The Economics of Intelligence

01/30/2006


Discussion of intelligent buildings is great, but without bottom-line numbers, most clients--and without question, almost all commercial developers--just don’t want to hear it.

To arm designers with ammunition to launch an effective sortie, intelligent systems consultant Paul Ehrlich, P.E., in his Building Intelligence Tour seminar at the ASHRAE Winter meeting last week in Chicago, laid out some numbers engineers can hopefully take to the bank.

In his example, Ehrlich ran through a scenario of an owner-operated building and a developer-operated building. To put in the various systems to make a buildingintelligent, Ehrlich estimated it adds about $3 to $5 dollars per sq. ft. for new construction and $4 to $6 for retrofits. For the purpose of this scenario, he settled on $4. For a 150,000-sq.-ft. building, the investment for intelligence is $600,000. As far as energy savings, intelligent systems should yield a payback of about a $1 per sq. ft. with a simple payback of four years and an ROI of 95% over five years.

As far as more fuzzy tangibles, such as greater employee productivity, Ehrlich estimated an intelligent building should raise productivity by 1%--or a $1.40 per sq. ft--so for the above example building, that’s an improvement of$210,000, with a simple payback of 1.7 years and an ROI of 227% over five years. Not bad, said Ehrlich, but nothing to get really excited about.

Now come the commercial project and the real song and dance. First, Ehrlich said, most commercial developers don’t want to hear anything about energy savings, so a very different approach is recommended, one that stresses how they can make money. Given the same $600,000 investment, the building should see an energy savings of about $120,000 ($0.80 per sq. ft.), but the big opportunities involve increasing rents and the number of tenants occupying the building. For both of these categories, Ehrlich said developers should be able to raise fees for both by 4%, given Building Owners and Managers Assn. (BOMA) research stating that tenants would pay more to work in an intelligent building. That’s a combined rent/occupancy improvement of $300,000. Simple payback calculates to 1.4 years with an ROI of 265% over five years. In other words, that’s a $420,000-per-year increase in additional net income, with the property value increasing by $3.4 million, or a return of 560%--a number that certainly grabs attention.

Of course, the trick is verifying these numbers. That’s where Ehrlich said work by groups such as the Continental Automated Buildings Assn. comes in. CABA is presently working on a life-cycle calculator tool and documenting case studies of buildings transformed from ordinary facilities into intelligent facilities.





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