Likely Suspects: Best Candidates for Compliance

While larger property owners in the small but growing number of cities—and in some cases states—requiring benchmarking of energy efficiency are more likely to already be doing it, they are not necessarily the greatest beneficiaries of the process.

While larger property owners in the small but growing number of cities—and in some cases states—requiring benchmarking of energy efficiency are more likely to already be doing it, they are not necessarily the greatest beneficiaries of the process.

In fact, noted Tom Poser, vice president with Jones Lang LaSalle Inc. in San Francisco, benchmarking details generally tend to be of far greater interest to tenants considering older and smaller properties, compared to those with immediate needs for modern Class A space.

Most owners of institutional-grade properties are already benchmarking with Portfolio Manager—and predictably specify energy efficiency and related characteristics in initial lease proposals even before addressing contract rents and related particulars, Poser noted. “These owners use the sustainability performance of their properties as a marketing tool.”

(Interestingly, as the New York City program’s initial disclosure report from last October illustrates, even some institutional-grade properties might not be as efficient as expected. For instance, the landmark MetLife building posted an Energy Star rating of 39 —far below the citywide median of 64. And even the relatively new 7 World Trade Center tower came up a point shy of the 75 required to boast the Energy Star label.)

On the other hand, in a softer market, tenants evaluating space in lesser-quality, smallish buildings in particular will value the more transparent energy data as they factor utility bills into occupancy cost projections.

Hence, while these ratings-challenged landlords “tend to not bring up that topic” in discussions with prospects and have expressed the strongest objections to being covered by the new and proposed mandates, Poser has little doubt that most owners of smaller commercial properties struggling to attract tenants are conversing with consultants and contractors specializing in energy upgrades.

Of course, smaller properties tend to post lower efficiency scores, and their owners often lack the financial resources for any needed retrofits. And programs that require periodic energy audits—San Francisco every five years, New York once per decade—are arguably disproportionately burdensome to smaller owners, as they might cost $20,000 or more even for a small property.

City officials, however, want to make sure compliance is broad enough to spawn competition-driven efficiency efforts but also want to avoid undue burdens on small-property owners in particular, noted Jessica Lawrence, program manager for building energy performance policy with the Institute for Market Transformation.

Indeed, after listening to feedback from smaller owners, representatives from the local BOMA chapter and others, administrators of Seattle’s benchmarking program last September re-set the minimum building size threshold from the initially planned 10,000 square feet up to 20,000. They also granted a six-month extension of the initial Oct. 1 reporting deadline for commercial and multi-family properties of 20,000 to 50,000 square feet.

New York, D.C., Philadelphia and Minneapolis all opted for the 50,000-square-foot minimum threshold, with the D.C. and New York mandates also covering residential properties. Boston’s proposal sets the threshold at 25,000 square feet, along with residential properties of 25 units or more.

Read more on the cities requiring benchmarking of energy efficiency in “Mandatory Benchmarking” in the June 2013 issue of CPE.