With more information we make better decisions, right? Well, that’s the idea behind energy disclosure requirements. States and municipalities are increasingly adopting energy disclosure laws, requiring commercial building owners to report the energy efficiency of their buildings annually and pre-transaction. Some laws also require energy audits, retrocommissioning and/or retrofits. Energy disclosure laws vary from public disclosure (New York City) to private disclosure (California).
I recently had the opportunity to attend the Urban Land Institute’s Policy and Practice Forum in at the Merchandise Mart in Chicago: The New Transparency in Real Estate – Sustainability Metrics, Asset Performance, and Public Disclosure. There I had a chance to hear from a number of leading experts in the fields of sustainability and energy efficiency, as well as tour a number of leading sustainability buildings in Chicago, including the Merchandise Mart owned by Vornado Realty Trust and 300 North LaSalle Street owned by Hines – both amazing buildings leading the sustainability forefront.
Energy efficiency and disclosure – who’s on board?
What stood out to me at the ULI forum was the enthusiasm for and support of energy efficiency and disclosure laws by both city leaders and major real estate investment groups.
At the forum were city leaders such as Jayson Antonoff, City of Seattle, Barry Hooper, City and County of San Francisco, and Laurie Kerr, City of New York. They spoke of the successes of their disclosure laws and the positive effects on their cities, from increasing the grade of current building stock, decreasing carbon emissions, increasing value and net operating income of commercial buildings, to job creation from the green implementations.
It was great to see the participation and even leadership from some of the largest real investment groups in the United States. Chuck Leitner, Chairman of RREEF, now also is the Chief Executive Officer of Greenprint Foundation. Greenprint Foundation is a worldwide alliance of real estate owners, investors, financial institutions and other industry stakeholders committed to reducing carbon emissions across the global property industry. Members include Beacon Capital Partners, Douglas Emmett, GLL Real Estate Partners, Jones Lang LaSalle, McArthur Glen Group, Paramount Group, PATRIZIA Immobilien, Deutsche Bank, Aetos Capital, AvalonBay, The Blackstone Group, Equity Office Properties, Henderson Global Investors, Hines, Prudential Real Estate Investors, Sonae Sierrra, DEXUS Property Group, TIAA-CREF, and others. With this group of real estate giants on board, it makes it easier to get smaller mom and pop shops to see the value in energy efficiency and disclosure laws.
What are the benefits of energy disclosure?
If a building purchaser considers two comparable buildings and discovers that they have drastically different energy efficiency ratings, his or her purchasing decision will be influenced. Perhaps they are drawn to the more efficient, more attractive green building. Or, a savvy investor might use the information to negotiate a reduced price to the inefficient building and invest in upgrades. Investing in energy efficient measures or “EEMs”, even relatively simple lighting upgrades, can offer significant returns.
With greater transparency the market rewards efficient buildings – studies have shown green buildings command higher rent premiums and sale prices, have improved marketability, and increase tenant satisfaction and retention. Additionally, many pension funds and other investment arms are requiring that their investment advisors have a “green real estate portfolio”, or at a minimum a “greening plan.”
Energy disclosure laws exist now in California, San Francisco, Washington state, Seattle, Austin, Washington, DC and New York City. Many other state and local governments are in the process of introducing bills related to energy performance reporting, including: Colorado, Connecticut, Maryland, Massachusetts, New Mexico, Oregon, Portland, Tennessee and Vermont. Over a dozen other states have appointed Energy Task Forces that are analyzing their states’ needs and are considering legislature in the next couple of years.
While this trend might be seen as adding more bureaucracy and red tape, one could look at an energy rating as a valuable piece of information and an opportunity.
In the coming weeks, I’ll be posting more about some specific disclosure laws and what they require.