Got the power?

No, not financial power, political power or even flower power. I’m talking electric power.

One only has to look to our West Coast to see alarm bells going off everywhere, especially for building owners and small businesses pounded by electricity bills that are doubling with each passing summer month.

Of course, everyone’s favorite target is deregulation, which many Californians are blaming for a lack of power on the grid and soaring prices. But the blame is slowly, surely and accurately shifting to the state, for its badly laid-out deregulation plan (now headed for the scrap heap) and lack of power plants, which the state has made it near impossible for private companies to bring online.

Commercial landlords around the country would do well to heed the lessons being learned. In both California and New York, companies are being rewarded on their monthly bills for shutting down during peak demand times.

Rather than planning on closing their doors, landlords should focus on long-term solutions to electrical demand. These lie well within reach – reflective lighting, architectural planning (e.g. large windows not facing west), smart lights that glow brighter in interior areas than in areas close to windows, etc. There are hundreds more minor engineering and architectural touches that liberate buildings from their incredible strain on the grid.

What do steps like these accomplish? They may cost a few pennies more up-front. But in the long run, landlords will see lower electricity bills for both themselves and their tenants. Perhaps the dire situation in high-tech California, which is demanding more and more electricity to run the machines that drive its enterprises, will bring the focus where it belongs: conservation that makes good business sense.

In other news, in case you haven’t heard, real estate investment trusts (REITs) are continuing to outperform the market this year. Earnings growth for equity REITs picked up in the second quarter as measured by funds from operations (FFO) per share, according to data compiled by the National Association of Real Estate Investment Trusts (NAREIT).

FFO per share rose 8.7 percent on average for all equity REITs in the second quarter of 2000, compared with the same period last year. In the first quarter, comparable year-over-year FFO per share growth averaged 8.1 percent.

Earnings growth for other large publicly traded real estate operating companies (REOCs) also advanced, with astounding year-over-year earnings per share growth of 33.1 percent in the second quarter, compared with 29.1 percent in the first quarter.

“When the performance of equity REITs and REOCs is combined with that of mortgage and hybrid REITs, per share earnings for the REIT and publicly traded real estate industry increased 11.9 percent on average in the second quarter when compared with the same period last year,” said Michael Grupe, NAREIT vice president and director of research.

Among the 175 real estate companies that also are tracked by market analysts, three-fourths of the companies met or exceeded consensus analyst earnings expectations in the second quarter of 2000, compared with two-thirds that met or exceeded expectations in the first quarter.

Among equity REITs, the strongest second quarter average FFO per share growth was reported by the apartment, industrial, regional mall and office sectors, Grupe said.

“In general, robust economic growth, rising levels of employment, growing household income and strong consumer spending remained the driving forces behind the strong operating results,” he added. “In the office and industrial sectors, a strong economy and relative equilibrium of supply and demand in most real estate markets have resulted in relatively low vacancies and strong rental growth.

“The apartment sector has benefited from a surge in the demand for housing, particularly in those markets where job growth has been brisk and the cost of single-family housing has soared, including California and the mid-Atlantic,” he said.

Published: August 25, 2000

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Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net