Budgeting for Commercial Real Estate Sustainability

Vornado Realty Trust (NYSE: VNO) is continuing to build on its corporate sustainability program by focusing on core goals and including budgeting as a part of its sustainability efforts, according to Sukanya Paciorek, Vornado's vice president for corporate sustainability.

Paciorek spoke with REIT.com during the 2012 NAREIT Leader in the Light Working Forum in Dallas this month, during which she discussed Vornado's ongoing commitment to sustainability and energy efficiency. Paciorek said Vornado has been involved in sustainability efforts for many years. She added that the program began by researching key areas of focus and then expanding efforts into other areas.

"Over the years, we not only focus on labeling and certifying our buildings, but we really focus on allocating the appropriate capital to improve the performance for our buildings," she said. "It's the day-to-day work that makes a big difference in our industry."

One of the newer initiatives is fitting sustainability into Vornado's budgeting process, Paciorek said. She added that while the company was properly allocating resources and funding to do LEED certifications and other programmatic work, it hadn't addressed the larger budgetary issue.

"That has been an instrumental change over the last year. We actively set aside a standalone capital budget that looks at energy efficiency separately so we can evaluate it against each other, rather than the larger portfolio," she said. "It's not being compared against lobby renovation or something else."

In terms of savings cost versus implementation costs, Paciorek said savings opportunities present themselves in anywhere between two to five years, with the average being a three-year payback. Despite the work Vornado has put into boosting efficiency, she said there are still opportunities to create savings.

"What we've found is that there's still an enormous amount of opportunity in our portfolio. Our portfolio is largely existing buildings, and that, in and of itself, brings opportunities in lighting and HVAC retrofits," she said.

She added that Vornado's chairman, Steven Roth, is "deeply connected to the issue" of sustainability, which has made a difference in terms of implementation and in rallying the entire company behind its efforts. In order for any environmentally friendly initiative to work, it also requires having people on staff who are supportive, such as property managers and chief engineers, according to Paciorek.