Brian Kenny: In April 1994, the Commonwealth of Massachusetts cut the ribbon on a brand new eight story building, a long overdue state-of-the-art headquarters for the registry of motor vehicles. Within 15 months, the building was shuttered after 500 of the 640 employees were stricken with respiratory illness and just like that, “sick building syndrome” had arrived in Boston. The term sick building syndrome was coined by the World Health Organization in 1984 when they estimated that up to 30% of new or remodeled office buildings around the world may be contributing to poor health of tenants. Fast forward 36 years and although attitudes about health and wellbeing have evolved, sick buildings are still a prominent part of the landscape. What gives? Today on Cold Call, we'll discuss the case entitled, A Tower for the People: 425 Park Avenue, with Professors John Macomber and Joseph Allen. I'm your host Brian Kenny, and you're listening to Cold Call.
John Macomber of Harvard Business School studies the future of cities in both the developing and emerging worlds. Joseph Allen of the Harvard T.H. Chan School of Public Health is an expert in healthy buildings and the creator of the Nine Foundations of a Healthy Building. We're going to dive into those foundations. Together they just published a new book, Healthy Buildings. How Indoor Spaces Drive Performance and Productivity. Joe, John, thank you for joining me today.
John Macomber: Happy to be here.
Joseph Allen: Thanks for having us.
Brian Kenny: So we're all remote, I want to tell our listeners that we're recording this during the crisis and we're all in remote places so people might hear a little bit of ambient noise, but that just adds to the authenticity of the thing. So I think people are going to be really interested in hearing you discuss this because of the situation that we find ourselves in, where the notion of returning to a workplace that isn't as healthy as it can possibly be is probably very unappealing to most of our listeners. So I appreciate your taking the time to be here during what I'm sure is a very busy time and congratulations on the release of your book, John. That's available now, isn't it?
John Macomber: Yes, it is through Harvard University Press. We're really excited.
Brian Kenny: Awesome. That's great. So John I'm going to ask you to start for us, at Harvard Business School our faculty like to start their classes with the famous Cold Call where they picked some poor student in the room to start the case off. And I'm wondering what would your Cold Call be to start this class?
John Macomber: Sure. I would probably have an introductory sentence or two saying that the case study is about a new building in New York City on Park Avenue, which is intended to be the healthiest building in New York, maybe the healthiest building in the world. And so what we wanted to do is have the students unpack that and Joe and I teach this case kind of home and a way. He teaches it in my MBA class in the finance curriculum and I teach it in his public health class at the School of Public Health. So the cold call is different depending on the audience. For the public health students they are already totally bought into the idea that there is a concept of healthy buildings. They don't really understand real estate. So I show a picture of the value added system that delivers a commercial office building starting on the way upstream building product manufacturers who making pipes and chillers and windows and things like that through distributors, through specialty subcontractors like plumbers and electricians, through general contractors who are real estate developer, like the protagonist in the case, through a building owner and finally through the tenant companies who pay rent and then the individuals who work for the tenant companies. So the product flows in the direction I described the money goes the other way. I show that picture to the public health students and say, who in this chain do you think has the decision making power? And the chain also includes engineers, architects, lenders, building officials, people like that. Most of them haven't thought about that before. And then I asked them, once you ponder who has that power, where do you think there's pushback? Where do you think there's inertia or resistance in this system? Because, I want them to be thinking about how do their ideas about practice propagate. In the MBA classroom, I don't start with the value system, they know who the players are in real estate. I start out by showing two comparative proformas for the building. One with no discretionary incremental investments in a healthy building and one with substantial discretionary investments in a healthy building and projected better economic results because rents are higher and the cold call for them is, do you believe it? Do you think this could really happen or where do you think are the boundaries of where rents might increase enough to justify this expenditure?
Brian Kenny: That's very interesting, the two different perspectives. I'm going to ask the next question to both of you and I think it ties to the book that you've just published as well. Why did you decide to write this case? I guess more broadly, why did you decide to write a book about Healthy Buildings and are you guys like prescient because the COVID virus thing is happening now and you wrote the book I think within the last year, so that's great timing. Joe, why don't you start us on that one?
Joseph Allen: So John and I've been at this for a couple of years now and I think really what happened is we recognize, and we talk about this in the book, that in our respective fields there was a lot of hand waving happening. So like John says about my students and my background, I'm really confident and well versed in the healthy building strategies. Sick building syndrome. I used to be a forensic investigator of sick buildings. I've done infectious disease outbreaks in hospitals, so that's really familiar to me. But what was hand wavy in the public health side was the economic drivers here. And John talks about the flip side of that and for the MBA students, sure they're well versed in the economics and maybe the public health science was a bit hand wavy. The case and the book are really an intentional effort on our part to merge these two worlds. Business science, the health science and the overlap is really on the building science part. We decided we really wanted to have a case to understand and work through a real world example of how these economics of healthy building decisions work in the real world. And we chose this one for many reasons we can continue to talk about why we chose 425 Park Ave. A lot of it had to do with Lord Norman Foster, the architect who developed a relationship and a friendship with over the past couple of years of our shared interest in breathable buildings. We had a lot more to talk about that goes beyond the case in our own conversations and it's been really rewarding because I think we've challenged each other intellectually to make sure our ideas make sense and we found a way, I think I hope readers will see this in the book. We found a way to talk about our two disciplines in a way that every discipline can understand and really is about the value proposition of healthy buildings, why we should be doing this from a public health standpoint and why it also makes sense from a business standpoint and the timing is unfortunately the right time. But we hope that the book offers a pathway for people to think about how we should be dealing with our buildings in this COVID world, but also in a post COVID world. What strategy should we be employing that can improve health of people all over the world?
Brian Kenny: And the case even sort of gives a glimpse into what that might look like. John, how about you? I've certainly followed your work and we've worked together on some of the great research that you've done. Why did you think about this as a great case and a stepping off point for the book?
John Macomber: So we're both interested in influencing practice and of course that's what HBS case studies are supposed to do. So we thought where's a situation that's very high profile interesting and we'll get people's attention that has a team of people who's really paying attention to these issues like Lord Foster and also like the developers L&L led by David Levinson in New York. So, on the one hand, maybe it's an unusual situation because you have this spectacular site in this spectacular location. On the other hand you have opinion leaders, thought leaders are early adopters, if you will. And we were interested in probing how these kinds of thoughts will propagate through the rest of a very big, very long tail industry. So we thought this, it made sense to write about this project. And of course we knew that Joe was already working with the architect on some of the healthy building things and I've been teaching real estate at Harvard Business School for 15 years and I thought, okay, I need to understand this from a real estate point of view. Like one off it does writing a case, let me say, I want to understand this. Let's write a case about it.
Brian Kenny: So let's talk about the case. So L&L, I'm going to guess stands for the protagonist's last name's David Levinson and Robert Lapidus. Am I right on that guess?
John Macomber: That's correct.
Brian Kenny: Right. What is their vision? John, I'll ask you to start on this. What is their vision for 425 Park?
John Macomber: The vision for this to be the healthiest office building in New York. It's a spectacular project, partly renovation project and has about 35 to 40 occupied floors of office space, which also have very nice day lighting, very nice windows, those kinds of things. And the question was, how much should they invest in making the building extra healthy, particularly as landlords? Joe can talk later about some of those characteristics. And we wanted to unpack a little bit about how much it would add in first cost. And we also went on to think about how much the landlord bears, how much the tenant bears, how much the tenant benefits, how much the landlord benefits. But the vision is clearly to have the healthiest building in New York. And of course their bet is that somebody will care that they can rent in a healthy building.
Brian Kenny: So Joe, let me ask you as the expert on healthy buildings, can you tell our listeners, I guess, what is a healthy building and how is it different from a green building? Cause we talked a lot at Harvard Business School about our different certifications that we have and we're proud of that. We work hard at that, but does a LEAD-certified building mean that it's a healthy building?
Joseph Allen: Yeah, that's a great question. And really I see the Healthy Building Movement or we see the Healthy Building Movement as the next iteration of the Green Building Movement. Look, the Green Building Movement's been wildly successful. It has certainly changed practice globally and starting really a major uptick in the mid 2000 maybe 2005ish. But that movement has largely been focused on the environmental factors, right? All critically important energy, waste and water. Some small nod to indoor air quality, but really a focus on these environmental or sustainability focused measures. And it's been successful in changing practice, right? It's very common now to see a lead certified building for example, from the US Green Building Council or plaque on the wall as you go in. How we see this morphing or changing though is capitalizing on the true cost of running our businesses or certainly for people businesses. And that's the salaries and benefits and productivity of people in the buildings. And how do you retain, attract top talent. And here we see that's where the Green Building Movement is morphing into the Healthy Building Movement. The idea is of a healthy building is one that you take all of these factors and we call them the Nine Foundations of a healthy building. You take all of these factors that were the scientific evidence from the public health side is 40 years deep. How all of these factors influence health and that's mental health, physiological health, cardiovascular health, how they influence health and ultimately employee productivity. And so what we're really doing here in the book and in the case is highlighting these strategies and then talking about the cost benefit. And of course, I've a public health lens on this. Once you include human health into a cost benefit analysis, the costs become quite trivial. The challenge and the difference between the Green Building Movement and the Healthy Building Movement is energy is quite easy to calculate a return on investment, right? That's a line item in the budget. You can see that ROI. Where does health show up? Well, we argue that health shows up enterprise wide. It'll show up in HR, it'll show up in productivity, it'll show up in the talent you recruit and retain and how they perform and think strategically. So it's a little harder to capture, but the benefits outweigh the costs by several orders of magnitude.
Brian Kenny: John, I'm wondering if the case doesn't specifically get into this from what I remember, but do you have a sense for like lost wages, like what's the economic impact of people who suffer illness from the workplace?
John Macomber: Well, let's talk in pre-COVID world, when the impact was maybe just a few sick days or maybe having some more employee turnover because people didn't like working there. We've been able to model pretty easily and not empirically, but directionally that in a service type business like a consulting company or sales firm or a law firm. Most of the expenses are on payroll and the rent might be a 10th of the number for payroll and energy cost might be a 10th of that. We think it's a little bit misplaced to be chasing a 10% savings on 5% of your costs on the energy costs. When if you look at say a 1% reduction in the cost of payroll because there's 1% fewer sick days, that's like three days a year for somebody, or less turnover, then the multiplier is 10 to 20 times as much. But, if you imagine more revenue per employee for example cause they're more creative or processing more claims or able to churn out more reports, then that completely dwarfs any of the costs of energy and even some of the costs of rent. So if you think of the total cost of occupancy of a building from a land tenant company point of view, but including the salaries you're paying per square foot, the rent you're paying per square foot, the energy you're paying per square foot, what you should be chasing are the salaries. So we try and illustrate what we think the bounds are for what you have to believe about that reduction in cost and improvement in productivity. Now, we think that pencils out pre COVID, if now you're talking about not just sniffles but weeks away from work that are explicitly paid by the tenant copay or by the off the company's healthcare premiums. We think it's going to be a real no brainer in the future to make the incremental small investments in a healthy building that will make the actual human beings healthier going forward.
Brian Kenny: Joe, can you tell us like what was the study and what are the results show cause the case really dives into this?
Joseph Allen: Yeah, so this is one of our studies. Is now a three phase study and it's now global. But the first one is really, we mentioned in this case, and it's a study in which we quantified the benefits to cognitive function or higher order decision making performance relative to the building. So I'll tell you about the methodology. It's quite strong. We could spend a whole hour on it, but we won't right now. But here's how it works. We enrolled knowledge workers to spend time with us in a simulated office environment. They did their normal work routine 9:00-5:00, stayed with us all day. At the end of the day they take this cognitive function test that's been used for several decades and what they didn't know was that we were changing the air they were breathing in subtle ways. We changed just three variables: The amount of fresh outdoor air that comes in come out of carbon dioxide that was in the air and the amount of VOC or Volatile Organic Compounds. These chemicals that off gas from carpets, dry cleaning, cleaning products. And what we found was really quite striking, right? Controlling for all of the factors in a double blinded study. We find that people perform better across all nine cognitive function domains when they were in this optimized indoor environment just across three variables of healthy buildings and not testing extreme levels. The levels that nearly every building can obtain. So really the key takeaway is this, these minor improvements in the indoor environment have a dramatic impact on cognitive function performance in domains like strategic thinking, crisis response, information seeking and information usage. These are the skills that we all need and use every day, certainly knowledge worker skills that are directly tied to productivity. So, we're able to show in that study empirically a relationship between a better indoor environment, air quality in this case specifically and objectively measured higher order cognitive function performance, better performance.
Brian Kenny: One of the things the case talks about is enhanced filtration. And my question about that is, it certainly described what that is. But in New York City at 425 Park there's got to be a lot of pollution. How do you take polluted air from outside and circulate that through the building in a way that doesn't make people sick? Joseph Allen: Yeah. I'm really glad you brought up the sick building syndrome because actually we think about where the standards came from that gave us the bad buildings in the first place that we're trying to correct. It's an artifact of the energy or a result of the energy crisis in the 70s where we start to tighten up our building envelopes and we choked off the air supply in our buildings. And that brought rise to the year of sick building syndrome that you mentioned in the opening starting in the 1980s. So that brings us today to these new buildings and are there strategies to improve the indoor environmental performance, including bringing in more outdoor air but the question is, well, what if the outdoor air is bad? And in that case you can enhance the level of filtration so that you can deliver a lot of clean fresh outdoor air that runs through a filter bank. And of course it matters on how you filter that air and what quality of filter you use. To relate this to COVID. I'll mention I've been writing a lot about how healthy building strategies should be used to fight or can be used to fight Coronavirus. When people are emitting or shedding viral particles, most building systems, their air handling system takes that air and redistributes it and recirculates a fraction of that air. So you can actually put in strategies like filtration in the duct that will capture airborne viral particles. So this conversation on ventilation filtration is a healthy building discussion that's relevant big picture and cognitive function. It's also relevant for that outdoor air discussion and getting in clean outdoor air. And it's also relevant for indoor sources of pollution. And in this case I'm talking about the virus and biologicals, but it also applies to other indoor pollutants. So filtrations acting both on the outdoor air supply side and the recirculated side.
Brian Kenny: So John, back to the case specifically now, the challenge for L&L is to understand that if they make the heavy investments that they need to make this a super healthy building, they don't know that the tenants are going to care enough to be paying a premium for those kinds of things. How do they think about that tradeoff that they might be making here?
John Macomber: They think about it in a couple of ways and Joe and I and the students also think about it in a couple of ways. From the point of view of L&L, they feel in an upmarket there's a lot of competition for tenants. These kinds of elite tenants will look for the best face they can find, which in this instance will be the healthiest. In a down market, they think that tenants may not pay a premium for space like this but they will select and not go to less healthy buildings. So what we didn't talk about this years ago working on the case or when they're making the decision. But if you anticipate an economic recession and less real estate demand going forward and you anticipate people being particularly selective about the health of their buildings. So you can imagine this strategy might work out pretty well for L&L. The second thing that's interesting to us is how long does it take for this to propagate through? So I asked students to look forward 10 years and say, will there be people in the summer of 2020 or the summer of 2019 leasing space who are interested in this level of healthiness? Maybe, maybe not. But once people become more aware of it and once there's more empirical evidence around the productivity, will it propagate through the industry in the course of years or decades from big fancy tenants and fancy buildings and fancy cities out into the rest of the world. And that's where we think that yes, this in many ways looking at employee health and productivity is a more compelling story than looking at energy efficiency. And we think that this will propagate out relatively quickly for this slow moving industry.
Brian Kenny: And also in a global pandemic world that we now find ourselves in, this could become like a brand differentiator for them, right? I mean people are going to care a lot more about where they go to work and this could be something that they use as a way to separate themselves.
John Macomber: We think that's correct. We also think there are two components to that. One is the pandemic piece, the other is the outdoor air quality. So you mentioned maybe the air is not that great on Park Avenue actually it's pretty good on Park Avenue. The air is not that great necessarily in Mexico City or Delhi or Los Angeles or Shanghai. And most building codes in the world assume that the outdoor air is cleaner than the indoor air and they just call for air changes. That probably is not going to continue in a world where there’s a lot of particulate pollution in particular, so there's an ability for landlords to differentiate themselves and tenants to be selective about how clean the air is. There's a second component of that having to do with new technologies. So five years ago if you want to know what your indoor air quality was, you need to call an industrial hygienist, they show up with this giant kit, they take things off to their secret laboratory and the results come in. They go to just a building manager or the hospital manager or the school manager. Today you can get indoor air quality monitoring that an individual can hook up to their iPhone or to their Galaxy or their Google device and have continuous time monitoring of their indoor air, which they can elect to opt in to share with other people so that you can get democratized information about which air is cleaner rather than waiting to get it from a central source. We think that's going to cause a lot more choice on the part of people who are renting apartments or selecting where to work and that will drive a lot of these changes pretty quickly.
Brian Kenny: Joe, can I ask you a question about the healthy building certificate that the case goes into one of the decision points for L&L is whether they go for this Healthy Building Certificate. What's involved in getting something like that and is it a truly a significant credential for them to have?
Joseph Allen: I think this is one of the major outstanding questions and we talk about this in the book. We have a chapter dedicated to certifications and particularly Healthy Building Certifications. I suspect your listeners be well aware of that Green Building Certification process or certainly they've seen these plaques and you go through a checklist and your building earn certain credits and many of these Green Building Certifications will give you levels of attainment, right? You might be a platinum building, a gold building, a silver building. Well, not surprisingly the healthy buildings world has sprung up a couple of the certification systems and right now there are a couple of leading certification systems that are out in the market. There's the Well Building Surge Certificate, there's Fitwell out of the US CDC, there's another one out of China. And the market is trying to work through right now and to understand which one of these certifications, if any, are the ones they should be pursuing and why. And of course they all have different strengths as you would, but it hasn't fully shaken out. And in the book, what John and I do is talk about the elements of Healthy Building Certifications that should be there. And really it gets back to what's grounded in the actual science here and how can you verify that performance. And we talk about the use of new technology in the book about, it's not just saying we're going to get a certification green building or otherwise stick it on the wall and forget about it. The reality is that buildings change every day, every week and every month and every year. So one of the things we argue for in the book is not just a certification, but it's a certification that comes with verification. So you continue to do indoor environmental quality monitoring, which is your only way when we talk about keep the pulse of the building, you might think of going to the doctor's office for a checkup. The first thing to do is take your pulse and blood pressure. Well, the same thing needs to be done for buildings here where we take the pulse and to see how it's performing. And then that relates to back to these kinds of certifications. So that Healthy Building Certification space is evolving and it's evolving quickly and it's taking some of the lessons from the Green Building Certification Movement.
Brian Kenny: What does something like that do to the cost of construction though, like how does that change the equation for builders?
Joseph Allen: This is one of the variables we let the students use in our tool or the calculator that comes with the case. We let them estimate it and we ground it in the book on some data from early construction that has gone for certification. That includes both the certification costs, but any capital upgrades as well. And it ranges can add a couple of percent to their construction costs to pursue these strategies. But what's interesting, or at least from my perspective, what's been interesting is that normally that's been a barrier to adoption, right? Additional costs let's just stop. So what we tried to do in the book, is to say, well those costs are interesting. They're real, but place them in the context of human health, absenteeism, infectious disease, productivity, cognitive function, and you find out that these costs become really quite reasonable in light of the upside from a health perspective.
Brian Kenny: So I want to pull the lens back a little bit from 425 and think about where we are right now. We're facing a global pandemic. We've got office buildings that are vacant in major cities all around the world and we know that things will probably never be the same as they were a month or two months ago. So I'll start with you Joe, and just ask, what do you think some of the changes are that we can anticipate in architecture in the way that we think about building these kinds of spaces in the future following this Coronavirus crisis?
Joseph Allen: I mean there's no doubt that expectations will be different. I think we're all have a heightened sense of awareness of how the built environment and buildings in particular can impact our health. And that's schools, offices, hospitals, you name it, airplanes, cruise ships. So I think people's expectations are going to be quite different going back already, you see a lot of anxiety, people wondering how we're going to go back, will it be done safely? I'm quite confident that there are strategies you can deploy in your building that help minimize risk. Of course, there's no such thing as zero risk, but the goal is to minimize risk. And we've seen historically from infectious disease outbreaks, be it measles in a school in the seventies or the first SARS epidemic or the MERS epidemic to Corona viruses where some buildings performed poorly because the way they were designed and operated, enhance or increase the likelihood of disease transmission. And then we have other examples where buildings are operated better and we see that the building can actually be protective. So expectations will be different. And my hope is that the initial response should be focused on disease transmission but will then spur this greater realization and people will ask questions, what else constitutes a healthy building? And we think the book kind of answers that question to say it's actually more than just one or two variables you have to take in this holistic approach in terms of how you design, operate and maintain buildings.
Brian Kenny: John, if I can ask you to put your urban development hat on for a moment we've got people that are right now we're all working from home. We've got people that have discovered the benefits of working from home and we see traffic is completely evaporated in most major urban areas. What do you think the changes are that we'll see in urban development now that people have discovered that technology allows us to work remotely much more efficiently than we might've thought?
John Macomber: I think that answer is different depending on where you are in the world. So if you talk about knowledge workers like us in a city like Boston, yes, we can work from home, we can get more internet, we can shelter somewhere. If you think about people in informal settlements in Kenya or in Rio or in Jakarta, that's not the case. So it's a very different setting from urban development and evolution there. Similarly, most of those jobs are not knowledge worker jobs, they’re physical jobs. I think there'll be an interesting divergence. I think there's going to be much more understanding that there's a real payoff in reducing the cost of treating public health problems by investing in urban plans that have more open space, more fresh air, more circulation, more sunlight. Second, I think there's a conundrum about density. So there were a lot of things that are very good about density being close together. People seem to like being in crowds when they have the option to go to a concert or a ball game. And clearly living with good density in high rises that have good utilities and good transportation is a very energy efficient and time efficient way to live witnessed in New York or Hong Kong. However, there’s also bad density. Bad density in terms of bad design where people are stuffed on top of each other or now bad density where people get sick and where they are conveying diseases to each other. So I think the question of density will be very qualified into what makes good density and bad density. And Joe and I have written a piece about other ways to de-densify, whether it's thinking about different working hours or thinking about separation within buildings or thinking about ways in which sites are oriented. So I think those will be played out over time with the real difference between how it feels in New York compared to how it feels in Mexico City. And a real difference between what makes density is just people on top of each other because they have to be versus density that is thoughtfully managed. Where the elements of a healthy building around ventilation and security and fresh air and sunlight apply.
Brian Kenny: I want to close by asking you both to tell us and will ask you to start Joe, what's the one thing you want our listeners to remember from this conversation today? What's one take away?
Joseph Allen: Well, I think one of the most important things I think about in this healthy building space is just how big an impact the indoor environment has on our life. I would tell your listeners take your age and multiply it by 0.9, that's how many years you've lived indoors. So I'm 44 my indoor age is 40 and I think when you turn into years it changes your perspective and to think about how the indoor environment influences our health and just how great that impact is. And I'll also ask your listeners to think about what they actually know about healthy living. I'm sure they know what a healthy meal looks like. I'm sure they know they should exercise each day. I'm sure they know that outdoor air pollution is bad for you. I'm guessing that not many people know about what constitutes a healthy building or healthy indoor environment. Yet we've spent 90% of our life indoors. So it's this glaring hole we have in society about what constitutes healthy living and how we do this better as it relates to your building, I think the last key takeaway is, the person who manages your building has a greater impact on your health than your doctor. And that might seem like hyperbole, but it's actually the truth. We spent so much time in doors that the decisions people are making about the buildings we spend our time in are ultimately determining our health.
Brian Kenny: John, how about you? What's one thought you want our listeners to take away?
John Macomber: Probably what Joe just said, but I guess I would maybe crystallize that by saying that healthy buildings aren't that expensive, sick people are really expensive.
Brian Kenny: Excellent. I guess that's a good note to end on. Thank you both for joining me today. Really interesting conversation.
John Macomber: It was a pleasure.