Exploring the ROI of sustainability

INTERNATIONAL REPORT — In 2020, architect-developer Bruce Becker drove the conversion of an iconic but derelict landmark in New Haven, Connecticut, into the zero-emissions Hotel Marcel. The Tapestry Collection by Hilton property was the first Passive House Institute‑certified hotel in the U.S. when it reopened in 2022.

Becker, president of Westport, Connecticut-based Becker + Becker Associates, said the adaptive reuse of Marcel Breuer’s brutalist Pirelli building operates on solar energy, meaning it uses zero fossil fuels, but it’s also a better investment.

Bruce Becker

“Recycling an entire building is possibly the most important sustainability feature here and because it was an architectural legacy, it really needed to be recycled,” he said. “Over 1,000 solar panels on the rooftop and parking canopies generate all the electricity to meet the needs of the building. The ROI of energy savings and decarbonization outperform other types of incremental investment — and mitigate significant risks.”

The returns came with the first energy bill, Becker said. Hotel Marcel spends about $3 per occupied room night on energy, compared to the industry average in the region of $15.50. The key to the hotel planning was tapping into government incentives for energy efficiency and renewable energy improvement measures.

“The incremental costs for energy efficiency, decarbonization, and the renewable microgrid were fully covered by tax credits, utility grants, and C-PACE financing,” he said. “As a zero-emission, fully electric building, Hotel Marcel also avoids the risk of future carbon taxes or CO2 penalties, which are currently being imposed in the neighboring states of New York and Massachusetts.”

Retrofit vs. new build

For Becker, the reuse goes much further than many new builds or existing hotels that “justify significant CO2 emissions with offsets.”

That’s not the case for the low-carbon room2 hometels, which run on 100% renewable energy. The company’s founder, Robert Godwin, who is also CEO of London-based property developer Lamington Group, planned London’s room2 Chiswick and room2 Belfast as “whole life” net-zero hotels that shred the carbon footprint from the design through to hotel operations.

Robert Godwin

The hotels were built to exceed the U.K. Green Building Council’s net zero targets to halve emissions by 2030. Instead, Godwin wants to eliminate emissions by maximizing renewable energy with solar panels, a ground source heat pump, and a blue roof that converts rainwater into energy. The rooms have power sensors, water-saving fixtures, and a green roof that absorbs CO2.

Retrofitting may be less carbon-intensive but has its drawbacks, Godwin said. “Both retrofitting and building new have their benefits, but new builds allow us to implement the latest sustainable technologies from the ground up, optimize energy efficiency, and reduce the carbon footprint more effectively,” he said. “We have greater control over the design, materials and systems, which helps us achieve higher sustainability standards and better long-term outcomes.”

Godwin added that ROI for additional construction costs such as energy efficiencies and renewable energy systems is met within 10 years, while green buildings lower operational costs and increase property value.

“However, improvements over the last decade in technology and better integration of sustainable practices can accelerate the ROI,” he said. “Alongside market conditions and operational efficiencies, sustainability investments are increasingly becoming more cost-effective, driving faster returns over time.”

Future-proofing for ESG

Sabine Schaffer, managing partner and co-founder of Sydney-based international investment group Pro-Invest, said new hotels that fail on future-proofing for ESG and net-zero emission standards are poor investments. “Bringing those buildings up-to-date to comply with the new rules will be very costly,” Schaffer said.

Sabine Schaffer

Pro-Invest’s Australian portfolio includes dozens of IHG-branded hotels. Schaffer, who is based in Dubai, said all new properties meet government targets by installing smart-building energy-saving and generating technology. “For the investor, it’s best. If not, you will see a significant devaluing of your property. For the operator, they are saving a lot of money.”

But what about all the thousands of existing hotels? IHG’s low-carbon pioneers program encourages properties to adopt carbon-reduction practices. However, it wants more government incentives for owners, better access to renewable energy, and lower costs for the necessary technology to speed up the industry’s switch to a greener future.

A report by engineering firm ARUP and IHG found that “adapting and retrofitting” existing hotels to lower greenhouse gas emissions is critical to the hotel sector’s “route map to zero carbon.”

Measures such as improving the thermal performance of a hotel facade and energy efficiency could deliver a 32% internal rate of return after five years. With government grants and incentives, “the returns would be higher.”

Jeff Copolov

One way to deal with the sustainability issue and the shortage of A-grade commercial buildings is retrofitting, maintained Jeff Copolov, interior design director at international design firm Bates Smart. “Because of the embodied content in carbon, concrete is basically 10% of the global carbon problem – the build is the big issue. While some B- and C-grade buildings may seem past their use-by date, many with careful analysis can be converted to new use,” he said.

At the Hilton Little Queen Street in Melbourne, Australia, Bates Smart saved a 1930s heritage building “by combining it with a new build.”

“What you get in these buildings are materials, finishes and craftsmanship that you could never afford if you built it from scratch,” Copolov said. But he concedes it’s not always the easiest or least costly choice.

“There is no doubt that with a new build, you reduce many of the risks associated with renovations. You never know when you open up the patient what you’re going to find. A green build site is a lot more predictable.”

Whether a retrofit or new build, Becker believes every owner can improve ROI with measures to counter climate change, which he said threatens all investments in the hotel industry.

Each hotel is different, and each decarbonization measure has a different payback, but, in general, investments in decarbonization increase hotel values and provide faster payback for the overall investment in the property.

Bruce Becker

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“The way to do that is to eliminate emissions from new buildings and reduce emissions from existing buildings through retrofits and decarbonization,” he said. “Each hotel is different, and each decarbonization measure has a different payback, but, in general, investments in decarbonization increase hotel values and provide faster payback for the overall investment in the property.

“With new construction or major retrofits, investments in upgrades to windows, insulation, and changing the heating plant to air source heat pumps or geothermal can enhance an owner’s IRR.”

As green and sustainability-linked loans become more prevalent in the U.K., Godwin said the group assesses each new hotel on a case-by-case basis, and new builds generally win out. “That said, if retrofitting an older building is the best path to sustainability for a particular project, we will absolutely consider it.”

In the U.S., Passive House Institute compliance for new hotels is only about 3% of total construction costs but reduces energy costs by as much as 75%, according to Becker.

“That can be funded entirely with C-PACE. So, the owner saves money upfront, and each year, while increasing asset value and eliminating CO2 emissions.

“There are over a dozen such measures, including switching to induction stoves, heat pump water heaters, heat pump laundry dryers, and electric shuttle vans, most of which can be implemented in existing hotels at a similar cost for owners to fossil-fuel-based alternatives.”