CREJ

April 2020 — Property Management Quarterly — Page 9 www.crej.com Green I n July 2019, I described the basics of sustainable landscap- ing and the reasons why it is an important topic, primarily for a better future. While it is not always in vogue to think about the future, it is always appropriate! In today’s world, there always will be an economic reason required to make decisions. Owners and senior management are not always on the same track as the boots on the ground and economic justification is the key to getting the yes for any project. So, let’s give it to them. While saving water, one of our most pre- cious resources should suffice, there are plenty of economic reasons that help show the brilliance behind the plan. Today, the cost of water is at its peak and growing. The debates along the Front Range of Colorado are get- ting fiercer by the day. Will we always have enough? We could spend years on this debate, but I think what most can agree on is this: Water is a natural and renewable resource, but with the growing population and demands to infrastructure, in the future, water will most likely be less plentiful, needed by more people and will come at a high price. Clearly, someone is interested. Since 2016, there have been 75 bills introduced and discussed in the Colorado state Legislature that pri- marily concern water, covering how to use it, tax it, contain it or save it. According to a recent full-length arti- cle in the Colorado Sun, House Bill 1095, introduced in the most recent legislative session will require that all local communities with a com- pressive plan that includes a water supply element, must also include conservation poli- cies. The bottom line is this is a big topic and it’s not going away. The proper use of this scarce resource is a must no mat- ter what side of the table you sit on politically or environmentally. So, let’s look at how the water savings in your landscape can work financially with no or limited pain to those who use the resource. The best estimates I have found are that 20 to 30% of water bills for commercial properties are for exterior landscaping requirements. This, of course, will vary based on what you have in place for landscap- ing and other water needs and the actual use by the building occupants. So, for absolute dollars, review your water bill for a full year and assume, for estimating purposes, one fourth of that is for keeping your exterior landscape alive and looking good. If you want to get a more detailed understanding, look at your water bills and see the difference you spend during the watering season and the balance of the year and use that number. This gives you the baseline of actual dollars that you can save on landscaping. Don’t for- get, even if it sounds like a small amount, whatever you can save is a savings today and a greater savings tomorrow. Next step is the calculation of what the finance team calls payback. How quickly can we get our money back that we invested in this project. Expectations by owners and asset managers will vary greatly on this. From three years to five years is not uncommon as a target payback. My personal belief is that this is too short of an expectation. While many projects can give you this quick a payback, if this is your standard, you may be missing out on many oppor- tunities. In addition, do not use only the water savings. You also need to include savings to maintenance, fer- tilizer, fuel and other costs. This will give you a more accurate payback. It is important to consider the payback in terms of its return on investment. For example, a five-year payback is a 20% ROI. It is tough to find a return on your investments in the marketplace of 20% today! This initial return is even greater when factoring inflation of future costs and the value created if the property is sold in the future. The savings also create a greater net operating income for your property, and the greater the NOI, the greater the value of the property when sold. This can be calculated by determining the dollar amount the net savings con- tributed to the NOI during a full-year period of the property operations and then assessing a market capi- talization rate, which will determine the additional value received when the property is sold. In my recent research, I have seen payback on landscape projects as short as one and a half years and longer than five years. Even at 10 years, you are producing a minimum of a 10% return before factoring in the savings from inflation of your future costs and the value creation on a sale. What are you earning on that CD at the bank? The difficulty today is there is little published research on specific proj- ects and all sides of the equation: costs, savings and time. And with landscape there are great variance in what can be saved and the compo- nent costs. In general, various stud- ies I’ve found have reported savings ranging from 18 to 50%. To get payback we need both cost and savings numbers. My research has found that the dollars saved are recorded, but it is harder to find the actual costs to implement. In other sectors there is a better understand- ing of both collection of costs and savings realized. This should not discourage us. By using some of the rule-of-thumb figures we have dis- cussed on savings we can easily pre- dict the payback and ROI. A couple examples will help dem- onstrate the prospects. While they each have some big numbers, the same results can apply to a small project. The first example of savings is from an office park in Plano, Texas. Management implemented water- efficient practices inside and out, including improvements to its land- scape and irrigation system. This sig- nificantly decreased outdoor water Plan landscape upgrades with water use in mind David W. Hewett, BOMA Fellow Executive managing director, management services, Olive Real Estate Group Inc. Please see Hewett, Page 23