ULI Colorado Blog

Making Multitenant Net Zero Work in Colorado

 

By Kathleen McCormick

Andy Bush (left) of Morgan Creek Ventures, developer of Boulder Commons, points out daylighting of meeting spaces during a panel presentation that also included Cara Carmichael of Rocky Mountain Institute, Larry Preble of counsel with Holland & Hart, and Bill Holicky of Coburn Architecture. (ULI Colorado)

A 100,000-square-foot (9,300 sq m) project in an emerging transit district in Boulder, Colorado, is making the business case for net-zero-energy (NZE) multitenant leased office buildings, including lower operating costs, higher profits, reduced carbon emissions, better recruitment and retention for tenants, and happier, healthier, and more productive employees. The new $40 million Boulder Commons, a mixed-use office/restaurant/retail project in two adjacent buildings, is one of the largest NZE multitenant commercial buildings in the United States, according to New Buildings Institute (NBI) data. A recent ULI Colorado event featured a tour of the project and a panel presentation with the developer, architect, leasing attorney, and primary tenant.

Panelists said that Boulder Commons is a national model in efforts to reduce energy use in one of the nation’s largest building sectors. Multitenant commercial buildings are still unusual in the net-zero world of mostly owner-occupied or single-occupant office buildings, educational buildings, and multifamily housing. NZE buildings are highly efficient and produce enough carbon-free energy to meet annual operation needs. Eighteen percent of the carbon and 36 percent of the electricity consumption in the United States come from commercial buildings, and over half of nongovernment-owned commercial buildings are leased, according to the U.S. Department of Energy. Boulder Commons is designed to consume only one-third of the U.S. average office energy usage, and though it is connected to the utility grid, its renewable energy system on balance will typically cover that use.

Another Boulder Commons goal was “to make returns as good [as] or better than conventional development,” said developer Andrew Bush, founder and managing partner of Boulder-based Morgan Creek Ventures LLC (MCV), located in one of the buildings. Opened in November, it will have up to 12 tenants when fully leased. Bush said the project is likely to achieve an 8 percent unleveraged return, or a leveraged return of up to 15 percent. Because of fixed energy costs over 20 or 30 years, operating costs will be stable and lower relative to those for other Class A office buildings. MCV charges an extra 7 percent in rent, which earns $190,000 per year and over ten years will cover the cost for the $2 million solar-energy system. The project will also get federal tax credits of 35 percent for the solar system, with rapid depreciation of 50 percent in the first year and more over four years. Growing evidence shows that projects such as these also have lower cap rates for financing and purchase, noted Bush.

“Tenants pay market rate for base rent, but pay up to 13 percent less overall due to lower operating expenses,” said Bush. Tenants are given an energy budget, or “plug load,” of 7 kBtu per square foot. Their energy use is monitored separately and reported monthly. If tenants exceed their monthly energy budget, MCV charges by the kilowatt-hour for additional energy, with no markup.

Boulder Commons is located next to Boulder Junction, an area redeveloping with new offices for Google and apartment and condominium buildings with restaurants and retail. The project’s two buildings rise three stories on the west side and four stories on the east, next to railroad tracks. The north building has 60,000 square feet (5,600 sq m) with office space over a ground-floor gallery-lobby, retail space, and 70 underground parking spaces. The south building has 40,000 square feet (3,700 sq m), with a south-facing roof deck and office space over a large meeting room, coffee shop, and ground-floor restaurant. The buildings are linked by a central plaza. The project includes its own mobility hub with a car-share program and bike-share stations, and connects to city pedestrian and bike paths.

“Boulder Commons pushes the boundaries for net-zero construction,” said Bill Holicky, principal in charge of project design with lead architects Coburn Architecture in Boulder. NZE buildings typically comprise three or fewer stories and have a solar system taking advantage of expanses of sunny south-facing rooftops and facades. But because the two buildings at Boulder Commons needed to fit into a specific urban infill site, he said, the buildings could only extend north to south, with the south building’s narrowest part facing south. Building orientation and the region’s cold climate ruled out using just rooftop solar photovoltaic panels (PVs), presenting a challenge for renewable energy production.

“The biggest innovation in the project was using PVs on the eastern facade,” said Holicky. The PV walls absorb solar rays unimpeded for about six hours a day most days (Boulder typically has 300 days of sun per year). The PVs plus a very tight framework for the full rooftop solar array allow the buildings to produce more than enough solar power to cover energy needs, he said. The PV walls also lowered construction costs because the eastern facades did not need the expensive metal cladding used on other facades. EHDD architects in San Francisco led sustainability efforts, including for the building envelope.

Boulder Commons, located in a redeveloping transit district in Boulder, Colorado, is perhaps the largest net-zero multi-tenant leased commercial buildings in the U.S. (Coburn Architecture)

Renewable energy and building efficiencies have lowered operating costs significantly compared with those for conventional design and construction, said Holicky. The buildings, outfitted with LED lighting for nighttime use, have abundant natural light from large operable triple-glazed and high transom windows, aided by ten-foot (3 m) ceilings and narrow floor plates in which interior spaces are always within 35 feet (11 m) of windows. The core of each building is occupied by small meeting rooms, restrooms, kitchens, and copier and storage areas. The interior design, by Huntsman Architectural Group of San Francisco, features moss-garden walls and beetle-kill wooden doors, examples of biophilic design using natural materials that contribute to human health and productivity. Decks and plazas on each level of the building provide outdoor access.

In typical construction, capital costs for efficiency are borne by the developer or owner, and the cost benefits of energy savings are accrued by the tenants. A well-designed NZE lease solves the split-incentive issue, said Laurence Preble, a real estate attorney of counsel with Holland & Hart LLP in Boulder. “The landlord takes the risk” if the sun doesn’t shine or the solar equipment fails, said Preble, who noted that all NZE provisions need to be specified in the tenants’ leases.

“Boulder Commons was a natural fit for our goals” of environmental leadership, said RMI manager Cara Carmichael. RMI is a global entrepreneurial nonprofit organization that works with businesses, federal agencies, and institutions to accelerate the shift from fossil fuels to energy efficiency and renewables.

NZE commercial buildings are part of “an industry where no one wants to go first,” said Carmichael. “But we’ve done it, and we’ve seen happier, healthier, and more productive employees. We believe NZE also will help with recruitment and retention of employees” because the project represents the “leading edge” of sustainability. She said that monitoring and reporting of energy use are inspiring tenants to adjust their energy-use behavior and pay attention to plug loads for energy-sucking equipment like printer-copiers and computers. RMI is pursuing an emerging tenant star building certification, and the developer will pursue NBI and International Living Future Institute zero-energy certification after one year of occupancy.

Carmichael announced the release of RMI’s Best Practices for Leasing Net-Zero Energy Buildings, a new guide on the business case and process for NZE leased commercial buildings that features Boulder Commons and other projects. The guide walks developers and commercial tenants through how to write and negotiate an NZE lease so that both landlord and tenant benefit. The RMI guidelines complement the goals of the new ULI Tenant Energy Optimization Program.

When asked about the challenges of an electric restaurant when most chefs prefer to cook with gas, Bush said the restaurant has gas as a backup, but the goal is to be all electric. While it’s a fairly new concept for the U.S. market, he said, he talked with chefs of fine all-electric restaurants in Paris who said they’d “never go back” to gas.

“We can’t think anymore about small incremental changes” in making buildings more energy efficient, said Bush. “We have to move ahead.” An adjacent second phase of Boulder Commons, featuring NZE mixed-use office, residential, and retail space, is projected to begin this year.

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