🌱 The Hidden Business of Healthy Buildings 👉 A look at the business case for building wellness

Hi friends - welcome to the new readers and thank you to all for your continued support.

If you have any feedback, comments, or ideas for future trend breakdowns, please drop a reply to this email or click the feedback form at the bottom to help me better meet the needs of this growing community!

Okay, on to this week's trend breakdown.

Today’s Snapshot:

The global wellness market is estimated at $1.5T. Over the past several years, the trend of health and wellness in buildings has picked up steam. One company has led the way in the health and wellness certification of billions of square footage of real estate with a creative business model. Today we are taking a look at how one of the leading building certification companies makes money and if it pays for investors and developers to get their buildings certified for health and wellness.

The business of wellness is booming.

Mckinsey estimates the global wellness market at $1.5T, and growing at 5-10% per year! This means that consumers are paying greater attention to all aspects of their health, fitness, nutrition, and wellbeing.

But what about buildings, where we spend about 90% of our time?

More and more, luxury buildings and residences are being equipped with health and wellbeing related amenities, such as infrared saunas and spa and steam rooms.

One company, Delos, has been championing building wellness for the past 10 years and going far beyond simple building amenities.

Delos was founded by a former Goldman Sachs partner, Paul Scialla, who saw the growth of sustainability in buildings but noticed a gap in the lack of products and research for health in buildings.

The business model is fascinating.

Delos sell branded wellness products for better health and wellbeing, such as air purifiers and mattresses. Taking it a step further, they also created their own WELL building certification, modeled after LEED (Leadership in Energy and Environmental Design) building certifications.

While LEED is focused on environmental impact, WELL is focused on the health and wellness of people.

There’s also another major difference.

LEED is backed by the US Green Building Council, a non profit. WELL is run by the International Well Building Institute (IWBI), a for-profit public benefit corporation and subsidiary of Delos.

To get a sense of how big the market is for these building certifications, LEED has certified over 100,000 total buildings covering over 24B square feet to date!

WELL has already completed over 4B square feet and has certified more than 24,000 projects!

While Delos and their WELL certification is one of the leaders in the space, it isn’t the only game in town.

Fitwel is another company that offers certification in the wellness space. The organization is a non-profit created by the U.S. General Services Administration, Center for Disease Control, and the Center for Active Design.

While similar in its mission, Fitwel is generally seen as a less rigorous and a less expensive option as compared to WELL.

WELL states that “buildings such be developed with people’s health and wellness at the center of design. The WELL Building Standard takes a holistic approach to health in the built environment addressing behavior, operations and design”.

The WELL Building Standard’s core concepts include:

• Air

• Water

• Nourishment

• Light

• Fitness

• Comfort

• Mind

New projects must undergo a performance test and achieve a certain score to reach the Bronze, Silver, Gold, or Platinum WELL certification.

Here’s what it costs to get a building WELL certified:

Pricing

• $2,500 Enrollment Fee

• $0.16 per square foot, capped at $98,000

Not only does the landlord pay for the initial certification, the buildings must be re-certified every 3 years, giving the company a future revenue stream.

It’s easy to see how this business can generate millions in revenue, not only from building certifications, but also in consulting and product sales to help companies achieve WELL certification.

This potential market opportunity did not go unnoticed by investors.

In 2019, it was reported that Delos had raised a total of $237M and was valued at $800M.

Not only is Delos creating their own products, like air purifiers, they’ve partnered with leading companies like Crestron for smart lighting. It’s easy to see how they can branch out further in the world of health and wellness with branded products and partnerships.

On the technology side, Delos is looking to create smarter buildings. They’ve developed the Darwin app, in use at buildings like the Anagram Nomad. The app allows residents to monitor air and water quality.

We’ve seen how Delos makes money, but there is also compelling research on what a developer and building tenants may get in return.

WELL Research and Data

Delos and IWBI have reviewed nearly 60 studies to show the impact of the WELL rating.

Here’s what the IWBI says about buildings with WELL ratings:

• 28% increase in worker satisfaction

• 26% overall increase in reported well-being scores

• 10% increase in overall perceived mental health

Peer-reviewed research also showed the following results:

• Between 4.4% and 7.7% higher rent per SF

• NPV of $115 per SF over 10 years when measuring employee productivity and well-being in a healthy building

• 8% increase in employee performance

Financial Returns Summary

When we break down the financials, based on available pricing and research, you can see the high-level summary of the expected return.

While the rent, NOI, and valuation in this sample model show an increase with WELL, the decision to make this investment should be made on a case by case basis.

There is no guarantee of an immediate financial return to paying for a certification, however, the research shows that buildings that incorporate a health certification, such as WELL, may see increased tenant and employee retention, more productive employees, decreased energy usage, and higher rents.

LEED has also seen similar results in boosting rents and valuations, such as this research showing 9% greater rent for LEED certified apartments.

The brand behind these certifications is also important and the model isn’t new.

“USDA Organic”, “Fair Trade”, and “Energy Star” are examples of other certifications that consumers seek out and pay a premium to consume.

As long as the certification indicates a quality and standard that people desire, there will continue to be a market.

Delos recognizes the importance of branding, putting together an all-star board, with names like Dr. Deepak Chopra and Leonardo DiCaprio. They also recruited Rick Fedrizzi, a creator of LEED, to lead the International WELL Building Institute.

If WELL continues to grow as a global building wellness standard, the sky is the limit for Delos and the business of certification, consulting, and product sales.

There’s also a strong financial case to be made for developers and investors that choose to pursue a health and wellness building certification.

That’s all for today.

If you enjoyed this, let me know! Hit reply. I’d love to hear from you.

Your feedback helps me improve Launch Letter. How did you like today’s post?

Loved | Great | Good | Meh | Bad 

Launch Letter is a weekly newsletter that breaks down real estate trends and topics. Subscribers include brokers, developers, industry executives, and investors. If you are not already a subscriber, sign up and join the others who receive it directly in their inbox each week — it’s free.

sim