Forest City Aims High at Energy Targets

By Paul Rosta

 

In April, Forest City Realty Trust became only the second U.S.-based REIT to earn approval for its greenhouse gas reduction strategy from Science Based Targets, a global coalition of 400-plus leading businesses and non-governmental organizations. It was the latest such milestone for the Cleveland-based developer/investor/manager, which has long made energy efficiency a core strategy. Jill Ziegler, the company’s director of corporate responsibility and sustainability, offered insights into Forest City’s approach to energy management as well as perspectives on industry-wide challenges and opportunities. 

Why did Forest City make the commitment to Science Based Targets, and what are the company’s specific goals for its participation in the program? 

We decided to set a science-based greenhouse gas target because the timing was right. Our portfolio is focusing on our office, apartment and mixed-use properties in our core markets. That presented a good opportunity to look at our sustainability goals and consider re-baselining or updating them. In addition, our core markets, which are home to the majority of our portfolio and large urban placemaking opportunities like The Yards in Washington, D.C., and Pier 70 in San Francisco, all have long-term greenhouse gas reduction strategies. This is just another way to align our strategy with theirs, so that we can be can be good partners.

Having our greenhouse gas targets aligned with and approved by the Science Based Targets initiative gives us a broad global context within which to set our goals. We want to make sure we’re doing our fair share, as a real estate owner, operator and developer based in the U.S., to mitigate the climate impacts of our business, and make sure we’re looking at the way our portfolio is changing and is going to be changing in the future.

There are three types of greenhouse gas emissions – scope 1, 2, and 3, which represent the source of the emissions, such as those resulting from using electricity or landfilling waste. We had to evaluate and set goals for all three. For Scopes 1 and 2, we’ve committed to reduce our emissions 27.5 percent by 2025, as compared to the base year of 2016. For Scope 3 emissions, our target calls for a 33 percent reduction by 2025.

What do you expect to be the main elements of how the company reaches those targets? Will it be primarily a matter of sticking to what’s already proven to be successful, or do you expect to identify some new energy management strategies in the years to come?

We will continue our strong sustainability program and monitor our progress closely to ensure we’re on track. This will include completing energy efficiency projects within the portfolio, developing LEED-certified, high-performance buildings, monitoring construction-related emissions and exploring ways to reduce them, transitioning the portfolio to more efficient assets that use less energy per square foot, and assessing opportunities to incorporate renewable energy into the portfolio.

Forest City was also named an ENERGY STAR Partner of the Year in April. What are the main achievements that earned recognition, and how did you accomplish them? 

A: Our most recent accomplishments include improving our portfolio-wide ENERGY STAR score 6 percent from 2016 to 2017, benchmarking 100 percent of our properties, and requiring certification for all new homes built in Stapleton, which is Colorado’s largest ENERGY STAR community. Also, our new headquarters in Cleveland is a charter tenant in the ENERGY STAR for Tenant Spaces pilot program. As a pilot participant, we are helping to shape the program as well as targeting certification of our office.

We’ve really tried to integrate ENERGY STAR in a lot of different areas of the business. For instance, Portfolio Manager, ENERGY STAR’s tracking and measurement tool, is used to manage data for 100 percent of our buildings, and we use ENERGY STAR in training our property management teams.

Twofold Strategy

Would you give us an overview of your energy management strategy? What are your priorities, and what strategies do you find to be most effective?

Forest City’s approach to energy efficiency is twofold: First, we target low-cost, high-payback opportunities like LED lighting retrofits in a systematic, portfolio-wide approach. Region by region, we utilize utility funding and external partners to retrofit lighting with cost-effective, long-term solutions. In 2017, this meant targeting 12 properties with lighting projects that are anticipated to save the company over $174,000 per year in energy costs.

Second, we look at projects that are a necessity to complete at properties and see if the property can be made more energy-efficient by an improved selection. During this process, we’ll also review available funding programs for each project. A few projects to highlight from 2017 were water fixture updates and PACE-funded projects. The water fixture projects occurred at two properties, were primarily paid for by utility incentives that totaled more than $186,000 and will save an estimated $95,000 per year. The PACE projects occurred at two retail properties and combined LED lighting, HVAC replacements, and white roofing installations. These projects are expected to save the properties over $570,000 per year in energy costs.

A challenge for any energy management program is cost-benefit analysis. How does Forest City underwrite projects—retrofits as well as new development—to make sure that they are cost-effective? Do you target a specific payback period for upgrades? 

As part of our budgeting and capital planning process, we try to get our engineers out in front of what’s already budgeted, so we make sure that sustainability and energy efficiency are taken into account. We want to make sure that we’re making good investments. We’re trying to incorporate that in the natural budgeting cycle.

Regarding payback periods, we don’t have any hard-and-fast rules that we target. In general, if it’s under a two-year payback, it’s a no-brainer, and we’ll definitely do the retrofit. If the payback period is less than five years, that’s still very attractive, and the chances are good that we’ll do those retrofits, too.

And even if the payback period is five years or more, that won’t necessarily disqualify a project. Let’s say a property has a boiler that’s older and less efficient. Maybe the payback period is longer than five years. But we know we’re probably going to have to replace it anyway, so it may make more sense to make that investment now instead of waiting.

Which energy-related trends and issues do you expect to be watching most closely during the next 12 to 18 months?

We’re continually monitoring several trends, whether it’s pricing, procurement, renewable resources or other issues. For us, policy is probably the one thing that has the most immediate impact—where we feel the most change is going to happen. California, for example, keeps raising the bar, like the new requirement to incorporate solar panels or green roofs in commercial properties of a certain size. Anywhere building codes and other real estate-related regulations are changing, that’s going to have an impact.

As you look at longer-term trends, what issues do you think will have the biggest impact down the road?

I do think that policy is going to have a big impact. As I mentioned, we’re seeing it in California with asset-level energy reporting, building codes, and other requirements. Some of these policy changes are going to have a bigger impact. If you’re have to install solar panels or greywater systems, for example, it’s going to impact your budget.

Finally, I think institutional investors and shareholders are becoming more attuned to a company’s sustainability performance, and it’s becoming an increasingly important factor in their investment decisions. For companies that aren’t already focused on sustainability, it’s going to be a heavy lift when investors begin asking about their environmental performance and how they are mitigating risks like sea level rise or increased occurrences of extreme weather events. It makes good business sense to develop a comprehensive energy and sustainability strategy.