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Ductwork has enabled many movie heroes to infiltrate locked offices.

But those
looking to penetrate 1 Victory Place a 17-story office tower being built in Dallas
will have to find a different means of entry: The building, under development by
Hines, swapped out traditional ductwork for state-of-the-art technology.

Rather than coursing through conventional ducts, cool air moves through open
spaces beneath the floor. The switch enables office tenants to regulate the
temperature of their space by simply twisting a dial on the floor. The new floor
systems save energy and eliminate complaints that a space is too hot or too cold,
says Jerry Lea, senior vice president for construction at Houston-based Hines.

Much of the technology to make buildings smarter and more energy efficient has
been around for years, if not decades in some cases. But most owners have turned
a cold shoulder to these innovations. Building managers have long wasted energy
by keeping office lights on all night even when no one was working in the space.

In the long-gone days of cheap energy, such extravagance was ignored. But in a
period of rising oil prices oil futures closed at nearly $88 per barrel on Oct. 16
and tougher global competition, more owners are taking steps to cut operating
costs.

Architects now speak of developing intelligent buildings, properties that use


technology to operate a range of functions more efficiently. What's more, their
efforts are being aided by a new generation of web-based technology. With the
introduction of wireless systems, buildings are becoming more intelligent than
ever, says Eric Bowles, vice president of CoreNet Global, an Atlanta-based
association of corporate real estate executives.

Now a single system can control air temperature, lighting, and building security. A
manager sitting at home can use his personal computer to tell whether the
temperature is too cold on the fifth floor of an office building. Using the same
system, a security guard stationed 1,000 miles away can detect an intruder who has
broken into an office building.

While the new technology is stirring conversations among developers, few buildings
have adopted the latest systems. Only a small number of intelligent buildings are
going up in the U.S., says Jim Young, CEO of Realcomm, a San Diego-based
operator of trade shows that focus on technology for the real estate industry.

Young says that many leaders in the use of technology are in Korea, Singapore,
Japan, and Hong Kong. Faced with steep energy costs, Asian developers have long
sought to improve the efficiency of buildings. In Middle Eastern countries such as
the United Arab Emirates (UAE), vast projects covering tens of millions of square
feet are being built with intelligent features, says Young.

Seeking to play a leading role in world financial markets, the UAE projects are
breaking new ground for the Middle East. In contrast, veteran American real estate
developers are content to rely on what has worked in the past. In the Middle East,
when a light bulb goes out the fixture notifies the maintenance department
automatically, says Young. In the U.S., you still have many buildings where
property managers walk around with clipboards looking for bulbs that need to be
replaced.

But simple economics should increasingly drive the development of smart buildings.
Young believes that rising oil prices and economic pressures will force more
developers and tenants to focus on intelligent design. We are still in the early
stages of introducing new technology, says Young. But ideas are starting to
percolate. In the next two years, we will see more progress than has occurred in the
past 20 years.
High cost of intelligence

A big barrier to the introduction of technology is price, says Paul Quinn, chief
information officer of Duke Realty, an Indianapolis-based REIT. Duke owns 270 office
properties totaling 117 million sq. ft. About a dozen buildings in the portfolio feature
state-of-the-art systems.

Many tenants are not willing to spend extra for something new, says Quinn. Many
office leases are structured so that landlords can pass utilities expenses on to the
tenants. In other instances, tenants are given a fixed amount of money to help
defray the costs of renovating a space, commonly referred to as tenant
improvements (Tis).

While the tenants can use the cash to make the space smarter, many prefer using
the money to install walls or other conventional features. Finally, the greater initial
costs could result in higher rents, something that no tenant welcomes.

The relative cost to develop a smart building depends on the ambitions of the
developer. For about $100,000, the owner of a 180,000 sq. ft. office building can

install simple sensors that turn lights on when someone enters a room, says Quinn.
For an investment of $5 million, the same owner could purchase security equipment
worthy of a Mission Impossible movie.

With the elaborate system in place, an employee would pass through a turnstile,
and a card reader would signal computers to turn on the air conditioning and lights
in the worker's office. Motion detectors also would notify security guards that the
employee has entered his space.
Tax relief is a motivator

In some instances, developers can qualify for government subsidies, which can help
to reduce costs sharply. In 2004, Macerich Co., a mall REIT based in Santa Monica,
Calif., conducted a major renovation of its Queens Center Mall. The 1.2 million sq. ft.
shopping center is located on Queens Boulevard in New York. The company poured
$600,000 into refurbishing the central plant that provides heating and air
conditioning.

We got most of the money back because of tax rebates from New York state, says
Jeffrey Bedell, vice president of operations for Macerich, which owns 77 malls.
Aside from the tax incentives, we achieved energy savings of about $300,000
annually.

Macerich produced the cost savings at Queens Center Mall partly by installing a
more efficient cooling system. In the traditional approach, air is forced over cold
water. Fans then blow the cool air into the mall. In the past, however, the system
only had one speed full blast. The new system can operate at exactly the
required speed which sometimes means working at a fraction of its capacity.

A system that adjusts to run at the optimum speed can be 60% more efficient than
traditional equipment, which runs at a constant speed, says Bedell of Macerich.
Cooling from bottom up

Installing a floor cooling system costs about $4 per sq. ft., says Lea of Hines. That
upgrade can boost rents by about 25 cents per sq. ft. for tenants. But many tenants
balk at the extra expense. We try to explain that the extra costs will deliver savings
down the road, but not every tenant believes us, says Lea.

In an old-fashioned cooling system, fans blow cool air up into the ductwork located
above the office, and then fans flow the air down on the worker, who may be seated
8 feet below the grate. In contrast, the floor system requires much less blowing.

Cool air flows into the floor space. When an employee opens the floor vent, the cool
air becomes warmer and rises into the room. If an employee feels that his single
vent is not cooling the cubicle enough, he can call maintenance who can install a
second opening that will increase the amount of cool air.

Another advantage of the floor system is the ability to cool specific offices on
weekends. If an employee comes in to work on a Saturday, he can cool just his own
cubicle. That is different from a traditional building where the lone employee may
have no ability to adjust air conditioning.

The floor cooling system provides other savings as well. In a traditional approach,
cables and telephone wires run down from the ceiling ductwork to the desks below.
In the more efficient system, the wires must extend only a short distance up from
the floor. More importantly, the wires rising from the floor are easier to alter if the
office is reconfigured, or the occupant moves to a different space. With the
underfloor system, you can reduce the cost of moving a person from $500 to $100,
says Lea of Hines.

The savings achieved by a floor cooling system vary from building to building. In
some installations, the payback can take more than 10 years. But Hines installed a
system for Owens Corning in Toledo where the payback period was one year. Part of
the reason for the short payback is that Owens Corning often moves employees.
The floor system held down costs related to each move.

Along with the floor system, Hines' 1 Victory Place has other smart features. Special
filters prevent dust and microbes from entering the building. State-of-the-art
transformers also save on electricity costs. In the traditional office building, about
15% of electricity is lost as it enters the building through inefficient transformers
that protect computers and other equipment from power surges. The building at 1
Victory Place will spend 15 cents per sq. ft. for transformers that will cut electricity
waste down to 2%.
Fewer managers

Wireless technology can simplify a variety of tasks and cut personnel costs. Sensors
can activate lawn sprinklers when the soil is too dry. In bathrooms, paper towel

holders and soap dispensers can be connected wirelessly to the building's network.
When soap runs out, an e-mail can automatically alert the maintenance
department.

Smart features can also cut the costs of monitoring fire safety equipment. Suppose
an office building has 100 fire extinguishers. In the traditional approach, a guard
would check each extinguisher once a month, verifying that the equipment was
functioning.

But with a computerized system, the extinguishers can be monitored remotely.


When a valve indicates the pressure level has fallen, maintenance will be notified.

With the right technology, you can have one operations center monitor 80
buildings, says Young of Realcomm. That can allow you to lay off 200 facility
managers.
Cooling the malls

Simon Property Group, the largest mall REIT in the nation, monitors about 100 of its
380 properties from the company's Indianapolis headquarters and from the offices
of energy consultant Roth Bros. in Youngstown, Ohio.

The control centers can determine when a mall is too warm or when the lights in a
parking lot have been turned on prematurely. Since utility companies charge the
highest rates during periods of peak usage such as summer afternoons Simon
uses a variety of strategies to avoid the highest charges, says Paul Belair, president
of Roth Bros.

On cool summer nights, for example, Simon's equipment automatically draws in


outside air, lowering the indoor temperature in preparation for the next day. In the
morning, the mall system continues the cooling process, running the air
conditioning so that the indoor temperature drops a bit to approximately 68
degrees. In the afternoon, the air conditioning shuts down until the temperature hits
about 72 degrees.

The system automatically controls the energy use to minimize power bills, says
Belair of Roth Bros. Workers in the mall don't need to lift a finger.

For the time being, only a few building owners are seeking to save energy by
installing such automatic systems. But eventually the market will demand intelligent
buildings, says Bowles of CoreNet Global. It may not make sense to own an oldfashioned building five or ten years down the road, he says. Increasingly,
buildings will need intelligent features in order to be marketable.

Stan Luxenberg is based in New York.


Company's control room patrols offices

One of the emerging leaders in smart technology is Boston Properties, a REIT that
specializes in Class-A offices and owns 134 properties. In the Boston area, the
company owns 48 properties totaling 8.8 million sq. ft. A single command
headquarters housed within a 24 ft. by 7 ft. room oversees nearly all of the Boston
buildings. Sitting at desks 24 hours a day, staff members watch computer screens
and consoles that monitor all the properties.

The centralized system has lowered Boston Properties' maintenance costs


substantially, says Jim Young, CEO of Realcomm, which stages conferences on the
use of technology in real estate. Young led a tour of the headquarters facility last
summer during the Realcomm convention in Boston.

In a traditional building, a tenant phones the maintenance office in his building to


complain about a burned out light bulb. But a Boston Properties tenant can e-mail
the central command headquarters, which relays the message to a maintenance
worker in the field. The worker is alerted to the job through his Blackberry or other
personal digital assistant.

Every year, the command center fields 150,000 requests from tenants. The central
command center also monitors 500 security cameras, reducing the need for
security guards in each building.

With a computerized system, you can get a better level of security than the
traditional approach, says Young of Realcomm. In the past, a thief could be
stealing something on the fourth floor while a guard sat in the lobby. Now cameras
and motion detectors will alert the guards to trouble.
Stan Luxenberg