You Can Always Do Better – Process Improvement at LBA Realty

EDF Climate Corps fellow | August 9, 2012

 Fellow: Andy Perkins, 2012 EDF Climate Corps Fellow at LBA Realty, MBA Candidate at Yale University School of Management

Organization: LBA Realty

The Opportunity: 39 million square feet of industrial and commercial real estate

Summary: In the world of commercial real estate, Net Operating Income (NOI) is everything. Its focus on operational efficiency and driving down costs is the measuring stick by which a building's value is determined. It drives the entire industry. I discovered that LBA could improve the NOI of its future energy efficiency projects by creating a standard process for vetting vendor proposals.

When I walked through the front door of LBA Realty on the first day of my EDF Climate Corps fellowship, I (naively) expected to find energy savings right away, a bounty of low-hanging energy efficiency "fruits" ripe for the picking. But in the first weeks of my fellowship, I didn't find a single lamp, exit sign, vending machines or other piece of machinery that was an obvious waste of energy.

The Value of Process

As it turns out, LBA already has energy management policies for building operation and acquisitions in place. Every major asset in the firm’s portfolio is registered in ENERGYSTAR'S Portfolio Manager, so management can track performance from year to year and performance against peers (nearly 90% of LBA’s portfolio is in the 75th percentile or above for Energy Star rankings).

Additionally, all buildings are frequently evaluated by outside vendors for potential efficiency upgrades, from lighting to HVAC and central plant equipment. All those projects that meet the firm’s payback criteria are quickly approved.

With such an effective process in place, I struggled to figure out – in just ten weeks – how to add value to LBA through energy efficiency when so much was already in motion. Ultimately, my manager and I decided to model and benchmark the energy-use and CO2-emission reductions accomplished by LBA's recent lighting retrofits, a vetting process that wasn't written into LBA's existing policies.

Processes Can Always Be Improved

I gathered data from LBA's twenty-plus lighting retrofit projects, which span five states and eight electric power utilities. It was a bit of a nightmare, frankly, because every proposal I looked at came from a different vendor, each with a fundamentally different approach. Often competing proposals gave significantly different estimates for electricity rates, hours of use and labor costs – even though they were proposing nearly identical upgrades to the same facility. They also tended to exaggerate annual savings and the brevity of payback periods.

LBA had not compared the vendor proposals at a granular level – they simply didn't have the resources to do so. And that’s where I discovered my value for the firm. Requiring vendors to use a standard set of operating parameters – such as variance analysis on electricity rates – would enable LBA to more effectively identify the vendor proposals with the highest value. By incorporating this practice into its energy management process, LBA can have confidence that projects are meeting its requirements for financial return.

EDF Climate Corps places specially trained MBA and MPA students in companies, cities and universities to develop practical, actionable energy efficiency plans. Sign up to receive emails about EDF Climate Corps, including regular blog posts by our fellows. You can also visit our Facebook page or follow us on Twitter to get regular updates about this project.