What we mean by Ancillary Income for CRE: 

When we say Ancillary income for CRE, we're talking about revenue generated from non-primary sources, which are supplemental to a property's primary income (e.g., rent from tenants). Examples of ancillary income include efficiency dividends, cell antenna leases, parking, advertising, and shared workspace rentals. These additional income streams can boost a property's overall profitability and enhance its value and resilience in changing market conditions. But, it's also important to choose the right type of ancillary income opportunity. Tenant comfort is extremely important and you don't want to make your tenants feel like they're an opportunity for cash grabs.

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Commercial real estate (CRE) owners are constantly looking for ways to increase revenue, especially in fully-occupied buildings with long-term leases. Traditional ancillary income options like billboards, cell phone antennas, and parking garages can provide a boost, but they often have limitations. Carbon Lighthouse's Efficiency Dividends offer an alternative for generating ancillary income through energy savings measures, that create financial win-win scenarios for building owners and tenants alike. In short, Efficiency Dividends are generated when energy use is optimized, creating energy savings that are distributed to the building owner and the building tenants.

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Our approach with Ancillary Income for CRE, Efficiency Dividends: 

Efficiency Dividends take tried and true methods from OpEx reduction and combines them with standard accounting practices to unlock OpEx reduction that shares benefits with tenants and provides new recurring net operating income (NOI) to CRE funds, firms and building owners. Efficiency Dividends are essentially financial incentives offered to Building Owners for modernizing their buildings, which in turn lowers energy costs for tenants. As icing on the cake, Efficiency Dividends also allow you to check off sustainability boxes that deliver against LEED, Fitwel, ASHRAE, EnergyStar EUI reduction and all sorts of actual energy reductiongoals.

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How do Efficiency Dividends compare against other Ancillary Income opportunities like billboards, parking garages and cell-tower antennas? 

First, this isn’t a binary either/or decision. There’s no reason you couldn’t do every ancillary income opportunity if you wanted to. But if you only wanted to go with Efficiency Dividends, here’s what you’d get. 

• Offers on average $20,000 - $40,000 per 100,000 square feet.
• Generates new income for fully-occupied buildings with long-lease tenants.
• Works in NNN and modified gross buildings.
• Ancillary income that actually benefits your tenants with  lower operating expenses from modernized buildings. We love this last one, because at the end of the day, you’re here for your tenants. Anything that’s good for your tenants is generally going to be good for you. 

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And here’s what’s different about Efficiency Dividends as ancillary income for CRE: 

• Starts generating income to CRE owners in less than 90 days.
• Creates OpEx reduction for tenants.
• Requires no external modifications to buildings.
• Uses existing on-site facilities and site teams to get work done.

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Here’s how it all works:

SMARTincome by Carbon Lighthouse optimizes a building's energy usage through four tailored energy savings measures, including

1. Start/Stop Scheduling, 
2. Supply Air Temperature Reset, 
3. Economization, and 
4. Duct Static Pressure Reset. 

By implementing these solutions, CRE owners can generate between $20,000 and $40,000 per 100,000 square feet of additional yearly recurring income. For a medium-sized Medical Office Building CRE portfolio (~10 million square feet of building coverage), Efficiency Dividends can add upwards of $4,000,000 in new recurring income. That’s pretty amazing, if we do say so ourselves. 

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Wondering what each of these measure are? Here’s a helpful guide: 

Start/Stop Scheduling:

• What it does: Addresses unnecessary HVAC operation during unoccupied times. By scheduling start and stop times for the HVAC system, energy is saved by only operating during occupied periods.
• ELI-5: Imagine leaving your car running overnight while it's parked in the driveway, wasting gas and causing unnecessary wear on the engine. Start/Stop Scheduling is like turning your car off when you're not using it, saving energy and reducing costs.

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Supply Air Temperature Reset:

• What it does: Addresses unnecessary HVAC operation during unoccupied times. By scheduling start and stop times for the HVAC system, energy is saved by only operating during occupied periods.
• ELI-5: Picture sitting in your office with your space heater and your air conditioner going at the same time. You are comfortable, but the two systems are fighting each other and wasting tons of energy. Surprisingly, this happens a lot in buildings because some parts of a building may require much colder air than others. But this creates a ton of waste and there are ways to run your fans, pumps, boilers, and chillers, much more efficiently.

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Economization:

• What it does: Addresses excessive energy use for cooling. Economizers use outside air for cooling instead of mechanical cooling when the outdoor conditions are favorable, reducing the energy consumption of the HVAC system..
• ELI-5: Think of a person sitting in a room with an air conditioner and an electric fan both running, while the window is open, letting in a cool breeze. The fan and the air conditioner are unnecessary energy expenses when the outside air could be utilized for cooling, leading to higher energy consumption.

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Duct Static Pressure Reset:

• What it does: Addresses inefficient fan operation. By continuously adjusting the duct static pressure setpoint based on actual airflow requirements, the fan energy use is minimized while meeting system demand.
• ELI-5: Envision a car's engine running at full speed constantly, even when it's driving slowly, stopping at traffic lights, or idling. This wastes fuel, increases emissions, and causes unnecessary wear on the engine. Similarly, inefficient fan operation wastes energy and increases costs without adjusting to demand.

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How often Carbon Lighthouse uncovers these opportunities? 

Here's generally how frequently we identify these opportunties and how much they cost building owners when left unaddressed:

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Some surprisingly major benefits to Medical Office Buildings:

In medical office buildings that are fully leased with long-term tenants, building owners may lack the financial incentive to implement improvements. This can result in increased costs and decreased tenant satisfaction due to old equipment, higher energy bills, and unreliable building conditions. Efficiency Dividends, a key component of SMARTincome, generate new revenue streams through verified energy savings from building improvement projects. This while powerful for Medical Office Buildings, also works well with any building that has a NNN or modified gross lease. 

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Efficiency Dividends Work in the Real World: 

We’ve been working with a LOT of customers on energy OpEx projects for the past 10 years. Many of our customers are now deploying our Efficiency Dividends platform, SMARTincome. Recently, we worked with a publicly traded REIT that deployed Carbon Lighthouse's ancillary income solution across 36 of their buildings. Their goal was to use fast payback projects blended with CapEx projects for rapid cash returns in previously inaccessible Modified Gross leased buildings. 

We had initially predicted new recurring efficiency dividends ancillary income of $730,000 per year. After implementing our recommendations, our client increased annual cash flow by $740,000, exceeding our predictions.

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Example IRR of Efficiency Dividends

What if you could get an internal unlevered IRR of 27%? Sound too good to be true? It’s not. It’s real and we can make this happen for you. Here’s the basics of the financials for a building that spends $80,000 on energy OpEx projects we calculated for a building, that reduced annual OpEx by $30k / year. In this instance, the building owner shared ~$5k in reduced OpEx / year with the tenants. 

• $5k one-time setup fee paid by Building Owner to Carbon Lighthouse
• $80k total one-time project costs, paid by Building Owner to Contractor
• $250k generated over 10 years (Efficiency Dividends generate $25k per year in new income for the building owner)
• Calculated internal unlevered IRR: 27%

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What’s next? 

Carbon Lighthouse's SMARTincome provides a powerful solution for CRE owners looking to generate ancillary income through energy savings measures. By optimizing energy usage and implementing tailored solutions, building owners can create win-win scenarios that benefit both their bottom line and tenant satisfaction. Our combination of cutting edge software, data and professional services can get your portfolio earning millions in new ancillary income starting in less than 90 days.

Schedule a free demo and we’ll show you exactly how Ancillary Income through Efficiency Dividends would work for your specific buildings.