Thursday, April 2, 2009

National Building Energy Performance Disclosure?

Recent action in the House of Representatives made some significant strides in advancing proposals for energy efficiency policy. Representatives Henry Waxman (D-CA) and Ed Markey (D-MA) released a their bill, called the American Clean Energy and Security Act, containing climate change legislation and a variety of energy efficiency provisions, but most notably for the commercial real estate industry:

(1) A new Retrofit for Energy and Environmental Performance (REEP) program to promote comprehensive efficiency retrofits to commercial buildings (and also to homes), reducing energy consumption by an average of 20% or more.

(2) A provision directing that building codes be strengthened to reduce energy use in new buildings by 30% starting in 2010 and 50% starting in 2016.

(3) A provision establishing a building labeling program so that owners and prospective purchasers and tenants can compare energy use of a particular building to similar buildings in their local area.

With building energy performance disclosure already underway in California (required under AB 1103), and Ohio, Minnesota, Denver and New York City considering similar measures, the "train clearly has left the station." You have to be blind not to see the handwriting on the wall! There can be no question now that energy efficient buildings will have a competitive advantage in the commercial real estate market.

2 comments:

Mark Bennett said...

I concur with Tony's expectation that the adoption of green building transactional disclosure requirements are expanding rapidly. I expect them to be routinely incorporated into real estate due diligence procedures in the next 12-24 months. My colleagues in the Bar and I expect that there will evolve a new form of "all appropriate inquiry" into the energy and sustainability history of a property. While the legal implications of the inquiry differ from traditional due diligence, they nonetheless can impact property value. Most of these new regulations apply not only to the sale of a property but also leases, thus the universe of transactions involved in traditional due diligence will expand greatly. One area of focus throughout the Bar is the data integrity associated with the derivation of the Energy Star score given that it is a "user-managed" process which is subject to data entry error and potential manipulation of the underlying utility and building characteristic data necessary to generate the score. The limitations of Energy Star's underlying building database (CBECS) creates other challenges due to the dated nature of the information and the lack of depth in most property-type categories. One possible answer to this challenge, is the approached being taken by the Capital Markets Partnership (CMP) www.capitalmarketspartnership.com which is requiring that the professional preparing the Energy Star component of CMP's Green Value Score process warrant the integrity of the underlying data. Beyond the mere regulatory obligations, buyers, sellers, landlords, tenants and lenders are quickly realizing the nexus between energy consumption and property value and its resultant utilization as a negotiating tool. Given these implications, the level of professional accountability incorporated into the emerging Green Building Due Diligence process is certain to rise as it becomes uniformly adopted in the real estate industry.

Mark J. Bennett, Esq.
Climate Change Practice Leader
Miller Canfield

http://millercanfield.com/people-325.html

Mark Bennett said...

I concur with Anthony's expectation that the adoption of green building transactional disclosure requirements are expanding rapidly. I expect them to be routinely incorporated into real estate due diligence procedures in the next 12-24 months. My colleagues in the Bar and I expect that there will evolve a new form of "all appropriate inquiry" into the energy and sustainability history of a property. While the legal implications of the inquiry differ from traditional due diligence, they nonetheless can impact property value. Most of these new regulations apply not only to the sale of a property but also leases, thus the universe of transactions involved in traditional due diligence will expand greatly. One area of focus throughout the Bar is the data integrity associated with the derivation of the Energy Star score given that it is a "user-managed" process which is subject to data entry error and potential manipulation of the underlying utility and building characteristic data necessary to generate the score. The limitations of Energy Star's underlying building database (CBECS) creates other challenges due to the dated nature of the information and the lack of depth in most property-type categories. One possible answer to this challenge, is the approached being taken by the Capital Markets Partnership (CMP) www.capitalmarketspartnership.com which is requiring that the professional preparing the Energy Star component of CMP's Green Value Score process warrant the integrity of the underlying data. Beyond the mere regulatory obligations, buyers, sellers, landlords, tenants and lenders are quickly realizing the nexus between energy consumption and property value and its resultant utilization as a negotiating tool. Given these implications, the level of professional accountability incorporated into the emerging Green Building Due Diligence process is certain to rise as it becomes uniformly adopted in the real estate industry.

Mark J. Bennett, Esq.
Climate Change Practice Leader
Miller Canfield

http://millercanfield.com/people-325.html