Realism.in credai magazine_june_2011
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Transcript of Realism.in credai magazine_june_2011
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n the past few years, as the developed world went
into a financial downward spiral, India’s economic
performance was not unaffected. Though not as bad
as the rest, the total goods and services produced (the
GDP) of India declined by US$26.4 Billion. On the other
hand, in the US, in spite of numerous forecasts by academics,
analysts and fund managers about an impending real estate
bubble, lax regulations, and a financial meltdown; many real
estate players hardly took any precautionary measures, which
eventually led to several real estate bankruptcies and stalled
development projects. However, during this storm of sorts,
many smart real estate developers and builders weathered
and prospered as well. One of the key areas of strategic
interventions revolved around operational issues, an instance
of which we are discussing in greater detail in this article.
Since, India is well connected with global capital markets,
and commercial real estate growth closely complements
India’s trade ties with the world, it becomes very important
for an Indian real estate player to make sense of the global
developments and take back the good ‘lessons learnt’. Another
reason why Indian real estate must follow these developments is
the fact that we lack indigenous real estate knowledge system
for the kind of properties that we have got ourselves into. So
I
Steps to Ensuring Energy Efficiency in Existing
Buildings
EdITOR’S BOXAs the markets mature specially with the introduction
of REIT, the Developers will have to adopt to
“Develop-Lease-Operate” model, in which case
keeping the operating cost low assumes paramount
importance which can be achieved through Energy
Conservation Methods (ECM) say the Authors.
Are You Spending Too Much?
far, real estate in India has been primarily a ‘develop and sell’
story, but as the market matures, more and more developers
will have to explore the options of developing, leasing and
operating the building they have built, especially when it
does not remain a seller’s market. Moreover, with greater
push for implementing the REIT structure, develop-lease model
does not seem to be a remote reality. In such circumstances,
developers will have to remain competitive on rents, manage
high borrowing costs, and yet ensure profitability.
One of the methods widely employed in the corporate sector
to increase the value of the existing assets is to maximize the
revenue and cut overheads to strengthen the bottom line. In
the real estate sector, this method will boil down to trimming
the operating expenses of existing assets, which can lead to
more competitive rents for tenants, thereby making the asset
more marketable. Although dependent on the lease structure,
several times the operating expenses are paid for by the
tenants. However, any provisions that lower the operating
costs will eventually reduce the overall expenses on the tenant’s
end thereby boosting the demand among prospective tenants.
Moreover, due to this advantage, not only the marketing
appeal of the property will shoot up, the property may also
-Abhay Ambati -Prashant Das
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enjoy a hefty premium on the rental rates.
Among many, we discuss what, are two popular methods to
reducing operating expenses:
1. Build and operate an energy efficient building, and
2. Install building energy performance measures, analyze
performance reports, and implement appropriate Energy
Conservation Measures (ECM)
The second method is used to constantly monitor energy
expenditure in buildings. Conducting energy audits, in
addition, helps strengthen the developer’s reliability in the
market apart from keeping a check on energy expenditure.
Alternatively, a competent property management team can
analyze the performance reports and fix the problems..If
possible, funds are allocated to undertake small but significant
capital improvement works such as chiller replacement,
motor replacement, light fixture replacement, passive cooling
features, retro-commissioning etc.
The first method, on the other hand, is possible only in limited
circumstances primarily because it involves a major step of
deciding on an energy efficient property. Also, the process is
time consuming, capital intensive, and subject to market-cycle
risk. Comparatively, the latter option is lower on costs, faster
to implement, and gives the developer a tool to constantly
monitor building operations instead of employing a one-time
fix. The flip-side is that a retro-active approach towards energy
efficiency may not be as effective as building a new energy
efficient building ground up.
Abhishek Kiran Gupta, in his recent article for JLL Meghraj
brings to light the growing scarcity of Grade A office space
in traditional Indian Central Business Districts (CBD). In such
areas, most of the property inventory is aging, is poor on
maintenance, and high on operating expenses. Though the
improvements have depreciated, the locations remain pricier
than ever. Since, the CBDs are populated to the neck, new
construction is not a viable option. Thus, the article suggests,
improving even 30% of the existing Grade B stock can
generate additional revenue of INR 2.9 billion (that alone
covers more than 10% of the recent GDP decline!).
The World Bank graphs further go on to show that the energy
consumption is gradually outpacing energy production, which
leads to energy deficit. Ministry of Power estimates a peak
power deficit of 16.6% in the year 2007-08. Monitoring and
controlling of building energy performance would help reduce
peak demand loads of a building.
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In a separate study by Bureau of Energy Efficiency (BEE), it
was concurred that the Energy Utilization Index (EUI) for a
commercial building in India ranges between 200 to 400
kWh/SQM/Yr, whereas a similar building in North America
would have an EUI of less than 150 kWh/SQM/Yr. It is beyond
doubt that there is a vast potential to reduce energy footprints
of existing building. In a world with rising cost of energy, fluid
economic climate, and aging real estate stock, transforming
existing buildings into energy efficient ones would be a wise
decision to make.
One of the first steps is to understand the energy flows in and
out of the building by collecting and compiling utility histories,
which gives information on the amount of gas, electricity and
water consumed by the building as well as the price paid for
the same. Companies such as US-based Noveda Technologies
provide real time building energy performance measurements,
which opens up a whole new way of conserving energy.
These measurements provide the property management with
a real time knowledge of possible issues which needs to be
plugged. For instance, in a multi-tenant office building, office
hours of different tenants may differ. However, AHUs may be
operational even at times when occupancy is zero. A real
time information can help optimize the operations of energy
consuming equipment, thereby saving energy. The second step
is to estimate the heating and cooling load using available
building information, which provides a reference for analysis.
Site visit and interviews should follow. It gives a realistic idea of
building operations and inventory of equipments being used.
Thereafter, the most important exercise is conducted which is
the survey of energy-consuming elements of the building such
as, air conditioning, lighting, building envelope, motors, hot
water, heating etc.
Once complete information and data is collected, analysis
and calculations are performed to find efficiencies, alternates,
payback periods etc. Conclusions are reached with respect
to which energy conservation measures (ECM) are to be
employed. Budget is allocated for capital improvements, if
any. Completion of the above mentioned processes marks the
completion of an effective audit, which provides the developer
a clear picture of the costs involved to improve efficiencies,
the timelines to implement the ECMs, payback period of the
money incurred, and projected rents which the developer can
demand in the near future.
A global interconnected world brings in a whole new set of
problems and opportunities. A savvy real estate player is
the one who can identify and implement the best techniques
available at our disposal to improve the value of their assets
with the least outlay of money, time and effort.
References:
http://www.joneslanglasalleblog.com/realestatecompass/
commercial-property/2011/03/real-estate-report-retrofitting-
indias-central-business-districts/
http://eco3.org
http://www.powermin.nic.in/whats_new/pdf/BEE_Energy_
Efficiency_in_Buildings_in_India.pdf
http://www.powermin.nic.in/whats_new/pdf/BEE_Energy_
Efficiency_in_Buildings_in_India.pdf
The Authors Abhay and Prashant head the Communications
and R&D wings respectively at realism.IN™.
About realism.IN
realism.IN™ is a partnership of entrepreneurs from India and
the United States striving to provide high quality knowledge
backbone to the real estate business in India. The firm
provides eLearning and research services and products aimed
exclusively at Indian real estate. To explore more about realism.
IN, please visit http://www.realism.in
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