High-Speed Broadband Communications Lead the Way to More Intelligent Properties.
When is a building smart enough? Almost never, is the overwhelming response from building tenants, technology service providers, and real estate developers.
With increasing demand to make buildings smarter, many related products and services have emerged to help property developers, owners, and their tenants make the most of their commercial properties. Today, building marketing often touts features such as high-speed connectivity over prestigious addresses or amenities.
The dynamic of supply and demand is astounding, says Scott Stewart, vice president of real estate for Cogent Communications in Washington, D.C. Not only are smart buildings experiencing high occupancy rates, but rental rates range between 10 percent and 20 percent more than traditional buildings, he says.
Both new and existing buildings are getting into the act. “New buildings are all smart, and about 50 percent of the older buildings have or are being retrofitted with advanced technology,” says Craig Melby, CCIM, SIOR, president of ITRA/Palm Beach Corporate Real Estate in Palm City, Fla.
Broadband connectivity is one of the top three features that tenants require in commercial buildings, according to a study conducted by the Building Owners and Managers Association International and the Urban Land Institute.
“In today's new economy, commercial tenants are demanding the broadband technology,” says Mitch Marantz, senior vice president at Winstar Communications. “They are looking to the real estate industry to enable commercial buildings with access to advanced broadband communications services such as high-speed Internet, data, voice, Web hosting and design, professional services — training, support, consultation — content, and the benefits of strategic alliances with major technology and software companies.”
“It is not only the high-tech companies themselves that require that buildings feature advanced technology. But other professions such as law firms, advertising/graphic design agencies, accounting firms, real estate brokers, and other service industries are following suit very quickly,” Melby says.
Tenants not only require uninterrupted access to the Internet, comprehensive phone systems, and data cable lines, but these requirements must be repeated so that if one system fails, backup systems are in place.
Whether a property is “smart” from the blueprint stages or is a retrofit, an intelligent building is one that meets the following criteria, according to several experts:
- innovative and technologically advanced components and systems to facilitate communications, system management, user control, and adaptability to changing needs;
- energy and water efficiency for lower operating costs; and
- resource-efficient materials and methodology to minimize waste and ensure a low impact on the environment.
Smart buildings also are evolving into healthy buildings. For instance, companies are realizing that “productivity and morale are increased when there is natural light as well as incandescent or fluorescent lighting,” Melby says.
As one expert states, it simply is a matter of applying the best and the newest technology — as it emerges — to various property types.
Driven by Demand
Tenant demand for telecommunications services outstrips all other features of the smart-building paradigm. And technology service providers are meeting that demand at warp speed, and in many cases the costs are being passed along to the tenant, says David J. Speady, senior advanced integration specialist for Staples Communications in Pompano Beach, Fla. “Some building owners or building managers are charging more for extra cable or extra circuit being brought up from the central location,” he says.
But only a third of tenants are willing to pay additional rent for Internet access — and then no more than $1 per square foot — according to a state of the industry address given by Richard D. Baier, president of BOMA International and managing director of CB Richard Ellis in Kansas City, Mo. “Tenants now expect high-speed access in a building as much as they expect [heating, ventilation, and air conditioning] and parking,” he said.
It's clear that connectivity, telecommunications services, and adequate power are becoming major issues in tenant retention and lease negotiations. “Brokers need to be knowledgeable about the capacities that a building provides in order to best serve ... clients' needs,” Speady says.
Building access has been a point of contention between landlords and telecommunications service providers since the advent of the Telecommunications Act of 1996. Service providers have petitioned the Federal Communications Commission and Congress for a ruling granting mandatory free access to multiuse buildings in order to better serve tenants. So far, a coalition of real estate organizations has fought the proposal saying that it would violate property rights and that the current open market — in which service providers negotiate access with individual landlords — is working. A recent BOMA survey of tenants indicates that building owners facilitated 98 percent of tenant requests for access to a particular service provider.
But on both sides, experts agree that increasing or improving telecommunications services at properties will add value. “Real estate owners/managers can expect to see an increase in their [net operating income] through higher rental rates, which ultimately will result in an increase in the overall value of their property,” Marantz says.
Office Leads the Way
Most smart innovation has occurred in the office segment, primarily in large markets' central business districts. This is due in part to access to fiber-optic networks found mostly in major metropolitan areas.
“It is anticipated that the office market will continue to be the driving force for high-technology applications, with the average office tenant annually spending about $5 psf for communications,” says Daren Hornig, co-founder of OnSite Access in New York.
But increased use of wireless services has spread the demand beyond CBDs to second- and third-tier cities, as well as peripheral business corridors. “Many providers are entering the second- and third-tier markets in a very aggressive way after starting out in the metropolitan areas,” says Paul Buss, vice president of marketing for BroadbandNow in Irving, Texas.
“The application of technology to buildings does not seem to be limited geographically nor is there any region of the United States where technologically advanced buildings are more prolific,” Melby says. The introduction of technological advances to existing buildings as well as new construction is demand driven, he adds, and the cost-effectiveness and potential for growth determine fulfillment of that demand.
Bringing in Bandwidth
To facilitate telecommunications, landlords and property owners must look at competing technologies. Two ways to bring broadband service into buildings is through a fixed wireless system or fiber-optic network, according to a Winstar report.
Companies that are well financed will lead the charge, says David J. Daigle, president of Ascent Partners in Los Angeles. These include publicly traded companies such as AlliedRiser and Cypress Communications, as well as BroadBand Office, Cogent Communications, Eziaz, Eureka Broadband, OnSite Access, and Urban Media.
“Fiber-optic technology rather than digital subscriber lines is one of the more advanced features of a smart building,” says Jared Morgan, operating partner at Wired Environments, an integrated, Internet-based technology company based in Garden City, N.Y. “Fiber optics provides broadband access for tenants at reasonable costs.”
DSL can use old copper but is limited to bandwidth that ranges from 64 kilobytes per second to 100 megabytes per second, and interference issues exist, notes Jerry Marmelstein, president of Riser Management Systems in Burlington, Vt. Some companies are restricted to copper until they can obtain approval to convert to fiber optics, he explains. Therefore, use of copper piping is perceived as an interim technology.
Wireless services via rooftop antennas also are quite popular, Buss says. For placement, wireless companies survey rooftops and radio rooms, inventory antennas and radio equipment, identify nonfunctional equipment and cables, assess obstructions, and evaluate building pathways for future installations, including ways to transport equipment to roofs.
Criteria to determine the type of equipment to use include tenant requirements for rooftop-aided services, relative attractiveness of the rooftop space, demand for space in the immediate marketplace, and available rooftop space. For large commercial parks, technology also can “link” the various buildings.
Making Old New
A proactive effort exists to equip older buildings with new technology, Buss says. Retrofitting is universally recognized as a necessity today to give a building — regardless of use — a competitive edge, states Jim McKenna, CEO of EdgeConnections, a broadband service provider based in Atlanta.
The cost associated with retrofitting “depends on the type of broadband options the real estate professional chooses to bring to the building,” Marantz says. “For example, fixed wireless technology [a small rooftop antenna] has little or no capital expenditure for ownership, yet it offers a full range of broadband transmission capabilities and facilitates the same level of broadband services as fiber optics. In addition, installing fixed wireless technology requires no street digging and does not affect the aesthetics of a building.” Adding fiber optics to a building could range from $150,000 to $200,000, he says.
Companies such as Cogent Communications will provide 100 MB per second for $1,000 per month. Typical costs for high-speed Internet range up to $35,000 per month, Stewart says.
Daigle says that monthly building access fees for dark fiber — which can handle a host of applications determined by tenants' needs — by wholesale fiber-optic network suppliers could range from nothing to $600. These features allow for high-speed Internet access, videoconferencing, and networking voice and e-mail communications among other uses.
According to the Building Centric Industry Trends Relating to the Wholesale Fiber Market Space report by Daigle and Dimitra Fontinatos, bulk carrier pricing on synchronous-optical-network-based networks is in the range of $250 to $300 per MB per month. There is a “massive consumer demand for bandwidth and the availability of competitively priced dark fiber being brought directly into the space by the likes of MetroMedia FiberNet,” the report states.
The cost to install fiber optics is based on invasive measures to connect to the manhole in the street that may entail breaking sidewalks and parking areas to create new conduits to the building and draw vertically to each floor's telephone closet and connect risers.
To control costs, “There is a trend toward partnering,” says Tom La Dow, senior vice president-office division of Colonial Properties Trust in Birmingham, Ala. Developers will join with high-tech companies to provide technological innovations such as dual entry points, diverse rings, private network builds, and point-to-point connections.
One example of such partnering is Smart-Detroit, a technology and conference center located in Detroit's vintage Penobscot Building. Developed by San Diego-based Capstone Advisors in conjunction with several technology-related companies, Smart-Detroit features high-speed Internet access from every wall jack, voice, data, and videoconferencing capabilities, and a high level of support services such as system maintenance, training, and upgrades and enhancements. Capstone spent more than $10 million to retrofit the early 1900s-era building with new technology. Five network providers offer local fiber-optic connectivity and the building is serviced by three power feeds originating from two separate electrical grid systems. “We are creating a true digital business district in our community and Smart-Detroit is the hub,” says John Keba, vice president of asset management for Capstone.
Similarly, Colonial Properties Trust tries to create the capacity for all Internet and telecommunications needs for long-distance and interoffice use. Tenants have a variety of service providers to choose from and a choice of services.
“Costs are absorbed as services are implemented by building tenants ... a classic winning triangle,” says Jim Manning, national director/real estate access for MetroMedia Fiber Network in New York. In a recent BOMA survey of commercial property owners, the average telecommunications revenue realized in the aggregate holdings is 12 cents psf, which was expected to double to at least 24 cents psf by year-end, given the level of activity, Daigle says.
The value of converted class B and C industrial structures “has risen dramatically as a result,” Manning says, “from $5 psf to $25 psf.” Often, retrofitted projects don't require invasive measures, so normal office activity can continue, McKenna says.
Many developers target their retrofits to attract telecommunications and technology tenants. Such properties often are known as telecom hotels. Dallas-based Infomart was one of the first to target this market. Built in 1985, the original Infomart now houses more than 100 technology-related companies including telecommunications providers, Internet developers, and hardware and software developers. This year the company targeted three other buildings for retrofitting, including the 300,000-sf Old Southwest Life Insurance building in downtown Dallas, the 470,000-sf U.S. Postal Service district office in Los Angeles, and a 400,000-sf building in the Boston suburb of Watertown, Mass. In Watertown, for example, Infomart is investing more than $20 million to improve the property's structure as well as bolster its technical infrastructure.
More conventional examples are the 1999 Broadway building in downtown Denver and Pittsburgh's USX Tower retrofitted by Wired Environments. The Denver building now is equipped with videoconferencing capability, remote access, telephony, and high-speed Internet access.
In addition to telecommunications innovations, retrofitting also might include improving buildings' operations and architectural features such as electrochromic windows, which adjust to the degree of sunlight, changing from light to dark. Other technologies provide remote-controlled heating, air conditioning, security systems, elevator operations, air quality control, and many other mechanical functions.
Rudin Management Co. in New York has retrofitted properties in its portfolio to accommodate its tenants' growing demand for high technology, high electrical use, generators, HVAC capacity, and fireproofing, Stewart says. “This company has gone into the building's riser — the spine of the building — and organized it into a profit center,” he says.
Other Property Segments
While office buildings employ a large share of technological innovations, other property segments also are experiencing the need to get “smart.”
Now, “There is a rush to get hotels wired,” McKenna says. Hotels are big users of communications; higher-end properties require such features as e-mail, videoconferencing, high-speed Internet access, multiple phone lines, cable TV access, high bandwidth capability, air control adjustments, and more for their guests who primarily are business travelers. “The demand is there, and hotel properties are responding quickly,” he says. For instance, rooms at the Trump International Hotel & Tower in New York contain PCs with Web-based e-mail, high-speed Internet access, and software.
Among the high-tech applications particular to retailers are credit card runs, high-speed data services, video services to introduce new product lines, Internet connections, and access to online catalogs, Marmelstein adds.
An example of mallwide use of technology is interactive kiosks with Internet access. For instance, Centerlinq kiosks recently were introduced at 14 Colonial Malls in an agreement with Genesis Intermedia.com. In addition to Internet access, these kiosks provide shoppers with coupons, store directories, marketing calendars, e-mail, and quick-touch access to high-profile national and regional advertising partners.
With many industrial properties located in isolated areas, a greater need for fiber optics exists to connect them with distribution networks and main offices. Moreover, light manufacturing, distribution, and other industrial building uses also often are affiliated with office space and require office-related smart technology.
For example, the 111 Eighth Ave. building in New York was a freight terminal converted to a high-tech hub for information-technology companies.
For higher-end multifamily properties, smart buildings are the norm today, says Ed Wright, senior vice president of multifamily at Colon-ial Properties Trust, which currently is retrofitting three properties.
Apartment complexes are being wired for high-tech applications such as high-speed Internet access and video streams of news, weather, sports, and concerts by companies such as USOL Holdings and BroadbandNow. However, a “digital divide” exists in this property segment as some buildings have no Internet access, Wright says.
“The point of presence criterion for BroadbandNow, for example, is the potential of 3,000 or more residential units in order to enter an area,” Buss says.
Some apartment/condominium communities also are hiring high-tech oriented managers to serve as liaisons. In addition, some buildings offer intranet services, Marmelstein says. Furthering the sense of “community,” intranet features might include such information as the property's rules and regulations, upcoming communitywide events, contact information for emergencies, work orders, resident surveys, or newsletters.
Other features might provide prewiring for home theaters and other state-of-the-art audio/video products as well as phone jacks that allow Internet access in any room of the home.
Properties that are “work oriented” also are becoming popular among upper-end tenants, Marmelstein says. This could include common-area business centers equipped with computer stations, Internet access, printers, or scanners.
What the Future Holds
Developers and technology providers agree that no end is in sight to the smart movement. Smart buildings are here now and will gain momentum at an accelerated pace in all types of real estate properties. Computers, the Internet, and other advanced technologies have gained widespread acceptance and have become a necessity to live, work, and shop.
How quickly are smart buildings advancing? Demand for higher speeds and greater capacity will make some of the current smart buildings' technology obsolete in just a few years, Stewart says.
Among possible future smart developments are microprocessor-based controlled devices that could be programmed for independent action in commercial buildings. “Via the Internet, adjustments can be made to heat and cooling, lighting, security levels, and more,” says Donald Wallace, president of X-traWeb, a wholly owned subsidiary of World Wireless Communication in Englewood, Colo. Or, hotel guests of the future may use smart cards that provide customer preferences such as type of room and temperature preference and could eliminate check-in lines.
Likely, buildings will continue to get smarter and smarter.