Analyzing capital allocation for energy efficiency improvements by commercial real estate investment managers

Numerous studies have shown that retrofitting an office building with energy efficiency improvements can significantly reduce operating costs, yet many existing office buildings have not been retrofitted. The objective of this paper was to explore the incentives and motivations of various parties throughout the real estate management chain to better understand why investments in energy efficiency are not more prevalent. The paper focuses on investor-owned multi-tenant office properties. The authors explored the question from a qualitative and quantitative methodology. The qualitative study consisted of interviews with key players in the real estate management chain including property managers, asset managers, portfolio managers, and institutional owners. The quantitative study consisted of a financial model to compare competing alternative capital investments. The competing investments consisted of a cosmetic improvement which was modeled to either increase rents or decrease leasing costs and an energy efficiency improvement which was modeled to decrease utility costs. Multiple permutations were tested in each scenario in order to gauge the sensitivity of returns in each scenario. Both methods were designed to understand how industry participants allocated capital to energy efficiency improvements. The study determined that financial considerations are the primary drivers behind real estate investment decisions. Secondary factors that drive investments in energy efficiency improvements include fostering a positive public image, winning new business, and focusing on environmental responsibility.

Department dc:contributor.department

Massachusetts Institute of Technology. Center for Real Estate. Program in Real Estate Development.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2009

Authors dc:creator

• Peterson, Kristian A
• Gammill, Ross M

Advisor dc:contributor.advisor

• Sarah Slaughter.

• Center for Real Estate. Program in Real Estate Development.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/54858

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/54858