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Q&A: For Life-Sci Landlords, Being — and Saving — Green May Start With Renovating, Not Building

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At the GeneAcres 17 conference held in South San Francisco, Calif., this week, a panel of professionals agreed that life-sciences building owners — be they users or owner-managers — can save money in the long term and promote environmentally friendlier "sustainable" development by renovating existing buildings rather than building new ones.

That is especially true, they agreed, when facilities are renovated to the Leadership in Energy and Environmental Design standards developed by the US Green Building Council.

A few miles north of the conference site, in San Francisco, owners of lab, R&D, and other life-sciences facilities don't have a choice: The City by the Bay requires them to renovate their buildings to LEED standards.

Indeed, this year San Francisco tightened its LEED standard by reducing the number of buildings it will allow to undergo renovations. That regulation, which relies on the city’s bronze, silver, gold, and platinum ratings scale, will be tightened further in 2012 when San Francisco forces commercial property owners carrying out renovations to apply only the gold or platinum standard.

Rules like these are a point of pride for San Francisco Mayor Gavin Newsom, who last week credited the law with helping the city to cut its greenhouse gas emissions by 6 percent from 1990 levels.

Newsom, a Democrat, hopes that accomplishment and other so-called eco-friendly policies will help him win support from voters in his current campaign to succeed term-limited Republican Gov. Arnold Schwarzenegger, who leaves office next year.

BioRegion News recently spoke with the moderator of the GeneAcres panel, David Bendet, about the challenges of renovating and adapting existing life-sci facilities.

Bendet is a senior project manager with the firm Perkins+Will in San Francisco and an architect who holds the designation LEED accredited professional.

Following is an edited transcript of the interview:

What effect has the recession of the past year had on companies and universities when it comes to pursuing renovations of their space? Are there more of these projects than in past years, or more of an inclination toward renovation versus new-build?

In my experience, there are, and I think partially it's because of the economy. There was a previous boom in the economy with a lot of construction, which left a lot of new buildings available, essentially a glut in the marketplace, with a lot of available square footage. Since then, with the economy shrinking and companies shrinking, the amount of available square footage increased fairly dramatically.

In San Francisco, my guess is that there are probably a million square feet or more, maybe 2 million square feet, of available space for companies to go in and retrofit, either as a result of other companies shrinking, or building shells that were developed for tenants that were left empty [Commercial real estate firm NAI BT Commercial reported 2.7 million available square feet of R&D space alone in suburban San Mateo County, which includes South San Francisco, as of the second quarter of this year – Ed.]. A prime example of that would be the development at Mission Bay that was originally intended for Pfizer. When Pfizer pulled out, it left a fairly significant empty building ready for sub-lease and interior fit-up.

What forms do these renovations take?

There are a couple of different categories: The first is fit-up of existing developed space. And the other is the increase of renovations in place. Because of the lack of capital in the marketplace, companies – small companies especially – are trying to extend what they call their runway or operating timeline. They have limited capital, so they need to make it last as long as possible to keep the research going. And so they're not looking at building new facilities right now. They're trying to take advantage of the infrastructure and capital they have in place. But the science and the research keeps changing, so they're forced to do small-scale renovations to support the science, while keeping the costs and disruption minimal. That's why the interior renovations and fit-ups are dominating the marketplace right now.

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How about larger companies?

Even larger companies are looking to do the same. Usually the larger companies are operating on a longer timeframe – a capital plan of maybe 10 years out, rather than emulating the smaller companies, which are only looking out maybe two to three years. But even the larger companies are focused on renovations as well for much of the same reasons, but also because in some cases, renovations are just more cost-effective, they’re quicker to complete, and they're sustainable – it's a more sustainable approach to reuse something that's existing and adapt it for reuse rather than build new. I think there are a lot of reasons that renovations have certainly become more popular over the past few years.

Renovations, however, do present challenges that require the involvement of design and engineering professionals. Unknown and hidden conditions need to be accounted for, and trying to squeeze highly technical space, with increased ventilation and power requirements, presents a challenge within existing space or space that was originally designed only for offices.

How has the cost of those projects changed over those past few years? Does more space necessarily mean cheaper projects, or is it because there are more projects taking place?

Early 2007 was the time of probably the highest costs that we've seen in the marketplace, because the economy was booming through 2006, so costs were increasing. But then, [during] 2007 and 2008, with the economic downturn, all of a sudden companies had less capital to spend on new projects. There was downsizing in a lot of companies. The effect that that has is that there's not a lot of construction, so there's more competitive costs that are being proposed by contractors. The competition in the marketplace for fewer projects has driven the project costs down.

[How far down] depends on the type of facility. Some of the very sophisticated, highly complex facilities, such as containment labs, even for a renovation, might still be in the $800-a-square-foot range. Costs have generally come down probably a good five, maybe even 10 percent since early 2007, according to our records. And the renovations which at one time, in early 2007 according to some data, were about the same price as new construction, maybe because builders were so busy they didn't have much incentive to competitively bid the more complex and challenging renovation projects.

That might have been a reason that the costs were about the same for renovations and new construction, and there is a lot of extra complexity and contingency that needs to be added for renovation projects. But what we've seen over the past couple of years, and right now, is that the renovations are backed down as more cost effective lower-cost strategies than new construction, certainly. We're seeing probably a 20 percent lower cost for renovation projects as opposed to new construction.

What would be the range of costs you're seeing, per square foot?

Like I said, it varies greatly. It really depends on the type of project, complexity, and location. It's a hard number to pin down. What I can tell you is that for analytical research — mostly computer use so it's a lot like office buildings — those right now are probably in the $200 to $300 per square foot range.

On the highest end, you're looking at facilities that are like, for example, cGMP classified clean rooms, biosafety level 3 or 4 containment labs, nanotechnology research, or other highly technical space that could be anywhere from $500 a square foot up to $900 per square foot. We also typically find that costs on projects for large complex clients are higher as a result of the enhanced standards and requirements they demand on projects. As a result, that same highly technical space could be over $1,000 per square foot, there's usually a surcharge on top of that because of the complexities of dealing with certain institutions. The cost for renovation and fit-up of general chemistry and biology labs these days in the Bay Area is probably still in the range of about $250 to $450 a square foot.

All these numbers are for renovation projects, not new construction. New construction costs are probably 10 to 20 percent higher.

Any discernible trend in terms of what companies want to renovate? Are they more attracted to underused facilities, or existing buildings, or more shells?

I don’t have specific metrics or data. Certainly, when I'm talking to clients out in the marketplace, most of them are looking to reuse existing facilities and materials. We're working with one client right now that is moving from one facility to another facility. Not only are they renovating the new facility, but they're also planning to relocate and reuse much of the existing casework, scientific equipment, and even certain interior building materials in order to save a few dollars.

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In addition to the availability of commercial space in the marketplace, there is also a large amount of existing and even new building materials and equipment that are available for purchase and reuse on other projects.

There's generally a significant trend by clients to renovate in place, or take advantage of the market conditions with available empty shells, and do a fit-up to suit.

What effect has the capital squeeze of the past year had on the interest clients have shown toward using sustainable technologies and techniques in renovating their properties?

I think there are clients that are forced to look at short-term capital savings, and then there are clients that have a little bit of the extra capital to do some long-range planning. And I think the ones that are forced into the short-term approaches are not implementing as many of the sustainable approaches.

Depending on how far you go with sustainability, it can be either no additional cost, or can be up to five or 10 percent more expensive, depending how far you take it. Most design these days should be able to meet the basic LEED certification level or silver level without additional cost other than the certification process itself. To achieve a higher level of LEED certification typically requires the addition of system and active equipment changes or enhancements, which drives the cost up. For clients that are just looking to save in the short term, those solutions are not very attractive. But for the larger clients, in particular, that are able to look out 10 years or so, the long-term benefits of those sustainable approaches are certainly attractive, because there is certainly a return on the investment of the energy use, personnel productivity, etc., that supports a more sustainable approach.

How far are clients that are inclined toward sustainability inclined to go? Toward gold or platinum on the LEED rating scale?

Clients are falling into a couple of categories. Some clients are not truly interested in the certification paper, but are looking to do something that's highly sustainable. They just want to do the right thing. And then you look at clients that actually want to get the paper, to get the LEED certification because it's good for PR, for marketing, for human resources, it makes people feel good about their facility. Getting the paper does cost more. You have to go through the documentation process, and the submittal process to the USGBC [US Green Building Council].

Sustainable strategies for energy reduction in labs typically address the following primary drivers: evaluating the air change rates, providing strategies to reduce the ventilation requirements for fume hoods, right-sizing HVAC systems and equipment plug loads, reducing the demand for re-heating of the conditioned air, and water use reduction or recirculation, energy efficient scientific equipment, and looking at methods to reduce the static pressure within the ventilation system.

So really the LEED paperwork is just a decision by companies on whether they actually want to get that certification paper or not. But then, in the sustainability approaches, they're sort of, I guess you can call it sustainability light, and sustainability heavy. It falls into the same two categories that I was talking about before. Most architects these days do sustainability because it's just the right thing to do. So all of our projects are sustainable, and we implement all of the sustainable approaches that we can, that are not increasing project costs. We just do that as a part of our core practice.

And then there are the clients that are looking to save long term. For example, at Ohlone College, we went to the Platinum level by implementing active, sustainable solutions. These active solutions were more expensive, but they took the project to the LEED platinum level, and reduced the operating energy costs significantly. Active solutions include photovoltaic cells, entropy wheels, heat exchange, geothermal, solar arrays, high efficiency equipment, and so on. Then again, a lot of times what we're doing is just trying to find solutions that are no-cost passive strategies, such as interior daylighting, which don’t add to the facility cost, but do help in sustainability and energy reduction. Those passive solutions are really the ones that we're often looking towards first, and are often enough to drive projects into the silver, potentially gold range. You can do a lot of good work just with creative, innovative, and smart design, really, using passive solutions first. And then if they really want to get to that gold to platinum level, then you really do have to start taking a look at active solutions.

What's the distinction between passive and active solutions?

Passive solutions involve not buying a piece of equipment. You're not buying a photovoltaic cell and plugging it in. Passive solutions include good building orientation, interior daylighting, or a natural ventilation system. In fact, if we take natural ventilation as an example, it’s possible to actually reduce initial construction costs because ventilation equipment can be reduced, and it also saves on the operational energy costs, so it’s a win-win. It’s not currently viable to implement natural ventilation in a research laboratory because of pressurization, cleanliness, and other safety issues. But in some facilities, we're recommending a combination of naturally ventilated office spaces combined with 100-percent mechanically ventilated research laboratories, which draw cascading air from the office space.

What effect has President Obama's stimulus act, the American Recovery and Reinvestment Act, had on demand for lab renovation work?

The NIH has specific grant opportunities for renovations — namely the core facility renovation, repair and improvement program, their G-20 grant. I think that folks are getting smarter about the opportunities that are available to them for grants and funding.

Is it fair to say that ARRA has propelled more of these lab renovation projects forward, or is it that it has caused people to think more about those projects?

I think it will move more projects forward. There's a time lag here because most of the grant applications were submitted over the summer, July to September timeframe. For example, I know we were involved in helping a few clients put together grant applications that went in during July. They're supposed to hear about the award [during September]. In fact, I just got a call yesterday from a client ready to restart a project as a result of some of the news about the grant funding coming in, which means that the stimulus will get architects and engineers started probably toward the end of this year, or early next year, and that the actual construction work is probably mid- to late-2010. It probably has not had a significant impact on increased sales in the A&E industry yet, but my expectation is that it will soon.

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