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Financial Benefits of WELL Certification for Your Real Estate

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10-09-2017 04:17

Scott Muldavin, President at The Muldavin Company, and 2017 Chair of the Counselors of Real Estate, recently joined host Michael Bull on America's Commercial Real Estate Show to discuss the importance of wellness for your space, the seven concepts of the WELL Building Standard, and the benefit statistics of applying wellness standards.

Wellness for your space is an important discussion to be having, especially as it pertains to real estate and corporate decisions and Muldavin is an expert on the issue. For the skeptics who don’t think there is a problem, Muldavin has the facts to prove otherwise.

It was 10 years of studying the financial aspects of sustainability that led Muldavin to the understanding of the importance of health and wellness.

“After 35 years of developing and advising and investing in buildings, I now know that with a little bit of money and intent, you can actually seriously affect the mental and physical health of people,” said Muldavin.

Common Issues in Buildings Today

So, what are some of the issues that we may not realize are problems in today’s office buildings? Indoor air quality, lighting, water (or lack thereof), and building interiors can be responsible for a whole slew of health problems such as respiratory disease, problems with concentration and/or sleep, dehydration, obesity and pain. It’s important to realize that not only can certain factors in your building affect your health, but that what affects health affects productivity.

Not only are there problems with the typical office building, the bigger problem is we don’t really know the scale of how healthy or unhealthy the typical office building is today. All we know is that these problems exist.

Green-certified buildings standards such as LEED in the U.S., BREEAM in the U.K., and Greenstar in Australia don’t cover most of these health problems and/or measure them. They scratch the surface.

If health issues and related productivity issues are a problem, then the WELL building standard is the solution. With $30 million in research and over 100 building interventions, the International Well Building Institute (IWBI) established the WELL building standard, an evidence-based, peer-reviewed system that measures, certifies and monitors the performance factors that impact health and wellbeing of people in buildings. The Seven Concepts of the WELL BUILDING STANDARD TM are: Air, Water, Nourishment, Light, Fitness, Comfort, Mind.

How does the certification work? Does the wellness certification make sense financially?

It’s important to look at owner/occupants separately from investors in this regard.

Owner/occupants

Corporations on average spend $700 per person per year on wellness, (regardless of health which is like $9,000 - $10,000 per person). If you want to introduce the WELL building standard, the new certification program that tests, monitors, measures and fixes these problems, that costs at most $400 per person per year which means that obtaining a wellness certification for your building is very cost-effective.

Recruiting and retention has been identified as the number 1 problem for corporate America. Every time you lose an employee, it’s 30-150 percent of salary to replace them and turnover rates in the Fortune 500 are 20 to 30 percent.

When it comes to recruiting and retention, “Having a healthy building – one that you can brand and certify as healthy – can be incredibly important.”

The most important issue related to wellness is productivity. Muldavin has extensive research on his website, but some highlights are as follows:

  • Productivity gains of 8-11% from improved air quality
  • Average gains of 5.5% in five daylighting studies cited by Carnegie Mellon
  • Controlling temperature and reducing noise can prevent drops in performance of 4-6% and 66% respectively.

There is no doubt that increasing productivity and mitigating health costs, (which have gone up 60% over the last 10 years), is important for corporations since these are things that translate into ROI for an owner/occupant. If you increase productivity just 0.5%, you have nearly a 300% ROI for a corporation.

Investors

Luckily, for investors, it’s very much like traditional real estate analysis. Your job, if you are a building owner or investor, is to be customer-centric. Having a healthy building is very customer-centric.

If the increase on ROI for a corporation isn’t a compelling enough reason to form a partnership with your tenants, consider this: having a healthy building can attract premier tenants.

Leading corporations such as Deloitte, Citigroup, Wells Fargo bank, Ernst & Young, Genentech, Microsoft are including WELL Core & Shell in their fundamental requirements when going to market for new tenancy spaces.

“If you want to attract premier tenants to drive your building, the WELL building standard is a really good thing,” said Muldavin.

The other evidence, from an investor perspective, is all of the studies on sustainability and how it positively affects value in office buildings.

For example, the Bentall Kennedy Study (a 10-year study), showed:

  • 3.7% increase in rent
  • 6% in tenant retention
  • 5-10% increases in occupancy
  • 8-10% increases in value

Not only is there substantial value evidence in favor of having a healthy building, the actual cost of certification is quite a bit less for building owners. Since building owners are just focused on the core and shell of a building, it’s about one-third of the cost, it makes it easier for tenants to implement the WELL building standard on their space.

Muldavin’s last words of wisdom were: “For any owner that thinks they can hide from this issue, they can’t!” Employees and customers will soon be able to measure these things on their own wrist with the increase of wearables.