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January 2018 — Property Management Quarterly — Page 19
Technology
T he commercial property of
the future, like its residential
cousins, will be a building with
which you can have a two-way
conversation, incorporating
each subsystem of a whole building
system. A simple analogy to this is
Alexa, the best-known brand in “smart
home” consumer system, designed to
integrate and manage all of a home’s
systems.Within the next few years you
may find yourself asking some version
of, “Alexa – what’s our return on invest-
ment?”
Imagine a building owner who had
someone on staff who knew every-
thing going on in your buildings
– down to the level of energy usage,
foot traffic, maintenance requests, etc.
– and had the authority to make real-
time, cost-saving decisions and recom-
mendations of future opportunities
to owners and managers – instantly.
Most building owners would hire
that person in a second. As you may
have guessed, this all-knowing staff
member isn’t human, but is intelligent
– artificial intelligence has come to
commercial real estate and is poised
to create major changes in the way we
do business.
On the commercial side, building
management systems have existed for
decades – I started my career in 1999
helping design them – but the new
wave of intelligent buildings will be
different. Not simply “smart” (by which
we mean internet enabled), they are
guided by artificial intelligence, with
each building system connected to the
cloud and to each other through appli-
cations, along with dozens of sensors
providing unprecedented amounts
of data, and machine-learning algo-
rithms to gather
and analyze it all.
Far more than
merely an Internet
of Things, the new
BMS is programmed
to automatically
allocate resources,
under changing
conditions, at the
highest level of
efficiency, limited
by individualized
management rules
– such as the trad-
eoff between cost
and comfort. Commercial building
systems that have, or will have,
intelligent building applications
include heating, ventilating and air-
conditioning systems, lighting, win-
dows, appliances, locks, electronic
vehicle chargers, rainwater recy-
cling, as well as other energy-saving
subsystems such as energy storage
devices.
There are three important take-
aways for building owners and
property managers:
1. Invest in building your company’s
IQ in this space. Building manag-
ers must understand the changing
technology environment and the
economics well enough to hire the
right teams to plan, budget and
manage the project, while identify-
ing the costs and benefits that need
to be transcribed into financial pro
formas in a way that demonstrates
a return on investment. Extra work
will be required to help investors
and lenders alike understand the
importance of BMS and its econom-
ic returns.
2. Tenants will become more engaged
andwill demand more individualization
of services. Much of the data captured
and analyzed by smart buildings will
be tenant generated, and this is where
intelligent buildings really differenti-
ate themselves frommerely energy-
efficient buildings. If the offices, hotel
rooms, apartments and leased spaces
were always gathering information on
your tenants – with their consent and
active participation – owners would
have a fountain of valuable intel pro-
viding tenants additional services for
a fee.
3. It will be easier to identify and take
advantage of low-hanging fruit energy
savings, because automated and opti-
mized systems will make it so. The U.S.
consumes over $1 trillion in energy and
over 40 percent is used by buildings. Of
that amount, up to half is wasted – an
opportunity worth up to $100 billion
annually. Intelligent buildings, with
the efficiency of each subsystem being
used in the right way at the right time,
delivers a level of savings beyond util-
ity expense.This will free up owners
to think about next-level investments,
such as on-site solar power generation.
Ultimately, what is the return on
investment for smart buildings? Set up
costs are not insignificant. Estimates
range from 75 cents to $1 per square
foot (versus up to $2.50 per sf for tra-
ditional, noncloud-based BMS), not
including the cost of adding a building
engineer or outsourcing to a services
firm. Of course, this cost will vary by
complexity and level of service.
Savings then come in two flavors.
The most essential are energy costs
reduced or avoided, estimated to be in
the 25 cents to 50 cents per sf range
annually (up to $1 per sf in some high-
demand parts of the county), for a
payoff period of 1.5 to 4 years. Note that
this is a quick analysis based on recent
(and not peer reviewed) research, and
further analysis is called for.
Other returns include savings from
process efficiency, enhancing brand
equity, stabilizing future revenues
through higher customer engagement,
decreased payroll and maintenance
costs from automated functions, and
environmental benefits such as air
quality and reduction of a building’s
overall carbon footprint.
For most building owners, while the
benefits are real, the cost nowmay yet
be too high. I recommend starting with
one smart system – HVAC, for example,
and build on interoperability, system
by system. Several companies are
developing a commercial ‘Alexa’ to be
the conductor, but it’s too early for me
to tell who will take the lead. I advise
taking advantage of a cloud platform
offered by third parties versus build-
ing out your own. Innovative financing
options – such as those provided by
Commercial Property Assessed Clean
Energy financing – can cover 100 per-
cent of the cost of a control system
added to a building, helping to match
the investment’s cash outflows to its
future benefits.
Building management soon will be
a two-way conversation with you and
your BMS. As futuristic as it all sounds,
who would have thought 10 years
ago that our phones would come to
dominate our lives the way they have?
Those who prepare for that conversa-
tion today will be well positioned for
the future – and the future is coming
on fast. ▲
Michael Leahey
Managing director,
PACE Equity,
Denver