BUILDINGS NEWS May/June 2014 â€˘ $5
Cooling Buildings as Temperatures Rise Droughts, Hotter Weather Will Require New Solutions
Legislators Move to Tax Commercial Real Estate
Historic Buildings Charm Tenants
Budget Pressures Impact Medical Facilities
BUILDINGS NEWS Our Statewide Expansion Offers Opportunities for You The next issue of Buildings News will expand its coverage from the Bay Area to California-wide news and features about building operations and design. It will become California Buildings News. Why? Here are eight reasons. 1) Bay Area readers seem to like the coverage formula of our unique publication, so we decided to extend coverage to the rest of the state. 2) Many folks in Southern and Central California who have read Bay Area Buildings News asked us to provide our type of coverage of building design and operations in their regions. 3) We realized that many companies do business statewide and don't recognize area boundaries — particularly advertisers. They say they want the opportunity to offer their services and products to building and facility managers, contractors, architects and other industry players throughout California. 4) Of course, many companies provide services and goods only in certain regions. So we will provide lower advertising prices for those with regional focus, and we will continue our regional coverage with standing editorial sections focusing on Southern California and Northern California. 5) We are also responding to national advertisers who want access to the biggest buildings market in America. The $2 trillion California economy is not only larger than that of entire countries like Canada, Brazil and Russia, but it is unique, with its own special rules of operation and culture. National and statewide companies can target this market at much less cost and greater impact than through national magazine ad buys. 6) We know area and statewide publications are better read than more general national magazines, because people are much likelier to read publications that cover individuals and companies they know, want to know or need to know. 7) Many people do business through industry associations like IFMA, BOMA, IREM, AIA, SMPS, CREW, CoreNet, AFE, ULI and other important area organizations. Chapters of these groups throughout the state work hard to provide excellent programs that are completely ignored by national trade magazines and get scant coverage in area general business newspapers. We will provide coverage of many of their substantive programs and recognize their achievements and members. 8) Finally, every company operating in California is subject to laws and regulations made in Sacramento. We will focus on state government and political issues that influence the way the buildings industry does business in California. We want to make sure our industry's positions are shared. And we also want to report on challenges to sound business operations. The first issue of California Buildings News will be distributed statewide to an estimated 21,000 readers in our industry later this summer. Let me know how we're doing! — Henry Eason, Editor (firstname.lastname@example.org)
Features Workplace “Mobility” Trends
Preparing Buildings for Climate Change
Healthcare Facilities Brace for New Challenges
Historic Buildings Can Also Be Sustainable
Parcel Tax Measure Could Lead to Higher CRE Taxes
SF Developers Moving to Accommodate Growth
BOMA Oakland/East Bay Gains Political Clout
Photo credits: Top photo – Atrium photo courtesy of Big Ass Fans. Lower photo – historic photo courtesy of Architectural Resources Group. Cover: historic photo courtesy of Swig. Co.
Bay Area Buildings Team Ellen Eason, Associate Publisher & Art Director email@example.com Henry Eason, Editor firstname.lastname@example.org Editorial Board Zachary Brown, CBRE Bob Eaton, Eaton Hotel Investments Nancy Gille, REAL Systems David Hysinger, San Francisco State University College of Business Rich Lerner, Construction Consultant Katherine A. Mattes, Real Estate Consultant Carlos Santamaria, CEES-Advisors
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3 Bay Area Buildings News • May/June 2014
Developer Says Bay Area Rental Market Not Serving Middle Class Q&A with John Stewart, CEO, The Stewart Company Q: You said in your recent address to IREM San Francisco that the multifamily industry is not serving the middle-class renter. Could you elaborate? For years, developers built projects for the prototypical family in the center of the bell-shaped income curve. That paradigm has been turned on its head in recent decades, particularly in upscale, high-demand markets like the San Francisco Bay Area. Currently, there’s an arcane market focused on the very needy, categorized as “affordable housing,” i.e., individuals and families typically making no more than 60% of the area median income (as published annually by HUD)…roughly annual income between $40K and $60k depending on family size. To service just this market, there’s an array of financing tools: low-income housing tax credits, HUD Section 8 project-based subsidies, special accrued low-interest debt, tax-exempt private activity bonds and the like. Production of affordable housing is slight because subsidies are hard to come by and neighborhood resistance in the entitlement process is often vigorous. Nonetheless, there is a defined production financing system which is used by non-profit and for-profit developers exclusively for low-income clients. In 2012, 28,000 new jobs were created in San Francisco, but only 120 residential units were added to the entire city. Now there are approximately 6,100 units in construction (172 projects) plus twice that amount which have already been approved by Planning and/or have building permit approval. Excluding units in the affordable category, virtually all this new production is intended for upper-end clients whose incomes start at 150% of the AMI ($150,000). Median for-sale housing prices in San Francisco are seven figures; market-rate rentals range between $5 and $6 per square foot for studios, ones and two-bedroom units. It’s not surprising then that there’s virtually no room at the inn for individuals and families whose incomes range between $60k and $150K per year. This vast cohort does not make enough money to rent or buy what’s developed in a market-driven economy and has the added disadvantage of earning too much to qualify for housing set aside for low-income families. The following Q&A illustrates palpably: What percentage of San Francisco’s public school teachers can afford to buy a mediumpriced home? Answer: Zero. Q. Your new development “Hunters View” promises to alleviate some lower-end housing shortages in San Francisco. Is this a model that can be replicated in other areas in California? The Hunters View model (742 units), as well as North Beach Place (341), can be replicated on certain moderate to large public housing projects in the state. In both the above San Francisco developments, the developer demolished and built new structures which housed way more than the original number of individuals or families. The acquiring entity — a combination of non-profit and for-profit parties — financed the improvements and is managing the property on an ongoing basis. The new ownership is subject to a ground lease with the Housing Authority and a long-term use agreement which assures permanent affordability. Both the above projects include a tranche of added moderate-income residents; North Beach Place includes retail on which the Housing Authority receives a percentage rent. About half of the City of San Francisco’s public housing is undergoing this transformation today. Q. As Baby Boomers age and retire, will there be enough moderately-priced housing to accommodate them in the Bay Area or will most be forced to move to areas where housing is cheaper? Do you foresee solutions? Absent a new financing mechanism for the middle-income owner or renter — which will by definition require some public subsidy — economic relocation out of the high-priced areas of the Bay Area will continue to be the norm mitigated perhaps by some specially tailored funding, on a case-by-case basis, e.g., publicly-owned surplus property sites. In short, I’m not optimistic there will be an economic delivery system for the moderate income renter or buyer mirroring the one that exists for affordable housing. That said, a middle-income housing demonstration project, perhaps enabled by Silicon Valley funding, would be a needed tonic right now. Q. Finally, do you agree with those who think the ultimate housing solution for metro areas like San Francisco, Oakland and San Jose is building much taller apartment and condo buildings very close to expanded mass transit? Obstacles? I absolutely agree that we should be creating higher density corridors in the metro areas in the Bay Area, without which, we will soon resemble the San Fernando Valley.
Bay Area Buildings News
Is Your Office Building Future-Ready? Out-of-date telecommunications infrastructure can deter your optimal tenants and cost you money. When you look at an office building, what do you see? Is it a just a concrete shell where people go to work and sit idly at desks pushing paper from nine to five like robots? At Level 3 Communications, we see office buildings as the tip of the iceberg for multiple epicenters of commerce—where business happens at the speed of light. The IT needs of building tenants are rapidly changing, and so is the technology and infrastructure needed to keep up with the increasingly complex demands of business. Office spaces need to be more than online—they need to be on-net. Level 3 On-Net services provide next-generation voice, video, data, security and cloud-based technology along with the utility-based infrastructure that will allow tenants to grow well into the future. Using deeper conduits and separate building entry points allow us to deliver higher operational reliability and better protection from business-crippling hazards. And with our faster installation intervals, full building light-up is only four to eight weeks away. Our global fiber network spans approximately 180,000 miles and connects more than 60 countries across North America, Europe, Latin America, Asia and the Middle East. And we do more than simply install wiring in your office spaces. Whether there is a citywide power failure or an out-ofthe-ordinary system notification, our award-winning customer support team is available 24 x 7 Level 3 Communications provides next-generation cloud-based technology along with the to help you navigate any utility-based infrastructure that Northern California businesses need to grow. challenges that may arise. To help educate your tenants, we offer a number of services tailored to their specific business’s needs—including open houses, lunch and learns, signage, literature and website and newsletter content.
Contact Level 3 Communications to learn how easy, convenient and truly necessary it is to future-proof your buildings.
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5 Bay Area Buildings News • May/June 2014
Workplace “Mobility”… A Disruptive Trend? Companies Are Untethering Employees from Permanent Offices
echnology has been disrupting huge segments of our economy for decades, and now it’s commercial real estate’s turn for change. Giving many types of employees the tools to work from anywhere increasingly means that many don’t need offices. And companies are shedding millions of square feet of office space in favor of home-based activity and flexible solutions. Such arrangements fit under an umbrella called “mobility.” Global consulting firm Accenture, for instance, has moved from traditional office-based workspaces to flexible
Accenture has dumped more than 2 million square feet of office space from its 3 million-plus square-foot high in 2001 in the United States, while increasing its employee headcount from about 14,000 to 18,000 workers. And it reports it reduced carbon emission per employee by 35% from 2007 to 2013. Of course, mobility is much easier to accomplish when your consultancy workforce is essentially on the go anyway. Other corporate portfolio managers at the IFMA conference say they have not yet fully embraced the Accenture model, though they are moving in that direction.
Radical Mobility Is Not a Common Solution… But Mobility is Growing
Technology allows many employees to work from remote locations, while always being connected to their teams and customers.
work arrangements for many of its employees. Using their smartphones, Accenture workers book workspaces for short periods of time at more than 450 work environments in 65 countries. Global Director Dan Johnson recently told an International Facility Management Association audience in Palo Alto his company calls this “hoteling.” The name is catching on in industries throughout the world. “We have dramatically reduced our real estate portfolio,” Johnson told the IFMA-Silicon Valley gathering in April. The impact? An Accenture survey revealed that 97% of its workers rated their personal productivity the same or better under the hoteling model, and 92% said their team productivity was the same or better. Ninety-four percent rated their employee engagement the same or better.
Widespread mobility is surely impractical for a company like NetApp, where most of its 13,000 workers in 150 offices around the world — including its CEO — are in cubicles. And yet, Clarinda Bisceglia, who is senior manager, Workplace Resources Americas Space Planning at NetApp, says her company is making progress on what NetApp calls “The Office of the Future.” Its plan is to create officing arrangements that are more open and collaborative than the old cube farms and organizational silos that have impeded many companies’ productivity. “Our challenge now is to ask how people work,” she says. Genentech is moving toward a new workplace model says Ann Bamesberger, head of Workplace Effectiveness at the vast South San Francisco campus. She says Genentech aims to better leverage technology, have more informal interactions, achieve more individual work time, eliminate geographical distances and break down silos with experimental new arrangements. The result, Bamesberger says, will be improvements in knowledge of customer needs, cross-organizational knowledge, better employee engagement and innovation and, critically, accomplishing more without increasing resources. Bamesberger says in the old way of doing business at Genentech, there were 60% enclosed workspaces and 40% open — accommodating 950 individually assigned people. The “new environmental way” will be much more open and, through group assignments, will accommodate 1,500 people. Raquel Fanucchi is SAP Global Facility Management Head of its Palo Alto Campus. She says her company is also moving away from cube farms and toward open officing, because many of its employees want to operate in a simulated “startup” atmosphere, where ideas and interaction can flow freely — even in a giant like SAP. SAP is experimenting with 10-to-12-person teams who work in the same space.
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Preparing Buildings For Climate Change Wide-Ranging Solutions Are Available, Some Old and Some New
ow can you keep tenants comfortable and functioning happily when the temperature soars, as a recent government report says is inevitable? There are many ways to keep buildings cool and landscapes beautiful without just cranking up the AC and dumping scarce water on lawns and gardens. A comprehensive federal government study released in May states, “The most recent decade was the nation’s and the world’s hottest on record, and 2012 was the hottest year on record in the continental United States.” The report by the National Climate Assessment and Development Advisory Committee was authored by more than 250 scientists. It states, “Evidence for climate change abounds, from the top of the atmosphere to the depths of the oceans. Scientists and engineers from around the world have meticulously collected this evidence, using satellites and networks of weather balloons, thermometers, buoys, and other observing systems.” President Obama explained in a subsequent interview, “We want to emphasize to the public, this is not some distant problem of the future. This is a problem that is affecting Americans right now,” Obama told NBC in an interview. “Whether it means increased flooding, greater vulnerability to drought, more severe wildfires — all these things are having an impact on Americans as we speak.” Photo above: a former retail shop found new life as one of DPR Construction’s offices. The building utilizes an ingenious combination of shower towers, a solar chimney, operable windows and twelve 8-ft. diameter Isis fans from Big Ass Fans to keep its workforce comfortable. (Photo courtesy of Big Ass Fans.)
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Reducing energy use can slow climate change and, since buildings use about 40 percent of all energy, cutting back their fuel consumption can have a favorable impact. But what is less well known is how building occupants can be protected from inevitably hotter weather and accompanying droughts in areas like California by better design and operation of buildings and landscapes. Mechanical Air Service is on the front lines in the effort to produce more comfortable building environments using less energy. President Russ Donnici says, “California has some of the highest energy costs in the country and rates are expected to increase significantly over the next four years. We have clients — whether it’s new construction or a major remodel or tenant improvement —who are very interested in high efficiency HVAC equipment as well as building automation and energy management controls to better manage their equipment, reduce utility costs and improve indoor air quality for their employees.”
First Step: Cooler Building Design The way buildings are structured can create more comfortable and energy-efficient environments. Skidmore, Owings & Merrill Architect Brian Griffith says, “Design and retrofit of commercial buildings for energy and water savings needs to be a comprehensive approach. An integrated design where all parties involved in the design, construction, operations, maintenance and use of that building are involved in the design process is the path we use to achieve this. A holistic approach that considers both quantitative and qualitative measures, as well as future performance and comfort, is critical to success. This integrated approach needs to start very early in the design, in the concept phase, to take advantage of the opportunity to design without restriction and investigate energy and water savings strategies in a cost friendly manner. “Using energy and other modeling software to inform design decisions is critical and allows the team to investigate opportunity and understand the total impact of various measures. Buildings are complicated entities and require a thoughtful approach that looks at wider impacts as well as specific details. Generally, reducing energy loads through proper orientation, Top photo: Heat-rejecting window films, such as those made by 3M and used in San Francisco’s Embarcadero Center, can help keep buildings cooler and reduce energy use. (Photo courtesy massing, floor layout and envelope design is the first goal, followed by application of effi- of 3M.) Lower photo: Perkins+Will project at 140 New Montgomery uses operable windows, healthy materials and ample natural light to maintain a healthy environment for occupants. cient systems.” (Photo credit: Bret Janak.) Griffith adds, “Designing buildings in hot climates using less AC is a relatively straightforward (Continued on page 18)
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he mathematical imperative facing the healthcare industry is how to serve more than 30 million added insured patients in the U.S.— thanks to Obamacare—plus millions of aging Baby Boomers needing more healthcare than ever before. By some industry estimates as much as 60 million square feet of additional healthcare space and a vast array of new products will be required. At the same time budgets will be squeezed by strict government requirements for much better healthcare outcomes to get reimbursements and other mandates like seismic upgrades in California. What can product and services providers to medical facilities expect? DPR Construction’s George Hurley says, “Healthcare leaders’ budgets are shifting, and we are entering a time of a ‘new normal’ in terms of healthcare reform. Health information technology is becoming the backbone of delivery, enabling care to be delivered more efficiently. This in turn makes energy efficiency a priority for current healthcare providers, with many owners and developers seeking similar
primary elements in their projects including energy savings; smaller, more efficient patient-focused sites and developer driven out-patient care office. In other words, healthcare delivery is becoming more of a ‘hub and spoke’ approach with the hospital in the hub for acute care and outpatient facilities at the end of the spokes providing less acute care for less cost.” Hurley adds, “We are also seeing a deepening focus on how to create a better or greater ‘environment for healing.’ This can be anything from more outdoor areas for patients to walk around, or increased access to natural light. To make these commitments and changes, we are working with our customers to help create longer-term return on their investments in their healthcare spend that enable them to reinvest in the environment they want to create in their facilities.” Medical facilities will have to do more with less, and that means embracing every form of technology efficiency available. Particularly important will be investments in medical information technology, such as Kaiser Permanente’s “more
Photo above: Sutter Health Eden Medical Center in Castro Valley, an award-winning DPR Construction project. (Photo credit: Rien van Rijthoven, architecturephotography.org.)
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clicks, less bricks” strategy of serving patients 24/7 to some extent through online communications. And, since hospitals also operate 24/7, any efficiency gained in energy expenditures will impact their bottom lines. Perkins+Will Associate Susan Drake observes that “California hospitals have been very open to sustainably designed buildings, because energy efficiency makes a huge impact on their operations budgets. The return on investment is well documented. And, sustainability in the realm of interior finishes — low emissions, less toxicity — has been on the rise for many years because it’s a perfect fit of means and mission (“first, do no harm” is commonly attributed to the Hippocratic Oath). A cancer treatment center can enthusiastically get behind any first cost premium (real or perceived) for installing materials that do not contain carcinogens, for example.” Drake says, “While there are many studies and reports documenting the costs of green building, it’s hard to separate the “premium” (if any) from conventional to sustainable building. We can design and build relatively inexpensive green buildings, and we can design and build very expensive conventional buildings. With costs of all types generally going up, and budgets rarely keeping up, there is always pressure to find the acceptable middle ground. Like all our clients, hospitals have to find their priorities in the construction budget. As mentioned above, sustainability (inside and out) usually ranks high because of that positive fit with mission: most hospitals value quite highly the positive branding that results when they are perceived as a friendly neighbor (protecting the community both via its services and its responsible use of energy and water, for example).”
Other considerations for firms serving the healthcare sector: • Products and services dedicated to reducing infections by cutting contamination will be needed, since hospitals will soon be penalized for further sickening patients under their care. • Upgraded telecom systems will become essential if healthcare providers are going to reduce in-facility diagnostics, care and scheduling — and the entire range of in-facility activities. • Billions of federal dollars are available for community health centers, which will receive a disproportionately large number of new Affordable Care Act patients. Many millions have already been designated for community health centers in Berkeley, Santa Cruz, Davis, East Palo Alto, Sonoma County and other areas. • Pressure will soon be mounting for impractical California and local code reforms that impede efficient healthcare delivery.
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Historic Buildings Are Charming and Can Be Sustainable But Restoring and Updating Them is Often Challenging
ld buildings are often plagued with wiring, plumbing and elevator problems and lack many of the modern amenities and sustainable features of new structures. So why do people opt to lease space in them, other than the fact that theyâ€™re cheaper? At some point old buildings that are renovated and whose functional assets are brought up to date become historic buildings and convey a special charm that appeals to people who work in them. In fact, many more modern buildings are seen by some tenants as bland and boring environments that add little aesthetic value to the work environment. Old buildings are also greener in one respect. Renovating their exteriors and retrofitting their spaces have much less negative impact on the environment than tearing them down and erecting new buildings. Upgrading them costs much less and can be accomplished much faster with less regulatory hassle than greenfield projects. And finally, preserving historic
The Ritz-Carlton Hotel, formerly the western headquarters of the Metropolitan Life Insurance Company. (Photos courtesy of Architectural Resources Group.)
The Folger Building now serves as a multi-tenant office building in South of Market. (Photo courtesy of CBRE.)
buildings preserves our valuable architectural past. San Francisco probably has the biggest inventory of old buildings of any city in Northern California. The Buildings Owners and Managers Association there recently created an Historic Buildings Committee that will become a resource to members who own and operate buildings constructed before 1945. It will educate building owners, operators and engineers about building codes permit procedures and policies applicable to historic buildings.
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CBRE Real Estate Manager Douglas Hayward explained, “In the current market, historic buildings that can offer brick, timber, high ceilings and character are competing strongly with modern ones. Re-wiring buildings to provide adequate power for electrical and data needs can put historic buildings on an equal footing with modern ones. Lack of airconditioning, which would be a real drawback in most markets, is not necessarily regarded as a problem by San Francisco tenants, due to our temperate climate and cooling fog.” Hayward said historic buildings do present special challenges. “Re-use is one of the pillars of sustainability, so from that perspective, re-purposing historic buildings is setting a standard for sustainability. Plumbing, electrical capacity, data transmission and life safety systems can all present challenges. Construction can present many problems, and requires creativity (and money) to work around “existing limitations in historic buildings.” (Continued on page 22)
The Mills Building in San Francisco’s Financial District. (Photo courtesy of the Swig Co.)
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Parcel Tax Measure Passes CA Senate, Heads to Assembly By Kathy Mattes Senate Bill 1021 recently passed the California Senate by the smallest margin of votes and moved to the Assembly, where action must be taken by August for it to become law. This legislation is just one piece of an effort underway that could eventually lead to split-roll taxes. There are also at least nine bills in the works that seek to lower the voter threshold to 55% for approval of new parcel taxes. Imagine a property tax bill which is 50% ad valorem taxes and 50% parcel taxes issued by the school district. Also imagine that your parcel taxes are based on one of the following methods of calculation: homes at a flat rate of $5,000, $1/SF on commercial and industrial property, hotels at $50 per room, hospitals at a specific rate per bed, and a flat $100,000 on gas stations. There could be dozens of categories and subcategories created once property owners petition for their own special interests. Under SB 1021, introduced by Sen. Lois Wolk, D-Vacaville, the possibilities are endless and the result devastating to business. Under Proposition 13, “All property is taxable and shall be assessed at the same percentage of fair market value.” This is the basis for property taxes being calculated based on value — ad valorem. It also states, “When a value standard other than fair market value is prescribed…the same percentage shall be applied to determine the assessed value.” Prop. 13 does authorize cities, counties and special districts by a two-thirds vote of the electorate (not 55% as is being pursued by some), to impose special taxes within the district, “except ad valorem taxes on real property or a transaction tax or sales tax on the sales of real property with such City, County or special district.” Some local governments currently are in violation of state law, because they are imposing non-uniform parcel taxes. For example, some school districts impose parcel taxes at a higher rate on commercial and industrial parcels than they do on residential.The Alameda Unified School District taxed commercial parcels larger than 2,000 SF at a higher rate than residential and small commercial properties. In Borikas v. Alameda Unified School District (2012), the First District Court of Appeal ruled that the school district’s imposition of non-uniform parcel taxes violated Government Code Section 50079 and exceeded the district’s taxing authority, and the property owner won the case. SB 1021 attempts to overturn the Borikas decision on a prospective basis by allowing approximately 1,043 school districts to impose non-uniform parcel taxes. Owners of commercial property in California should be
very concerned about SB 1021. Here are some of the risks: • The tax deductibility of parcel taxes is questionable. To be deductible for both state and federal income taxes, real property taxes must be levied for the general public welfare “at a like rate against all property.” Real estate taxes that are not based on value are deductible only if they are levied for the general public welfare (not just schools) at a like rate on owners of all properties. • The protections currently provided under Proposition 13 would be undermined by the addition of parcel taxes that could significantly increase your total taxes and make them disproportionate with neighboring properties. • The underlying intent of this measure is to tax commercial properties, which would result in the higher taxes being paid by small business. Lease rates would be increased to cover this additional property expense, as most commercial leases allow for such increased taxes to be passed on to the tenants. Proponents of SB 1021 want the voters to think that residential property owners are carrying an unfair tax burden. This is simply not true. In an article by Carolyn Cavecche, CEO and president, Orange County Taxpayers Association, published in April of this year, she states: “A study done by the California Taxpayers Association shows the assessed value of business and non-homeowner property subject to Prop. 13 has grown at a higher rate than those of homeowners. “Data from the California Board of Equalization shows those business and non-homeowner properties pay the largest share of property tax under Prop. 13. Prop. 13 has actually prevented homeowners from shouldering the property tax burden for the state.” Rex Hime and Matthew Hargrove of the California Business Properties Association (CBPA) work hard to lobby our legislators against legislation just like this. The CBPA is supported by BOMA, IREM, NAIOP and many other professional associations and real estate companies. Please add your voice to this effort; write your representative and say that you oppose SB 1021. To find your representative, go here: http://www.legislature.ca.gov/legislators_and_districts/ districts/assemblydistricts.html.
Mattes is a real estate consultant who can be reached at www.kathymattes.com
14 Bay Area Buildings News • May/June 2014
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CRE Leader Says Industry is Moving to Accommodate Growth in SF Q&A with Blake Peterson, Langley Investment Properties As a San Francisco property manager, are you concerned that, given space shortages and soaring rents, that tenants might begin to look elsewhere, giving San Francisco a bad rep that could foreshadow its long-term future? San Francisco has romanced techie hipsters with ample bike racks, dive bars and food trucks. As technology firms attempt to blur the lines between business and personal life with catered dinners and craft beer, employers want to be located near their employees’ habitat. Thus, both housing and office space has become scarce and rental rates have responded as well. However, let’s keep in mind that we are in a cyclic business. This urbanization food chain is only as strong as its weakest link. If housing prices or tax policies drive people and/or businesses out of town or state, we’ll see a natural slowing in San Francisco’s growth as demand subsides. Everyone seems to agree that this tech boom has more staying power than its dot-com predecessor, but there is surely a market correction in our future. Have we hit the peak? We must keep an eye on corporate relocations and macro residential trends, as they are economic indicators of things to come for our sector. I will mention that we are retaliating against outside markets with an aggressive development pipeline which will assist on the supply side of the equation. I’d argue that this tactic is pleasing the market based on the amount of pre-leasing we have seen. Pre-leasing should help the upcoming delivery of large waves of space be more of a splash and less of a tsunami to the market. No matter what, 2017 is guaranteed to be interesting based on the amount of space scheduled for delivery. You have led industry environmental efforts in the Bay Area for years, but are you concerned that the Bay Area’s very strict green restrictions will dissuade tenants from locating their offices here…instead of West Coast cities with more lax requirements? I’m concerned that it is costing more and more to do business in the Bay Area and in California in general. I think that Title 24 and the SF Green Building Ordinance contribute to that challenge since they can bring steep price tags and paybacks are not immediate. However, although there are a lot of legislative sticks regarding sustainability, there have been a lot of carrots in the market, too. Project incentives such as rebates, creative financing and tax breaks for sustainability efforts have offset some of the burden. For now, a booming economy is absorbing these added requirements without much headache. The real test will be how significant these sustainability-related costs will be when the market slows and margins compress. We must collaborate now as an industry to establish cost-effective solutions to help satisfy the notorious triple bottom line on a long-term basis. More and more companies are permitting their employees to work from home and are reducing their office inventory in various ways, like going to open offices and “hoteling.” What’s your take on this trend? It’s not about any one singular trend; it’s about pursuing optimal schedules, furniture configurations, technology, etc. that generate the most productivity and satisfy workers. Progressive companies are ignoring traditional corporate dogma and blazing their own trail with new creative ways of conducting their businesses. As tenants move away from the norms of yesteryear, landlords must adapt to satisfy their needs. The same suite that once was home to traditional large perimeter offices now likely features zero private offices, bench seating and three times the number of people in the same space. What is often overlooked in this ever-so-common scenario is that it costs more to service a more densely populated area. More people mean more building wear and tear, higher HVAC and electrical load and more demand for consumables (more toilet paper, please). Where this gets interesting is when we consider that operating expenses are allocated on a per square foot basis, not on tenant headcount. In multi-tenant buildings where you have broad ranges of employee density amongst tenants, the per square foot allocation of the shared building bucket of variable operating expenses isn’t necessarily representative of each tenant’s actual use of building resources. Blake Peterson is the Bay Area’s general manager of Langley Investment Properties and president-elect of the Building Owners and Managers Association of San Francisco.
16 Bay Area Buildings News • May/June 2014
Futurist Highlights Trends for the Built Environment for SMPS Audience The converging forces of tech acceleration, a knowledge Hiemstra predicted that the two biggest markets for economy, generational changes and urbanization will construction companies will be housing for seniors, which influence the future built environwill be mostly multi-family and ment, explained futurist located in cities. The other big Glen Hiemstra, CEO and founder market will be sea walls, as global of Futurist.com, at a recent temperatures rise. Seattle is program given by the Society for currently investing in having a Marketing Professional Services new sea wall built. (SMPS) San Francisco. Sustainability will continue “The future creates the to influence design. “I think the present,” said Hiemstra. “The future is solar,” Heimstra said. future is pretty obvious — not a He described research being done mystery.” By observing current to create solar roadways that store trends, we can foresee much energy and glass roads with Glen Hiemstra addresses an audience of SMPS members. of what the future holds. embedded LED lights. The roadAs the knowledge economy evolves, service providers ways can be reconfigured for changing traffic patterns. like architectural, engineering and construction firms will be You can learn more about future trends at Hiemstra’s even more valued for their smart solutions and smart buildwebsite, www.futurist.com, and in the book he co-authored ings. Houses will be smaller, and will likely be designed with Dennis Walsh: “Millennial City—How a Generation digitally with pre-fabricated, highly customized designs. Can Save the Future.”
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17 Bay Area Buildings News • May/June 2014
BOMA Oakland/East Bay is Growing in Membership and Political Clout Q&A with Stephen Shepard, Executive Director BOMA Oakland/East Bay In your fairly short time as its executive director, the Building Owners and Managers Association of Oakland/East Bay has grown in membership and event attendance. How did that happen? “Engagement equals retention!” The Board of Directors and committees have worked hard over the past two years to develop great programs and events and a welcoming atmosphere, which keeps members engaged. Word has spread and people want to be a part of the organization. Board member liaisons to each committee have also encouraged engagement and fostered out-of-the-box creativity for our programs and events. Additionally, our Membership Committee has had a rebirth in strategy and done an incredible job of outreach to see what members want, engaging them from day one. We understand you are expanding your membership categories beyond just the typical Class A office buildings. Tell us about that. The East Bay has a very diverse economy and diverse property types. We want to be a resource to all types of owners and property managers. While most of our principal members are Class A high-rises and campuses, our boundaries also include many other property types not found in large metro areas. The growth of biotech along with the industrial businesses serving the Port of Oakland uniquely position BOMA-OEB to support the Industrial Real Estate categories. We have also expanded into retail and will be launching Medical Office Building (MOB) as a category in 2015. Your BOMA has not been much of a political force in East Bay cities and counties in the past — partly due to the large number of entities that regulate commercial real estate activity within your large region. How will your BOMA improve its performance in this crucial area? BOMA-OEB covers three large counties (Solano, Alameda and Contra Costa), making it very hard to cover all political corners. The Government Affairs Committee did a great job this past year recruiting and increasing its size to ensure enough bandwidth to keep a bird’s eye on the different areas we represent. With the committee’s engagement, especially during this election year, local agencies and politicians are seeing BOMA-OEB’s value and are inviting us to the table to provide input in the early stages of activities and policy changes/updates. Of note this year, BOMA-OEB held an Oakland mayor’s forum to introduce the candidates and was asked to host a town hall for the City of Berkeley as they revamp their energy ordinance.
What are the most pressing governmental challenges facing your members on the local government level? Our members need advocacy for many of the same issues as other BOMA locals, i.e. building code requirements, water restrictions, utility rate increases, etc. The challenge for BOMA-OEB is finding people willing to get involved at the local (city and/or county) government level and keeping the organization updated on issues that affect the industry. Given the make-up and size of our association, we should be able to adequately cover that need but we have been unable to do so for a long time. Our latest member challenge is to get members to step up and represent the organization in the cities where they live and work. Once we have an engaged and dependable BOMA-OEB Government Affairs Committee city representative in our area, we can become a stronger organization and become a prominent resource for local governments. In what ways might your BOMA expand and strengthen its committee structure? In 2013, BOMA-OEB launched many new policies to strengthen the association. Notably the committee policy defines membership for a two-year term allowing members to then explore other committees or explore leadership opportunities within the same committee. Members moving to other committees expand their knowledge of the organization and provide committees with new perspectives. Term limits have broadened our engagement and fostered greater interaction between members. In 2015, BOMA-OEB will be launching two new committees. The Emergency Preparedness Task Force is working diligently toward their launch by developing the November luncheon topic. We are also in the beginning stages of the development of a Codes and Standards Task Force. In relation to the increasing membership categories, we are starting two Special Interest Groups (SIGs) centered on Industrial and MOB. Unlike committees, SIGs will meet quarterly to help develop specialized programs and education for these two new member types.
18 Bay Area Buildings News • March/April 2014
Water-Friendly Tips for Landscaping By Sharon Serpico Hanson, Serpico Landscaping y Irrigate efficiently – Make watering practices and equipment as efficient as possible. New technologies in controllers, sprinklers & nozzles will save you money. y Do frequent irrigation system checks – Finding problems early allows you to save money and keep water on your landscape, not flowing into the gutter. y Limit turf areas –You can reduce the amount of turf you have on-site without compromising anything. This will save you water dollars and maintenance dollars. y Convert to low-water use plants – Choose water thrifty plants in place of turf or if you are re-designing your planter beds. y Mulch – Mulch applied at three inches deep helps reduce water thirsty weeds, helps keep water in the soil longer and breaks down to provide valuable nutrients to the soil.
Landscaping using low-water plants. (Photo courtesy of Serpico.)
Preparing Buildings for Climate Change (Continued from page 7) approach. Reducing solar impact through the use of shading devices, proper orientation of the building, and appropriate glazing selections is the first step. This reduces the amount of AC needed by reducing both the peak and total loads to the space. Passive strategies such as additional building mass and night flush are very effective in hot climates with large diurnal swings (difference between daytime and nighttime temperatures). Evaporative cooling is also a very effective design strategy to cool without a compressorized gas cycle, but has a water impact that may not be the best choice in arid climates. “Finally, the use of more modern cooling delivery systems, such as radiant ceilings and floors, as well as chilled beams (which operate very differently than radiant systems do), when properly applied, can save substantial energy and provide increased comfort while reducing the amount of air conditioning and the energy associated with those systems.” Perkins+Will’s Krista Raines says, “We have always focused on utilizing passive strategies to design buildings that respond to the climate and site conditions, but now, more than ever, current climate extremes are shifting our focus to anticipating future climate and site conditions. One part of the sustainability story is building durable buildings that last and require less maintenance and resources. If our buildings will be around for a long time they must adapt to
larger temperature shifts, stronger storms, and rising tides. Identifying site vulnerabilities these climate shifts may create helps us to design more resilient buildings. Cooling for comfort is becoming more necessary in many climates, including San Francisco. Low and no energy solutions are easily implemented. We often utilize the local breezes to drive cross-ventilation. We also frequently introduce atria that use buoyancy-driven stack ventilation to create air movement and aid cooling. Low energy solutions like heat exchangers and adsorption dehumidification come into play in spaces that have denser occupancies and more equipment that generate heat. “The resiliency discussion has also lead us to explore adaptable, secure, untraditional building solutions to shelter services in the event of a disaster. Many of our projects are trending towards the self-sufficient model. This would allow buildings to be functional and comfortable utilizing only sustainable on-site resources for energy and water and enable them to eliminate their reliance on central systems that may be in jeopardy in the event of a large natural disaster.”
Climate-Sensitive Innovations Can Help Heat reflecting window films, sensor technology, advanced IT solutions and ground source temperature controls are just some of the many ways companies are creating products to combat the effects of hotter weather.
19 Bay Area Buildings News • May/June 2014
And some traditional solutions, like fans, can play a major role in maintaining workplace comfort. Fans “improve comfort by combining evaporative cooling with the added effect of heat transfer,” says Megan Browning with Big Ass Solutions, which makes fans. She explains, “Air movement does not lower the air temperature, but rather creates a cooling sensation as the breeze passes over occupants’ skin, making a person feel up to 10 degrees F cooler. For facilities with AC systems, building operators can raise the AC set-point by several degrees without sacrificing comfort, reducing costs by as much as 30% (or 3-6% per degree), based on the cooling effect of air movement.” Smarter windows are also cost-effective solutions. “As outdoor temperatures rise due to global warming, options to improve thermal performance of buildings will become more urgent,” says Matt Small, a project manager at Legacy Mechanical & Energy Services. “After-market window film applications are an inexpensive way to reduce solar heat gain. Adding or improving roof or wall insulation can also be considered where feasible. Direct Digital Control (DDC) upgrades and strategies give building owners more options to deal with increased outdoor temperatures. For example, buildings can utilize CO2 sensors to make better use of (Continued on page 20)
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20 Bay Area Buildings News • May/June 2014
Preparing Buildings for Climate Change (Continued from page 19) existing cooling capacity by reducing unnecessary ventilation when spaces are unoccupied or under-utilized. Also, when cooling capacities are maxed out, DDC systems can globally change indoor set points to ‘share’ the heat rise across the building. As a last resort, supplemental cooling units or exhaust fans can be added.” Billy Pettit, Commercial Marketing Manager, 3M Renewable Energy, says “As an alternative to blinds to help contain hot spots, building owners can consider installing an interior heat-rejecting window film. These films can help keep buildings cooler and reduce energy use. 3M™ Sun Control Window Films, for example, can reduce cooling costs by up to 25 percent by rejecting solar heat. The films do not aesthetically alter the design or appearance of the building.” Cost control is a big advantage in using window films. “Many business owners might not think about interior window film as an energy saver and cost saver,” says Pettit. “A study from the International Window Film Association shows the energy savings attributed to window film can pay back in less than three years. Along with this, window films demonstrate an effective means of reducing greenhouse gas emissions when used in retrofitting existing buildings. The (3M) Prestige Series is the ultimate in high technology, offering clear film technology with outstanding heat rejection for building owners. The Ceramic Series offers a nano-ceramic technology, which combines heat rejection with clarity. The Night Vision series contains dual reflective technology, which provides daytime privacy yet allows easier viewing outside at night while rejecting 71 percent of the heat coming through. Exterior films also promise to meet the needs for both new buildings and retrofit projects. “These films are applied on the outside of windows to reduce the risk of thermal stress, particularly on windows with multiple glass panels,” says Pettit. “The Prestige Exterior Series is based on nano-technology consisting of hundreds of ultra-thin layers.” Debbie Shea of Superior Window Tinting in Hayward, CA, says her customers report a significant decrease in air conditioning complaints, and she said one chief engineer says he can run his building with one less chiller, thanks to tinted windows. “Although the savings are different for the material type and building, solar film application has the most direct
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21 Bay Area Buildings News • May/June 2014
reduction in heat load and positive effect on tenant comfort. The payback period may vary, but it is the one of the best returns on investment in optimizing a buildings energy efficiency and qualifies for LEED credits,” says Shea. Paul Rauker, vice president of systems and controls at Daikin Applied, believes the most effective way to react to, and address how climate change affects building comfort and energy efficiency will be through the use of building systems like Intelligent Equipment™ that harness the Internet of Things (IoT).
mobile device, it’s the fastest way,” Rauker says, to identify and fix inefficient systems and to be able to react to changes in climate.
Russ Donnici displays a state-of-the-art building automation system installed by Mechanical Air Service. It is used to control all aspects of an HVAC system, including schedules, temperature control and indoor air quality monitoring and control. It provides the flexibility to remotely fine tune the HVAC systems for maximum comfort and maximum energy savings.
Intelligent building systems aggregate, filter and distill complex analytics into actionable data that building operators can use to make buildings more comfortable and energy efficient. (Photo courtesy of Daikin Applied.)
“Through collaboration with Intel, Daikin Applied is introducing Intelligent Equipment™, a building system that integrates an Intel-based gateway solution in HVAC equipment, that seamlessly connects to the cloud and securely aggregates, filter and distills complex analytics into actionable data. This intelligent building system has the potential to create unprecedented efficiencies. As HVAC systems become smarter, they have the capability to communicate with other internet protocols to gather and share information like weather and energy reports so the system intuitively knows when to adjust for occupant comfort and energy efficiency. With 24/7 real-time, access from any
Many localities are being required by governing agencies to improve cooling efficiencies. Kevin McNamara, Vice President of Commercial Air Conditioning at LG, observed, “As the importance of energy efficiency and compliance codes becomes a higher priority for architects and engineers when designing spaces, they are actively in search of solutions that meet evolving customer needs.” LG is pioneering sustainable innovations. “Our air conditioning systems, like the Multi V IV with Variable Refrigerant Flow (VRF) technology, can deliver significant install and maintenance cost and energy savings. VRF provides building tenants with individual control and personal comfort they never thought possible while providing superior energy savings and low operational costs to building owners.” The range of new cooling strategies promises to keep buildings comfortable while reducing energy, whether it be alternative power sources, smart glass, better design or even geothermal dynamics. (See “Mother Earth Offers A Solution” on the back page.)
22 Bay Area Buildings News • May/June 2014
Historic Buildings (Continued from page 11) “ADA requirements in particular can be difficult to work within existing spaces built for another time,” he said. BOMA Vice President Ken Cleaveland added, “San Francisco is blessed with many buildings of historical and architectural value. The United Nations was signed into reality in our (fittingly) War Memorial building. Many of the founding fathers of the City built impressive buildings that became headquarters for Standard Oil, Southern Pacific Railroad, and the Hearst newspaper empire.”
“San Francisco is blessed with many buildings of historical and architectural value... Fortunately a great number of them still remain standing and functioning as modern day multi-tenant office buildings. It is a heritage well worth preserving and enhancing.” — Ken Cleaveland, BOMA San Francisco Beaux Arts-style building at 115 Sansome Street, commissioned by the Standard Oil Company in 1912. (Photo courtesy of Architectural Resources Group.)
“Fortunately a great number of them still remain standing and functioning as modern day multitenant office buildings. It is a heritage well worth preserving and enhancing. That was the reason for establishing the BOMA Historic Buildings Committee.” ARG Conservation Services, an affiliate of Architectural Resources Group, Inc., has restored area gems like the Mills Building, The Ritz-Carlton Hotel, the Flood Building, Coit Tower, the Inn at the Presidio in San Francisco, the Lodge at Cavallo Point in Sausalito, and numerous others. “Artistic features and historic details provide beauty, material texture, and human scale to the work environment, qualities that give people a sense of place and purpose. By connecting people to past generations, they also fulfill a need for touchstones, a connection to the past in a rapidly changing world,” says ARG’s Founding Principal Stephen J. Farneth.
The elegant Flood Building on Market Street. (Photo courtesy of Wilson Meany Inc.)
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Mother Earth Offers Solutions for Cooling & Heating Buildings Some buildings are even going underground to tap resources that both cool and heat their interiors using ground source heat pump technology (GSHP). Geotechnical engineering firm Engeo, a Northern California and New Zealand-based company, is offering GSHP solutions that promise to produce dramatic cost savings as well as reduce carbon contributions to the atmosphere. The technology is generating interest in many quarters. Engeo says the GSHP is being used in buildings at Stanford University Hospital, the Veterans Administration, some Silicon Valley data centers, the Redwood City Jail and the Mare Island Naval Shipyard. Lisa Meline of Meline Engineering Corp in Sacramento, says “Geothermal heat pumps are an excellent HVAC choice because they use the constant temperature of the earth as a heat source or heat sink instead of the ambient air or evaporative processes (such as a cooling tower) which use water. A geothermal heat pump, also known as a ground source heat “In the case of a recently constructed project in Sonoma County, a pump or Geoexchange, taps the energy stored in the earth to treated waste-water retention pond is the heat source/sink for a small provide energy-efficient heating, cooling and hot water for group of geothermal heat pumps,” she explains. “In addition to ensur- buildings. The technology uses the constant temperature of ing the correct heating and cooling loads are determined for any build- the earth as the medium of heat exchange instead of outside air temperature. ing, the selection of the proper deep earth temperature for the ground heat exchanger is required [accounting for any future warming/cooling anticipated]. The benefit of geothermal heat pumps over central plant equipment which includes cooling towers (which use water on a daily basis) is that once the piping system is filled with water, the system operates as a closed-loop system. “The equipment in Sonoma County’s new employee service center uses the tertiary water from the waste-water (recycled water) retention pond instead of the earth. The SCWA maintains a minimum water depth of four feet at any given time of the year to ensure the high-density polyethylene pipe heat exchanger is covered. The heat exchanger is sunk to the bottom of the pond to also take advantage of any conduction with the pond floor during the colder winter days.” The payback on a GSHP system for one small office studied, says Engeo’s Huw Williams, is less than six years. “A simple GSHP cost estimate shows the savings against traditional boiler and air source heat pump cooling.” A small office was considered for simple cost benefit analysis where domestic hot water and space cooling was analyzed against a reverse cycle GSHP (capable of servicing the heating and cooling demands in a single unit). “Here, a simple and conservative assessment gives a savings of $51,583 per annum on space heating plus domestic hot water. With installation costs of $250,000, this simple payback occurs in less than six years,” says Williams. Thereafter, operational savings drop dramatically.
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