CERTIFICATE PROGRAM

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WEEK 2

REAL ESTATE STRATEGY AND

ENERGY DECISIONS: PART 2

WEEK 2: LEARNING GOALS

Identify the factors that affect the value of a real estate asset

Categorize a real estate investment in terms of asset strategy

Understand basic energy terminology

Understand how to read a utility rate schedule and a utility bill

Describe the factors and systems that are included in a building

conditions assessment

Differentiate between the different types of energy efficiency

improvement strategies

WEEK 2: READINGS
The Energy Management Handbook (Doty & Turner)
Chapter 18: Electric and Gas Utility Rates for C & I Consumers

The Real Estate Game (Poorvu)

Appendix A: Notes on Property Types

Recognition of Energy Costs and Energy Performance in Real

Property Valuation, IMT & Appraisal Institute (2012)
CUNY BPL Building Performance Toolkit

WHAT FACTORS AFFECT THE VALUE OF A

REAL ESTATE ASSET?
Physical attributes
Quality (A, B or C)
Structure and size
Location
Age and condition
Environmental
Tenant base
Tenant quality
Vacancy rate
Lease-related
Lease type (gross, modified gross/hybrid,
net), term, expiration
Base rent and base rent escalations
Recaptured expenses and real estate taxes
Capital expenditures (CAPEX)

Photo: PublicDomainPictures, via Pixabay.

WHAT FACTORS AFFECT THE VALUE OF A

REAL ESTATE ASSET?
Market
Market area (primary vs. secondary,
accelerating vs. idling)
Physical, legal and social constraints
Supply conditions and demand
Market cycles
Market factors (vacancy rates,
absorption rates, market rents,
new construction starts)
Causes
Economic
Capital appreciation
Property improvements
Cash flow

Photo: PublicDomainPictures, via Pixabay.

HOW DO YOU CATEGORIZE REAL ESTATE

INVESTMENTS?
AEP Real Estate Asset Matrix

Opportunistic
Improve amenities/
systems (Question Marks)

Value-Added
Medium-term hold
(Stars)

Core
Long-term hold
(Cash Cows)

Distressed
Identify improvements or
sell (Dogs)

Exercise: Using the interactive AEP Real Estate Matrix, click and drag each of the
AEP Portfolio properties into the quadrant where you feel it belongs. Explain your
reasoning for each of the properties.

DO YOU KNOW YOUR ENERGY BASICS?

Energy Terminology
Energy units most commonly used
Btu per sq. ft. = any building
Kilowatt-hours (kWh) per sq. ft. =
lighting
Kilowatts per ton = chilled water
efficiency
Watts per cu. ft. of airflow per minute =
HVAC systems
Electric demand vs. electric energy
Demand = power in kilowatts (kW)
Energy = consumption in kWh

Photo: VY (Public Domain), via Pixabay.

WHAT DO YOU NEED TO KNOW ABOUT

ENERGY BILLS?
Review
Using a property from the
AEP Portfolio, visit the
website for propertys local
electric utility company to
find the applicable rate
schedule. Review the rate
schedule, using Chapter 3 in
the Guide to Energy
Management as a reference,
to understand the different
terms.

Electric bill components:

Demand
Consumption
Power factor
Sales tax

Electric rate structures

Customer classes and rate schedules
(residential, commercial and industrial)
Classes vary in complexity of
energy use, amount of
consumption and priority of need
Different rates apply to different
classes

Rate schedule terms

WHAT SHOULD YOU KNOW ABOUT

ENERGY BILLS?
Common Components Of Electricity Rate Schedules
Energy charge actual amount of electricity consumed
Flat rate constant rate charged for all energy used
Declining block charges one price for the first kWh used and less for
next increments
Increase block where more is charged per increment as the
consumption level increases (not widely used)
Fuel cost adjustment surcharge passed on to customers when utility
pays more than expected for primary fuel (can also reduce rates)
Demand charge used to allocate the cost of the capital facilities
which provide the electric service; may be hidden in the energy charge
or separated out. For large customers, usually based on kW demand
load
Demand ratchet charges a customer for creating a large kilowatt
demand in only a few months of the year
Power factor assessed when a large customer has a poor power
factor

HOW ARE OTHER ENERGY COSTS BILLED?

Natural gas: Rate schedules are similar in structure to electric rate
schedules, but place customers into interruptible priority classes
instead of charging for peak demand
Fuel oil: Billing schedules for fuel oils vary widely by geographic
region; priced at a flat charge per goal, set by market conditions
Steam and chilled water: In some areas, customers can purchase
instead of generating their own; typically charged for the energy itself
and the demand

Water and wastewater: Often related to facility energy costs, so

monthly bills should be analyzed for consumption patterns and
possible reduction/cost control measures

WHAT IS ADDRESSED DURING A BUILDING

CONDITIONS ASSESSMENT?
A conditions assessment helps you develop a plan for what to replace
in the building, and when.
Physical and design attributes

Key building characteristics, such as floor area, equipment used,

plug loads, special activities and space types

Energy cost information

Purchase cost of electricity, fuels, steam, compressed air, chilled

water and other utility bill information from accounting systems or
bill-handling services
Output or utilization data

Occupancy levels, operating hours, number of shifts, etc.

Climate variables available from local weather stations or may be
tracked on-site, including:

Heating and cooling degree days

Altitude and barometric pressure

Financial data revenue and sales figures

WHICH SYSTEMS ARE INVOLVED IN A BUILDING

CONDITIONS ASSESSMENT?
Heating and cooling systems
Mechanical systems
Water systems
Lighting
Building envelope
Insulation levels
Masonry conditions
Glazing, fenestration, etc.
Air tightness of windows and doors
Window efficiency
Energy loads
Equipment

Water heating
Plumbing

WEEK 2: IN-CLASS EXERCISES

1. Choose a property from the AEP portfolio and imagine that you've been
hired to perform a building conditions assessment. What characteristics
of the property would you be examining? Which systems would you be
looking at? Based on the age, size, and other available data about your
chosen property, what conditions would you expect to find?
2. Consider the properties in the AEP Portfolio, and sort them according
the quadrants of the four-square matrix. In 2-3 sentences, explain the
reasoning that caused you to assign the properties to each of the
quadrants. Submit your write-up below.

WEEK 2: HOMEWORK

Using what you've learned this week, choose a building from the AEP
Portfolio and identify one advanced technology that would be appropriate
as an energy conservation measure.

Explain how your proposal will affect the building's valuation, in addition
to operating costs. Be sure to detail the reasons behind your choice, and
submit supporting documents, if appropriate, such as cash flows or other
financial projections.