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Sunday, 18 March 2018 16:32

New codes add to construction cost, could offer returns

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New building standards for mechanical equipment call for higher efficiency equipment and more building insulation, as well as more daylight. The 2013 ASHRAE standard is adding costs to new buildings and renovation projects. Nick Nykerk, president of Lakewood Construction whose project shown here, said the estimated 10-year ROI for the efficiency improvements is a tough sell to some clients. New building standards for mechanical equipment call for higher efficiency equipment and more building insulation, as well as more daylight. The 2013 ASHRAE standard is adding costs to new buildings and renovation projects. Nick Nykerk, president of Lakewood Construction whose project shown here, said the estimated 10-year ROI for the efficiency improvements is a tough sell to some clients. Courtesy Photo

In an era of increasing labor and material costs, Michigan contractors and building owners now face another issue that is sending construction costs higher. 

Last September, the state adopted the 2013 standards of the American Society of Heating Refrigerating and Air-Conditioning Engineers (ASHRAE), an Atlanta, Ga.-based trade association for mechanical and HVAC contractors. The updated standards call for more efficient equipment for both new construction and renovation projects. 

West Michigan contractors say that while the standards should offer building owners a return on investment over the life of a project, they’re also resulting in significant upfront cost and a case of sticker shock for clients. 

“There’s significant upfront cost differences,” said Jason Thomas, sales manager for Pleune Service Co., a Grand Rapids-based mechanical contractor. “What remains to be seen (is) we’re supposed to have pretty decent energy efficiency with it. There should be an ROI from an energy savings standpoint, but it’s definitely increasing upfront costs for new builds and for renovations.”

The new codes, which were implemented late last year, have added anywhere from 10 percent to 15 percent in cost for the mechanical equipment, Thomas said. 

Other contractors across West Michigan say they’ve also been quoting higher costs in recent months as a result of the newly adopted ASHRAE standards.

An executive at Lakewood Construction Inc., a Holland-based construction management firm with a heavy emphasis on industrial build-outs, said he’s seen an increase of about $5 per square foot, largely based on the added required insulation for projects. 

It’s unclear whether that added cost will deter many would-be owners or developers from moving ahead with a project, said Lakewood President Nick Nykerk, who added the anticipated 10-year return does make for a longer ROI period than many investors expect. 

“It’s an investment, so (owners) want a nice building,” Nykerk said. “They want it to be efficient, but they want to be smart about how they gain that efficiency. If it has more than 10 years return on investment, it’s probably not something that’s worth spending money on today.”

Construction industry stakeholders insist they’re in favor of programs and standards that increase a building’s efficiency, but they’ve been challenged by the new codes to manage their client’s cost expectations. 

“On the face of it, who can argue with (energy efficiency standards),” said Norm Brady, president and CEO of the West Michigan chapter of Associated Builders & Contractors Inc., a construction industry trade association. “Obviously, with those new standards comes cost. As a general rule, when construction gets more expensive, you get less of it.”

UNCLEAR RETURNS

It remains unclear just how much of a return building owners might see on the added upfront investment with the implementation of the new standards. 

Contractors contacted by MiBiz for this report say the codes haven’t been in place long enough for them to work out reliable models. 

However, a 2013 letter from an official with the U.S. Department of Energy urging Gov. Rick Snyder to adopt the updated standards called the savings potential “significant.” 

Dr. Kathleen Hogan, the agency’s deputy assistant secretary for energy efficiency, wrote that by adopting the more efficient standards, the state could expect to see energy savings of $230 million annually by 2030. 

“Energy efficiency — getting more from the energy we use — is one of our top priorities for helping households and businesses save money, growing jobs and improving our environment,” Hogan wrote in the letter. “These codes are a cost-effective way to reduce energy bills and to employ energy efficiency measures that can be more costly to implement through subsequent retrofits.” 

A spokesperson for the state’s Bureau of Construction Codes said the agency has not heard any complaints since the codes took effect, noting that the vast majority of its customers are residential builders who are less affected by the standards.

A TIME OF CHANGE

The 2013 ASHRAE standards adopted by the state last year call for a wide variety of amendments when compared to previous codes. 

The new standard places particular emphasis on lighting, calling for commercial buildings to have lights that can auto-dim, as well as increased insulation.

“It’s kind of a convoluted energy code where they want better insulation in the walls but they also want day-lighting, so you put windows in to help with the psyche, but that reduces the insulation value of the wall,” Nykerk said. “You gain some efficiencies in some places, you lose in others. It’s just kind of funky how they went about it.”

Construction industry stakeholders say the new ASHRAE standards come at a tough time for the industry.

“Pay rates are rising,” Brady said, noting the industry’s labor shortage. “On top of that, we’re getting compounded with the material costs that have been going up, for fiberglass in particular. And then you have the new standard. It’s kind of converging all at once, which has owners and developers relooking at projects. It is a concern. 

“We’re all for energy efficiency, but when those advancements come with a hefty price tag, you have to balance the cost-benefit.”

Lakewood Construction’s Nykerk agrees.

“It adds to driving up costs, definitely,” he said of the standards. “Will it deter someone from building? I don’t know, but it might be another component that pushes it out of the price range where they might delay it or have to raise more money to do the investment. But it’s here to stay.” 

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