San Diego Business Journal

Law Soon to Shine Light On Buildings’ Energy Use

LAW: Bigger Landlords Ready; Data Come Up in Sales, Leases By Lou Hirsh Monday, June 17, 2013

“The larger building owners have been more sophisticated about these upgrades and reporting issues, and they have the most to gain on the bottom line from being more energy efficient,” said Sachu Constantine, policy director for the San Diego-based California Center for Sustainable Energy.

The mandatory disclosure of data will come into play during the due diligence phase of a property transaction, when the owner is finalizing a sale, financing, or large leasing deal that is otherwise nearing completion.

“Transparency is always important, and hopefully this will be a useful way to get this information into the marketplace,” Constantine said of the state law.

A 2012 report by brokerage firm CBRE noted that overall vacancy for San Diego County’s green office buildings was 4 percent lower than for nongreen properties — 11.7 percent at midyear, compared with 15.7 percent.

Green buildings also commanded a rent premium, with the average green-property gross rent at $2.42 per square foot, compared with $2.04 for their nongreen counterparts.

“For this law to really be helpful, the property owners who don’t already have it would need to have about a year’s worth of energy data collected,” said Matt Ellis, a former sustainability director with CBRE.

Ellis is now CEO of Green in a Box Inc., a San Diego-based provider of technology related to energy-use reporting. Commercial buildings in recent years have accounted for 30 to 40 percent of all energy usage in California, and Ellis said a rising number of jurisdictions nationwide are enacting or considering disclosure requirements.

Craig Isakow, a Washington, D.C.-based consultant with utility data technology provider WegoWise Inc., which has California clients, said an entire tech industry segment is growing around the steady support among communities for energy reporting related to buildings.

While Washington is the only other state with a law like California’s in place, Isakow said there are now 22 cities nationwide with rules in force or under review, including New York City and San Francisco.

Energy Star issues efficiency ratings of 1 to 100, with the average U.S. commercial building score around 50, and Isakow said prospective tenants and investors increasingly look for scores of 75 or higher.

“It’s probably going to become a bigger thing for the commercial building industry as it impacts occupancies and property values,” Isakow said. “Tracking this data is really no longer a burden at this point.”

No Urgency

Local energy consultant Randy J. Walsh said that based on his own discussions with the legal and real estate communities, there appears to be “very little knowledge” or understanding of the California law, and generally no urgency at this point.

Walsh said implementation will likely be delayed as utility firms synchronize their reporting systems with the recently redesigned Energy Star website. Once procedural and reporting matters are worked out, the law should become useful to the real estate community.

“Savvy property owners and tenants that understand the metrics behind the compliance documents will be in a stronger negotiating position during any transaction,” said Walsh, chief efficiency optimizor for San Diego Energy Desk.

Page 2 of 2

Next