debating higher initial new construction costs and instead considering the building’s lifecycle costs.

“Everyone will understand that it makes no financial sense not to build a green building,” he adds.

Retrofitting for Green

Michael Cornicelli, executive vice president in Chicago of the New York-based Building Owners and Managers Association, says his organization helps members understand alternatives for retrofitting existing buildings for sustainability, costs, recovery periods and how they might be financed.

“We’re helping them identify the low-hanging fruit like re-lamping,” Cornicelli says. “Those are relatively low-cost projects with a high rate of return in energy savings. You can see recoupment in one year to 18 months.”

More ambitious projects, like a chiller or HVAC system replacement, cost much more and will take five to seven years to recoup the expense. For a long-term holder of property, this improvement may make sense, but Cornicelli says that institutional investors nowadays are holding properties for about only three years.

“If I have a slightly older office building and I’m contemplating a major sustainability project like a chiller, I’m going to have to think about what the cost of project is going to do to the building’s cash flow and value for marketplace,” he adds. “If the costs can’t be recouped for seven years, that will have an impact on the value when it’s time to sell. A building that is encumbered by a loan to pay for a retrofit project makes the building less appealing to the buyer.”

“Major tenants are looking for sustainable buildings to house their employees, which could have a potential to command higher rental rates,” Cornicelli says.

For financing retrofits, Cornicelli helps BOMA members get money through utility grants and federal tax credits. In addition, the Clinton Climate Initiative offers a building retrofit program.

“In a nutshell, through the CCI program, energy service companies explain what owners need to do to enhance sustainability, and they work with lenders and owners under performance-backed contracts,” Cornicelli says. “If you do a list of retrofits, they’ll supervise that work and the owner repays the retrofit costs solely out of energy savings.”

Citi’s Commitment

The sustainability program for Citi Realty Services, a division of New York-based Citigroup Inc., focuses on procuring green energy-efficient operations and applying LEED standards on all new construction buildings and branches.

“In existing operations, we’ve been evaluating the feasibility and the return of targeted renovation projects,” says Christian Magliano, senior vice president Citi Realty Services’ global sustainability group. “Building infrastructure systems like HVAC is where the biggest investment value is. We consider the carbon value of these projects as well.”

Citi’s pledge is to reduce greenhouse-gas emissions by 10% by 2011 at its more than 14,500 facilities worldwide. In the Midwest, the company has 571 sites representing 4.8 million sq ft of space.

In May 2007, Citi announced a $50 billion commitment over the next 10 years to address global climate change, including $10 billion toward the existing real estate portfolio of more than 100 million sq ft in 100 countries.

Citi is also committed to buying 50% of its total energy needs from “green energy” such as those generated by solar or wind-powered operations, even though it costs more than regular energy.

SIDEBAR

CCI Partners with Cities for Sustainability

Founded in 2006, the Clinton Climate Initiative uses a business-oriented approach to fight climate change and has formed several new partnerships to improve the energy efficiency of buildings in Chicago, throughout the United States and globally.

In Chicago, the CCI Energy Efficiency Building Retrofit Program will work with the city government to complete energy audits and energy-efficiency upgrades on the Sears Tower and the Merchandise Mart, which is the world’s largest commercial building.

The five financial institutions involved—ABN AMRO, Citi, Deutsche Bank, JPMorgan Chase, and UBS—have each committed to offer $1 billion in funding up front for the retrofit program.

The retrofit program, established in May, brings together eight of the world’s largest energy service companies, five of the world’s largest banks and 17 of the world’s largest cities, including Chicago, in an effort to reduce energy consumption in existing buildings.

CCI is also developing a targeted program for energy retrofits of privately owned, multitenant housing in Chicago. The program will employ energy-performance contracts, in which an energy service company will pay the up-front cost of the energy-efficiency improvements and will be repaid through a portion of the energy savings.

The program provides both cities and their private building owners with access to funds to retrofit existing buildings with more energy-efficient products, typically leading to energy savings between 20 to 50%.

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