"... Think of sustainability as a fabric. You pull a thread and everything comes together." -- Richard Locke, MIT Sloan

Richard Locke's metaphor evokes a beautiful image that emphasizes connectivity and purposefulness. It is fundamentally the future of sustainability.

As someone who helps organizations plan these futures, I'm excited about a more purposeful approach to the value streams surrounding retrofit. The approach, or thread, connects taxes, green design and owner portfolios. Why would owners think about these things in lieu of more tangible issues? Simply put, it will improve building performance and save them money.

Given energy cost saves, tax depreciation opportunities, carbon tax risks and portfolio reinvestments, this thread of green retrofit offers owners untapped opportunities for improved building performance. The link between the four variables offers the optimum opportunity for performance improvements and cost saves. But with purposefulness and the right tools, an informed owner can capitalize on initial investments and ensure the long-term performance of assets.

Imagine the following scenario: While green retrofit is increasingly emphasized, typically planning for tax depreciation is not part of that assessment. Likewise, tax planning for energy credits is often emphasized, but depreciation is not. These two distinct areas of expertise typically don't come together at the beginning of a project. Forecasting carbon tax risks also doesn't typically make the value engineering bottom line for a retrofit. Why? There is no individual carbon tax at this point.

Here is the crux of the opportunity: The combination of the three (retrofit, accelerated tax depreciation, and carbon tax risk analyses) needs to become an integrated part of a portfolio analysis. Whether a portfolio includes millions of square feet, or a series of small facilities, it invariably has untapped values in these areas. If investment decision-making includes these analyses, then owners will benefit -- immediately.

What are the analyses necessary for owners to benefit? Green retrofit, tax depreciation, cost segregation and carbon tax risk analysis.

Green Retrofit

The value of green retrofits is well-established. According to McGraw Hill, "today green building comprises 5 to 9 percent of retrofit and renovation market activity by value -- projected to grow to 20-30 percent in just five years" based on reduced new construction and the volume of existing buildings -- and that appears to be an averaged number. In major metropolitan areas, the market is far greater.

In New York City, PlaNYC refers to the fact that "85 percent of the buildings that will exist in 2030 are already here today." Representatives at PlaNYC further identify the importance of the retrofit of these facilities to meet energy reduction targets for the city of New York and the city's multi-step process to assure owners meet those targets. Of course savvy owners know that there is less risk in green retrofit as the performance indicators are already established.

For example, one company required an initial increased investment to achieve sustainability targets, but their self-report (on target after two years) demonstrated payback within five years of occupancy with full returns at twice the initial investment -- only over a 15-year lease. Given the return on investment that green market retrofits offer, the business case is clear. Smart owners know this and are moving in this direction.

So then what's missing? In my opinion, one missing link is the connection to tax depreciation.

Next Page: The importance of tax depreciation, cost segregation and more.