Today we’re excited to continue our series of guest bloggers with a post from Diana Driscoll. Diana is a principal of Ridgeline Hospitality, a developer of upscale hotels in the Southwest.
Diana's work at Ridgeline includes the launch of HotelRescue, which provides hoteliers with strategies to make their hotels more efficient, increasing cash flow and evaluating and utilizing 'green' initiatives while maintaining an excellent guest experience. HotelRescue helps hoteliers incorporate green practices, lowering operating and energy costs, creating higher hotel value and earning incentives for eco-friendly initiatives. Diana's work aligns with our core values - helping hotels become sustainable and environmentally viable, improving both customer experience and the bottom line. Diana was kind enough to pen a guest post for us about the costs of going, or not going, green in the hospitality industry.
Going Green for Profits
By Diana Driscoll
We all know that going 'green' or 'LEED-certified
' is good for the planet and good for people, but what about for profits? What is the ROI for going 'green', and are hoteliers allowed to think in terms of the bottom line, guilt-free? Absolutely!
Hotels are a business – a personal, people-centric and creative investment, but an investment none-the-less. Well said by Dennis Quaintance, CEO of Proximity Hotels
(the first platinum LEED certified hotel in the U.S.),
"It ain’t sustainable to go broke!"
Many hoteliers have taken a 'wait and see' attitude before investing in green changes. Fortunately, we now have enough data, both from LEED-certified CRE and hotels to get a good idea of the costs and profit potential for 'going green'. At the time of this writing, there were almost 50 LEED-certified hotels in the U.S., and over 900 hotels were registered for LEED. Additionally, there were 17 LEED-certified conference centers with an additional 85 in the LEED pipeline.
Of course, costs differ according to the specific project, its location, the regional and state incentives and rebates and so on, but developers need a number to start with, and that number is usually much lower than anticipated.
Taking it a step at a time, before exhaustive studies of rebates, tax incentives, available technology and detailed LEED design work is completed, the developer can feel fairly comfortable with the following costs of LEED, based on previous projects:
• Certification: 0-0.8%
• Silver: 1-2%
• Gold: 2-4%
• Platinum: 4-8%.
These percentages are based on hard plus soft costs and exclude land costs.
Indeed, some cities are incorporating LEED points into their building codes, and the cost to achieve basic LEED-certification is almost always cost neutral. I have noticed that most hoteliers will aim for silver or gold certification. Platinum, although admirable, is more difficult to achieve, as even the site needs to meet certain criteria that are out of the developer's control. Again, Dennis Quaintance had some accurate comments about going LEED platinum:
"It wasn't easy. It wasn't hard, either."
Looking at some concrete examples, Good Energies explained to the Wall Street Journal
that for the average, non-residential building with an increase of 2% of costs (generally a silver or gold LEED-certification), the payback period averages 3-4 years, and over 20 years the payback is equal to 4-6 times the investment cost.
And what about the increase in sale's price of the hotel? For this estimate, we are lacking hotel comps and need to examine office and retail projects. Generally, sale's prices for energy efficient buildings are as much as 10% higher per square foot than conventional buildings. Most LEED hoteliers anticipate a one percent lower cap rate (higher sales price) upon sale. This increase in profit is in addition to the lower energy and water costs, the lower insurance costs, the lower cost of debt, the increase in group meetings possible, the higher occupancy levels (9% of the population currently seek out 'green' hotels) and the larger pool of potential buyers (pension funds and insurance companies generally look for the most technically advanced buildings, and LEED is considered to be cutting edge, and certainly less likely to become obsolete!).
Looking at 'green' strictly as an investment, the McKinsey and Co's report, "The Case for Investing in Energy Efficiency
", $170 billion is anticipated to be invested in energy efficiency over the next 13 years, with an internal rate of return of 17%. This investment will generate $900 Billion of annual savings by 2020. This is a better return than the stock market (which has shown us a 10% return over the long term), or real estate (with its average 16% return). Notably, these numbers are calculated based on a conservative $50 per barrel oil cost. If oil costs go up to $150 per barrel, the internal rate of return triples to 51%, which is five times better than the average stock market return.
So, if your hotel goes 'green' (even gradually), will it be for the planet, for people or for profits? My belief is that if it is not profitable, it will be nearly impossible for developers to go 'green' for purely altruistic motives. Fortunately, we don't have to choose one motivation. Let go of that guilt and know that if you are increasing your profits, the planet is also benefiting.
Diana Driscoll, LEED AP B, D & C
Ridgeline Hospitality, LLCDDriscoll@RidgelineHospitality.com
Twitter: @dianadriscoll @hotelrescue
Labels: certification, Going Green, HotelRescue, LEED