The Newsletter of AIR Commercial Real Estate Association, February 28, 2017
Benchmarking Sustainability and Energy Efficiency
Sustainability and energy savings are, increasingly, becoming more important when it comes to facility operations. To aid in such endeavors, municipalities across the United States are initiating benchmarking programs, mandates and ordinances to measure energy and water use and to make those metrics public.
On December 13, 2016, the City of Los Angeles joined the ranks of those cities, by adopting the Existing Building Energy and Water Efficiency (EBEWE) ordinance, which was signed into law by Mayor Eric Garcetti two days later. The program will be phased in, during one-year increments, beginning July 1, 2017.
Data and Retrofitting
The ordinance mandates two aspects. First, that owners and developers of commercial and multifamily buildings larger than 20,000 square feet record energy and water usage, and to make those numbers public as benchmark metrics through the Energy Star Portfolio Manager software.
And second, that owners and managers have their buildings audited and retro-commissioned, with an eye toward learning more information about buildings (such as existing lighting and HVAC and how the building operates as compared to how it was designed). That information, according to Marika Erdely, owner of Green EconoME in Los Angeles, helps the owner understand where energy and water waste might be occurring, how to reduce consumption, therefore protecting the bottom line by saving operating costs. All of that data is then made public. Companies such as EconoME help develop those data reports.
Los Angeles is no stranger to energy audits or benchmarking laws. In 2007, the state of California’s AB 1103 – the Commercial Building Energy Uses Disclosure Program – was signed into law, only to be repealed at the end of 2015. During its somewhat brief existence, the law required benchmarking and disclosure. But, AB 1103 addressed only commercial and industrial buildings, not multifamily. EBEWE requires data, benchmarking and retrofitting, if required, for all buildings 20,000 square feet and larger.
Compliance, Regulation and Other Issues
Few owners are going to argue that efficiently run buildings means lower operating costs. But what has been sticking in many owners’ craws is that EBEWE is yet another regulation. “Building owners are already required to have mandatory earthquake retrofits,” Erdely said. “So, they were thinking ‘that’s still another thing we have to do.’”
And, compliance can also be more expensive, up front. But Erdely points out that the Los Angeles Department of Water and Power (LADWP) is offering incentives to help owners retrofit their buildings. One of these is the CLIP program which provides incentives for LED retrofits.
And, a great financing mechanism to pay for the retrofits is Property Assessed Clean Energy, or PACE. PACE allows an owner to place 100% of a retrofit’s costs on a building’s property tax for 20 years. And even if the building sells during this period, the retrofit tax remains with the asset.
“So, you’re retrofitting the building at no cost to yourself, and are running it at a lower operations cost, and it adds to the value of the asset, you can sell it for more,” Erdely said.
Benefitting the Bottom Line
This is not to suggest that EBEWE is 100% perfect. One complex issue involves obtaining data from multitenant, individually metered buildings. Much of that information is private, unless the tenant is willing to let the building owner and/or landlord sneak a peek at the meter. One solution introduced is the concept of whole building data, in which the entire tenant electricity and water usage in a building is pulled together, with that total downloaded into the EBEWE software. Though the idea hasn’t yet been tried, Erdely believes it will be.
Overall, EBEWE benefits owners and landlords. “A lot of owners don’t want to spend money on the audits,” Erdely said. “But when they do, they will learn that their operation costs are lower, and the asset value and NOI are higher. There’s an economic benefit to the building’s operating costs and to the market valuation of the building. To me, compliance is a no-brainer.”
Marika can be reached at Marika@GreenEconoME.com or 818 681-5750.
The Newsletter of AIR Commercial Real Estate Association, November 10, 2016
Energy Efficiency Update – Top Story
With commercial building energy efficiency increasingly on the table for property owners, tenants and brokers alike, Marika Erdely, Principal of Green EconoME and a regular proud sponsor of AIR events, has provided items of interest to AIRWaves from her Green EconoME Newsletter.
- L.A. to Update Existing Energy Disclosure Law. The Newsletter reports that The Los Angeles Department of Building Safety has released a draft ordinance that updates the Existing Buildings Energy and Water Efficiency Program for the City of Los Angeles to outline a compliance schedule for annual energy and water consumption benchmarking for privately owned buildings from as small as 20,000 square feet, including commercial, multi-family and even industrial. Buildings will also be required to be audited every five years. Current schedule:
- California’s Energy Disclosure Law: AB 802, replacement for AB 1103, is still scheduled to be in effect beginning April 2018 with an annual disclosure for commercial and April 2019 for multi-family buildings.
Marika can be reached at Marika@GreenEconoME.com or 818 681-5750.
High Desert Report –
The Bradco Companies High Desert Report, Spring 2016, Volume 55
ENERGY DISCLOSURE IN CALIFORNIA HAS A BUMPY ROAD
AB 1103, which was in effect during 2014 and 2015, was repealed on October 8, 2015, to eliminate energy disclosure requirements as of 1231/2015. As you may recall, AB 1103 required all sales, refinance and singe tenant leases of buildings exceeding 10,000 sq. ft. to disclose their energy usage prior to the signing of financial documents.
The California Energy Commission (CEC), who administers this law, stated that one for the reasons to repeal AB 1103 was that the utilities were having difficulty accessing energy usage in multi-tenant buildings due to privacy laws. All meter rate payers own their energy usage unless they give authorization to release it. Therefore, a building owner would not have access to tenant date in order to comply with AB 1103, and in multi-meter situations (retail, some commercial) it was even more difficult to attain this information. therefore, an accurate energy disclosure was impossible to produce. the CEC also stated that compliance was limited, most likely because no enforcement of the law occurred, and many building owners took the chance and did not comply. The CEC decided to repeal the entire law and to start all over.
AB 802, California’s new Energy Disclosure Law, initially focuses on the utilities requirement to provide aggregated energy usage data, also known as ‘whole building data’. This would require the entire building’s energy usage, common area and tenant meters to be downloaded into the EPA’s Energy Star Portfolio Manager Software as one number. This eliminates any issues with privacy. The new law also eliminates the building owner’s responsibility to disclose the data when involved in a financial transaction. In current form, buildings over 50,000 sq. ft., including multi-family, will be required to disclose their energy usage on an annual usage, with it being a public disclosure within a year of reporting.
Recently, CEC held a workshop on AB 802’s progress, and showed this timeline for implementation (see below):
With this tentative timeline, commercial building energy disclosure is being delayed, yet again to April 1, 2019. Let’s not hold our breath anticipating these dates, as the asterisk gives a clear picture that this is probably not going to happen.
In regards to enforcement, AB 802 does provide for enforcement mechanisms to impose a civil fine, but we have yet to see what form this well be.
Los Angeles and its Energy Disclosure Law is Moving Forward
The City of Los Angeles is also considering an Energy and Water disclosure ordinance for existing buildings (www. laexistingbuildings.org). We learned that the new ordinance had been drafted and sent to the City Council’s Energy and Environment Committee during April 2016 for approval. Plans for implementation are set to begin during 2017.
The current Energy Benchmarking Compliance Proposal to include:
- Starting 2016 – City-owned buildings > 7,500 ft.
- Starting 2017 – all buildings > 50,000 ft.
- Starting 2018 – all buildings > 25,000 ft.
- Starting 2019 – all buildings > 10,000 ft. This size building is a sticking point, and the new ordinance may not drop to this level.
The Los Angeles disclosure will also require energy and water efficiency retrofits if buildings do not meet a certain level of energy or water efficiency LA’s energy disclosure information will also become public one year after compliance begins. There will be penalties and fines levied for non-compliance. It is assumed that the County of Los Angeles and its neighboring cities will also follow suit and implement their own version of an Energy Disclosure law once Los Angeles signs their law into place.
Why is Energy Disclosure Important and Why Should You Care?
If all you do each month is grumble about your electricity bill but have no idea if these charges are reasonable for your building and its use, why wouldn’t you want to know how your building stands compared to similar buildings? Benchmarking a building in the EPA’s Portfolio Manager Software provides this knowledge.
If you knew that the energy usage was extreme (low Energy Star score or high Energy Use Intensity (EUI)), wouldn’t you take steps to reduce these costs? It is like everything else in life: if you know you are over-spending, you make changes. Why should it be any different with energy costs?
Energy Disclosure provides this data, especially if you further analyze the energy usage data and costs and produc financial graphic analysis to understand the financial metrics, like Green EconoME prepares. As everyone says, big data is valuable.
So once you know your building is inefficient, retrofitting your lighting with LEDs is the easiest way to capture the ‘low hanging fruit’ and possibly reduce your toal energy kWh by 15-20% and your lighting kWh by 60%. Providing HVAC control with new wireless thermostats can provide even more cost savings by easily managing schedules and reducing consumption in unoccupied spaces with door and occupancy sensors. These retrofits will reduce your building’s kW demand and kWh usage and you can save big.
Utility incentives can help reduce the cost of the retrofits, along with accelerated depreciation and various financing methods, including Property Accessed Clean Energy (PACE).
How does the Building Code affect all of this?
California’s Title 24, the Building Code related to energy will be updated again in early 2017. It is important to note that the goal of Title 24 is to build to Zero Net Energy (ZNE) standards for residential construction by 2020 and commercial (including multi-family) by 2030. What is ZNE? Simply, a building’s energy consumption is offset by its energy generation during an annual period to have a zero net effect.
With the goal to build ZNE for commercial by 2030, the CEC hopes to have 50% of the current existing building stock to be ZNE by 2030 as well. This appears to be a good but lofty goal since most building owners have no idea how their building stands in regards to energy efficiency. Which brings us back to the questionable decision to eliminate AB 11003. Why eliminate a law that provided this knowledge to the building owner? Repealing the law that provides insight needed to drive towards ZNE seems to be counterintuitive. We find this step by the CEC a detriment to the goal of ZNE.
Market Valuations to Take Note
It is also important to note that Energy Disclosure is closely tied to market valuations. If a building’s operating costs are lower, this provides for higher valuation in the market value of the building. Cap rates are obviously affected by operating costs. Energy Star and LEED Certifications can provide the labeling for this higher valuation.
Should you wish to know more about Energy Disclosure and how your building can consume less energy, feel free to contact Marika Erdely at 818.681.5750 or Marika@greeneconome.com.
Marika is Founder and CEO of Green EconoME (www.greeneconome.com), a full service Energy Consulting firm located in Pacific Palisades. She is a Certified Energy Auditor (CEA), a LEED AP BD+C, and holds an MBA from Pepperdine University. Marika was formerly the CFO for New Millennium Homes, the master developer for The Oaks of Calabasas. Marika’s background is deep in financial analysis and the desire to understand how new technologies can reduce energy consumption. Green EconoME holds a License B (#10001368), is a VAR for Daintree Networks (lighting and HVAC control) and is an Energy Star Partner.
The Newsletter of AIR Commercial Real Estate Association, March 17, 2016
MARIKA ERDELY TIES ENERGY USE TO FUTURE PROPERTY VALUES
“Energy efficiency is going to alter market values of properties because the State of California is initiating Energy Disclosure Laws as we speak.” That’s how Marika Erdely sums up the impact of energy use on commercial real estate.
She adds that it behooves brokers to get up to speed on the subject so they can properly advise their clients. “Brokers and property owners need to understand that they can increase the value of their properties by decreasing energy costs. The two go hand in hand,” Marika said.
Marika is the Founder and Chief Executive Officer of GreenEconoME, a full service energy consulting firm based in Pacific Palisades. She has been a gracious sponsor of AIR events and because she is widely schooled on the subject of energy use, Marika has been a headline speaker at SRO AIR seminars on the energy disclosure laws that have been proposed by the State of California.
Marika brings special credentials to her role. She is a Certified Energy Auditor, LEED AP, BD+C and the holder of an MBA from Pepperdine University. Earlier, she earned her B.A. in Business Economics from UC Santa Barbara.
Marika commented on the status of proposed energy disclosure law, then explained how GreenEconoME tackles the issue . “Assembly Bill 1103 is no longer in effect, having ended in December, 2015. AB 802 is scheduled to replace it starting January 1, 2017. In its current form, this bill would require all buildings in the State of California over 50,000 square feet to disclose their energy use annually,” she said. This disclosure will also be a public disclosure.
Marika said her firm begins by analyzing a building’s energy consumption. “We do this by Energy Star Benchmarking the building and analyzing the utility bills. Then, we evaluate the existing lighting and HVAC systems. Next we make recommendations that save energy and make financial sense. We are also a general contractor (#1001368), so we can implement any of our recommendations.” Finally, she adds, GreenEconoME stays involved to make certain the projected energy savings are met and continue.
“Another way we help our clients,” continues Marika, “is to identify any potential rebates or subsidies that may exist. Often, the cost of installing these energy saving measures may be offset greatly through state, local or utility rebates. These costs are often why people avoid installation in the first place.”
Also of note, says Marika, “it’s important to take advantage of the assistance as soon as possible. Not only does this begin the savings process, but these rebates and subsidies won’t always be available. They are often relatively short term or on a first-come, first-serve basis, until the pool of rebate money is gone.”
She explains that there are financing options available. “We help our clients find financing assistance as well, which allows them to appreciate the energy savings without missing out on the available rebates.”
Marika is currently providing her services to Stevenson Real Estate Services in Glendale, among several others. This assignment includes LED lighting retrofits in their building offices, common areas, and parking lot.
“One simple audit is inexpensive and can identify several ways in which a building owner can save money. It’s our job to help the owner save the most money while incurring the least amount of expense.”
Marika and her husband, Mark, reside in Malibu. They have two adult daughters, Alex, 29, a journalist, Sami, 26, an attorney, and a son Nate, 12. In her leisure, Marika loves to commune with nature, enjoying gardening, skiing, hiking.
Heger Industrial quarterly newsletter, Fall 2015, pg. 5
WHAT IS HAPPENING TO CALIFORNIA’S ENERGY USE LAWS?
Energy disclosure laws are the way of the future. Cities and states across the country are mandating energy disclosure based on financial transaction or on an annual basis.
California’s AB 1103, has been in effect since January 1, 2014 for all non-residential, commercial buildings in excess of 10,000 square feet. AB 1103 is triggered by a financial transaction: the sale, refinance or lease (single tenant)of a commercial building. California’s square foot threshold was expected to drop to 5,000 sq. ft. but was eliminated last month.
The California Energy Commission (CEC), the entity that mandates this new legislation, also changed when the report is required to be disclosed. The building owner (responsible party) now has 3 days after the signing of the Purchase and Sale agreement, lease or loan document, to provide the disclosure report to the receiving party. Also eliminated, is the need for buildings that will be completely demolished within one year, to comply with AB 1103.
Most recently the City of Los Angeles passed Motion 14-1478 and this new legislation will be heading to City Council for approval this fall. It will require all buildings, both commercial and residential over 50,000 sq. ft. to report their energy usage annually beginning July 1, 2016. The threshold drops to 25,000 sq. ft. in 2017 and it will also provide for public disclosure of the every usage. The third year of the program will drop to 10,000 sq. ft.
Why all of this focus on energy disclosure? California wants building owners to be aware of their building’s energy usage so they will take the steps necessary to reduce energy consumption since this is the largest controllable operating cost of running a building.
Title 24, Part 6, California’s updated Energy Building Code was also recently updated and requires higher efficiency in retrofits as well as new construction. By mandating Title 24, California has bold strategies for energy efficiency,. It is anticipated that 50% of the existing building stock in California will be Zero Net Energy (ZNE) by 2030 due to Title 24 requirements for retrofits as well as for new construction. ZNE assures that over a given calendar year, the building’s energy consumption is offset by the amount of energy it generates with net zero being consumed.
Market economics are also going to be affected, as buildings with higher efficiency have lower vacancy rates and higher market variations. Buildings with an Energy Star rating over 75 can take the extra step and become Energy Star Certified.
The utilities can help fund these retrofits. LA’s largest municipal utility, LADWP has committed $750 million for energy efficiency retrofits, as the utilities also have their own mandates. Utilities in California must produce or purchase 33% of their energy form renewable sources by 2020.
Pushing energy efficiency in existing building stock will help reduce building obsolescence. New technologies, such as lighting and HVAC control systems can significantly reduce usage and KW demand. It is clear that these technologies will become more important in the coming years. It is important to note, that since energy costs continue to rise, reducing energy usage is a sure fire way to maintain these expenses, even while costs continue to increase.
Western Real Estate Business magazine, May 2015, Vol. 12, Issue 9
DECODING AB1103, CALIFORNIA’S ENERGY-USE DISCLOSURE LAW
Energy-use disclosure requirements are changing throughout the U.S., including California. Building owners should be aware of these changes, both to protect their assets and determine where they can save energy and money.
Marika Erdely, Founder and CEO, Green EconoME in Malibu, Calif. The full-service energy consulting firm produces the report for compliance with AB 1103.
New laws affecting energy-use disclosure have sprung up in The District of Columbia, New York City, Austin, Tex., Seattle, and the State of California, among other regions. California’s law AB 1103 went into effect on Jan. 1, 2014, for all non-residential, commercial buildings containing more than 10,000 square feet. AB 1103 is triggered by a financial transaction, such as the sale, refinancing or leasing (only on single-tenant properties) of a commercial building. California’s square-foot threshold for this law is expected to drop to 5,000 square feet by June 1, 2016.
Signed into law by former Gov. Schwarzenegger in October 2007, AB 1103 aims to create energy-usage awareness among owners of commercial buildings. The hope is that building owners will take the steps necessary to reduce energy consumption if they have information about this consumption on-hand. Furthermore, energy use is the largest controllable operating cost of running a building.
The law requires commercial building owners to disclose their energy usage via an EPA software tool called Energy Star Portfolio Manager. This software tool, which is used by all cities and states requiring energy disclosure, will benchmark a building, calculating an Energy Star rating and the Energy Use Intensity (EUI) for 80 different building types. Benchmarking compares the building’s energy consumption and physical and operational characteristics against similar-type buildings within the software.
The Energy Star rating ranges from 0 to 100, with 100 being the most energy efficient. The EUI looks at the energy efficiency of the building from a square-foot perspective; the lower the number, the better. Only 20 out of these 80 different building types can actually receive the Energy Star rating. The others must rely on the EUI to assess energy efficiency. The Data Verification Checklist (the report required for compliance) must be presented to the buyer, bank or tenant 24 hours before the final paperwork is signed. Since the law is slowly gaining traction, most building owners end up supplying the report during the escrow process.
San Francisco implemented its own law in 2011 that’s in addition to California’s law that tackles annual public disclosure requirements. San Francisco building owners with properties of more than 10,000 square feet must report their building’s energy usage every April 1. San Francisco also requires buildings with more than 50,000 square feet to conduct an ASHRAE Level 2 (intermediate level audit). Spaces between 10,000 square feet and 49,999 square feet are required to have an ASHRAE Level 1 audit every five years. These audits provide insight into energy- and money-saving options.
Los Angeles’ City Hall started holding stakeholders meeting after City Council Motion #14-1478, “Improving Energy and Water Efficiency of Existing Buildings,” was passed. Los Angeles is currently evaluating the best approach for this new law. It is also considering whether it would require public disclosure, as San Francisco’s law does, and whether it would include multifamily housing and eventually single-family residences. Los Angeles’ focus is not only on energy, but on water as well, due to the severe drought the state is experiencing. Mayor Garcetti signed an Executive Directive to reduce per-capital potable water use by 20 percent by 2017. Gov. Brown also recently mandated that water use to be reduced by 25 percent.
The Los Angeles Department of Water and Power (LADWP), Los Angeles’ largest municipal utility, has committed $750 million for energy-efficiency retrofits, as the utilities also have their own mandates by 2020. Utilities in California must produce or purchase 33 percent of their energy from renewable sources by this year. Creating this renewable infrastructure, as well as repairing the aging infrastructure, has caused energy costs to continue to rise. LADWP believes it is more cost effective to spend the $750 million on retrofits than it is to build the infrastructure required to meet the demands of these energy-consuming buildings.
California’s 2013 Building Code also had a significant update in energy efficiency. Title 24 now requires new construction and retrofits to meet higher efficiency standards. The most recent version, which went into effect on July 1, 2014, reflects an increase in energy efficiency that is 30 percent greater than the previously released version from 2011.
California has bold strategies for energy efficiency with Title 24, with the goal being Zero Net Energy (ZNE) for new residential construction by 2020, and for new commercial construction (including multifamily) by 2030. ZNE assumes the building’s energy consumption is offset by the amount of energy it generates over a given calendar year, with net zero being consumed. It is anticipated that 50 percent of the existing building stock in California will also be ZNE by 2030 due to requirements for retrofits.
Besides saving energy and lowering operating costs, energy-efficient buildings have been shown to have higher market valuations, according to a study by CoStar. The key is identifying these buildings. Once benchmarked, buildings with an Energy Star Score higher than 75 will qualify to be Energy Star certified. This requires an on-site inspection by a professional engineer, as well as further testing. This testing includes examining the indoor air quality, thermal comfort and illumination of the building.
Naturally, LEED-certified buildings and those that were built and operate with sustainability in mind, also show higher valuations and lower vacancies.
With this in mind, there are demonstrable economic benefits to owning an Energy Star-certified building. Occupancy rates are 3 percent higher for Energy Star-certified office buildings. While rent premiums can range from 5 percent to 8.5 percent higher, most significant re-sale premiums can be 13 percent to 26 percent higher.
AB1103 is about raising awareness and encouraging building owners to find ways to increase the energy efficiency of their buildings while reducing the consumption of energy within the state. Utility companies currently have incredible opportunities to help fund energy efficiency retrofits in buildings, which is why it’s important to investigate the rebate incentives available.
Pushing energy efficiency in existing building stock will help reduce building obsolescence. New technologies, such as lighting and HVAC control systems, can significantly reduce usage and KW demand. It is clear that these technologies will only become more important in the coming years. Being energy aware is just the beginning!
Press Release (2/2/15) – AIR Commercial Real Estate Association
‘GOOD ECONOMIC NEWS’ BODES WELL FOR REAL ESTATE; TRANSITION TO ADAPTIVE RE-USE OF PROPERTY TRUMPING TRADITIONAL USES
LOS ANGELES – There’s good economic news on many fronts for 2015 and 2016 that bodes well for commercial real estate, but industry professionals will have to recognize that a major transition is taking place from traditional building uses to more creative uses.
That was among the central observations emanating from last week’s (Jan. 28), 22nd Annual “Market Review and Forecast” event presented by the AIR Commercial Real Estate Association (AIR) in downtown Los Angeles. Some 250 people attended.
Kicking off the panel of four speakers addressing what was billed as overriding issues impacting commercial real estate today, Robert Kleinhenz, Ph.D., chief economist for the LA County Economic Development Corporation, said the U.S. economy is accelerating and the labor market is improving across many industries.
“At the same time, the substantial drop in oil prices has been a gift, particularly for consumers,” said Kleinhenz.
The prominent economist reported that he forecasts a three percent growth in GDP for 2015 and an unemployment rate of 5.6 percent.
More specific to his audience, Kleinhenz said that despite California getting “beat up”, the state has added jobs at a faster clip than the nation for the last three years. He added that while unemployment is trending down in the L.A. Basin, wage rates remain the “missing piece of the puzzle.”
Kleinhenz added that the motion picture and sound recording sectors, the “industry’s” you often work with, will have real impact, while manufacturing, transportation and warehousing will become increasingly viable.”
We’re in a transitional phase into new creative adaptive re-uses, particularly of old industrial buildings being converted to creative office space, said Carl Muhlstein, managing director of JLL in Los Angeles.
“We need to increase communication and understanding between commercial and industrial property owners and those seeking creative use of space,” Muhlstein said. “Adaptive re-use is outperforming traditional office space. All over Los Angeles, you’re seeing old industrial buildings being converted to creative office space, ” he said.
Along with this, Muhlstein underscored that amenities are being revised for these spaces. “People spend more hours in the office than they do in their typically small apartments, so more building amenities are required. This trend is going to continue and accelerate,” he said.
Stating that by 2020, so-called “Millennials will outnumber baby boomers three to one,” Russell Shubin, AI, LEED AP, partner of Shubin + Donaldson of Culver City, said social trends and values will have a major influence on the workplace and the design and re-positioning of buildings.
“How we live and work and the relationship between the two is blurring Your company’s brand and its culture are the flip side of the same coin,” Shubin said.
Shubin explained that new values are at the heart of the transition, driven by Millennials. They include a desire for a balance between work and private life, innovation, collaboration, connectivity, health and well being, authenticity and sustainability. “All of these factors will define buildings of the future,” he said.
Energy use disclosure of commercial buildings is another issue that will take on increasing significance as we move into 2015 and beyond, said Marika Erdely, MBA, LEED AP, owner/ceo of Green EconoME of Calabasas.
“The new non-residential energy disclosure law (AB 1103) will have major impact on commercial and industrial real estate in the years ahead. It means that energy use of your buildings is something you have to focus on. In fact, ignoring this law could delay your next real estate transaction,” Erdely said.
She noted that AB 1103 went into effect in January of 2014, and requires owners to provide an energy disclosure report to tenants and buyers. She emphasized that gaining an “Energy Star” certified rating of 75 percent (0 to 100 is the range) or more “gives your building an edge in the market. Moreover, the Millennial generation is going to demand this level of sustainability in buildings.”
Erdely noted that many utilities have incentives, including tax credits, to help finance sustainability. “Building obsolescence is in the future if you don’t focus on reducing energy costs,” Erdely concluded.
# # #
High Desert Report, Spring 2014, Vol. 53
WHAT IS AB 1103, CALIFORNIA’S NEW NONRESIDENTIAL ENERGY USE DISCLOSURE LAW?
You may have heard about AB 1103, the new Nonresidential Energy Use Disclosure Law, and if you haven’t, you should. Here’s what you need to know:
AB 1103 came into effect on January 1, 2014 for all commercial buildings in excess of 10,000 square feet in California. On July 1, 2014, it drops to include all buildings over 5,000 square feet. If the building has a residential component, or has a Group F (Factory F1/F2) occupancy permit, it doesn’t need to comply with the law.
The law requires nonresidential building owners to disclose their energy usage via a software tool called “Energy Star Portfolio Manager”. This software tool will “benchmark” a building and produce data, as well as an Energy Star rating or Energy Use Intensity (EUI), depending upon the building type.
The Energy Star rating is from 0 to 100, with 100 being the most energy efficient. The EUI looks at the energy efficiency of the building from a square foot perspective, and the lower the number the better. Of the over 80 different building types, only 20 can actually receive the Energy Star rating. The others must rely on the EUI to assess energy efficiency.
The process of “benchmarking” involves entering the most recent 12 months of energy (electric/gas) usage and certain physical and operational characteristics of the building into the software tool. Benchmarking compares all of this information against similar building types in the software tool, while also performing a zip code weather normalization function. Benchmarking produces several reports, but only one report is required for compliance with AB1103: the “Data Verification Checklist,” or the “disclosure report.”
The AB1103 guidelines stipulate that at least 30 days before a disclosure is required, a building owner must open an account for the building in Portfolio Manager and begin the preparation of the disclosure report.
Since the disclosure report is required prior to a financial transaction being executed, it is best to have the report prepared in advance. The law requires the report to be presented to:
- A prospective buyer – at least 24 hours before the purchase agreement is executed.
- A prospective tenant (for a single tenant building only) – at least 24 hours before the lease is executed.
- A prospective lender – no later than upon submittal of the loan application.
Unfortunately, the disclosure report expires within 30 days. Because the energy usage data must also be kept current, after 120 days, additional energy usage data will need to be entered into the software tool or the tool is unable to produce a rating or EUI.
Having fun yet? Another glitch to the process is that in many buildings, it is the tenant that must provide the energy usage data, since they are the one paying for the meter. Utilities will in no way assist the building owner in providing the tenant’s energy usage data to meet the requirements of this law. It is up to the tenant to provide it, so all building owners should make sure all new leases include a provision requiring the tenant to provide their energy usage data upon request.
What happens if you don’t comply? Well, the California Energy Commission has stated that their actions may include:
- Investigating non-compliance allegations (which may include subpoenas, compelling testimony, and convening investigative hearings).
- Initiating administrative proceedings before the full Energy Commis-sion for an order compelling compliance.
- Initiating a civil judicial proceeding to enforce an Energy Commission order.
- Initiating a civil judicial proceeding to obtain injunctive relief.
- Settling enforcement actions through negotiated settlements that impose reasonable and appropriate requirements, including possible payment of penalties.
It is not clear who they will be going after, but since this is now the law of the land, it is best comply.
Buildings with an Energy Star Score above 75 are able to be “Energy Star Certified.” This requires an on-site inspection by a Professional Engineer (PE) and further testing. Testing includes looking at the indoor air quality, thermal comfort and illumination of the building. The PE uses the same disclosure report to perform the inspection and testing, and fills out all the forms associated with it.
Why do this extra step? Well, there are demonstrable economic benefits from owning an Energy Star certified building. Occupancy rates are 3% percent higher for Energy Star certified office buildings, and while rent premiums can range from 5 to 8.5% higher, most significant resale premiums can range from 13 to 26% higher.
AB1103 is about raising awareness and to encourage building owners to find ways to increase the energy efficiency of their buildings and to reduce consumption of energy in the state. Utilities currently have incredible opportunities to fund energy efficiency retrofits of buildings.
Title 24, California’s Energy Building Code, also has some interesting changes coming in July, 2014, which will push energy efficiency to new heights. Goals include residential construction to reach zero net energy by 2020, while commercial construction is to be zero net energy by 2030.
Pushing energy efficiency in existing building stock makes sense, because these properties will be competing against this new construction. New technology, such as lighting and HVAC control systems can significantly reduce usage and demand. It is clear that these technologies will become more important in the coming years. Being energy aware is just the beginning!
Green EconoME produces the report for compliance with AB 1103. Contact us!
Marika Erdely is the Founder and CEO of Green EconoME, a full-service Energy Consulting firm with offices in Malibu and San Jose. Marika had been a financial professional for over 30 years and holds an MBA and a Contractor’s License B (#892673). She is a LEED AP BD+C, and has been trained as a Certified Energy Auditor (CEA). Marika founded Green EconoME in 2009 to meet the needs of a growing industry, fueled by the mandates required by AB 1103 and Title 24. Green EconoME’s services begin with a full analysis of a building’s energy and water usage. They project manage the retrofits and stay around to ensure projected energy savings are met. Because of Marika’s financial background, all analysis is financial based, and easy to understand with clear ROI and payback periods.
GROWING PAINS PREDICTED FROM ENERGY-USE BILL
ORANGE, CA-Two new California bills that will go into effect as laws soon were the topic of discussion at the recent AIR Commercial Real Estate Association seminar series here: Assembly Bill 1103 and Senate Bill 1186. Both will impose requirements on property owners and brokers once they take effect, but early planning can go a long way toward easing the growing pains predicted for each, said Elizabeth Watson, a partner in the Los Angeles law firm Greenberg Glusker, who spoke at the meeting.
Watson tells GlobeSt.com that the original date the laws were supposed to go into effect is expected to be postponed from July 1 to August 1 due to the unavailability of the Energy Star Portfolio Manager site for a time later this month and extending into early July. That said, as of yet, no formal action has been taken to extend the effective date.
AB 1103 is an energy benchmarking initiative that tracks energy usage of comparable buildings. While Watson assured attendees that the new law requirement will ultimately become routine, “there will be growing pains in the interim.”
Watson, a LEED accredited professional, explained, “The purpose of the law is to require the disclosure of the energy usage of a building and compare it to the energy efficiency of comparable buildings nationwide. In most cases, a building would receive an Energy Star rating of from 1 to 100, with 75 or above being the most energy efficient.”
The legislation is being phased in according to building size and is applicable to sale, lease or financing transactions for entire buildings, Watson added. As of July 1, buildings greater than 50,000 square feet must comply. The law does not apply to space leases or transactions involving less than the entirety of a building or buildings. As of January 1, 2014, buildings larger than 10,000 square feet are affected, and on July 1, 2014, all buildings greater than 5,000 square feet will be subject to the disclosure requirements, she explained.
Property owners need to disclose the energy usage of their buildings at least 24 hours before signing a purchase/sale, lease agreement or concurrent with the signing of loan application, Watson emphasized. Also, 30 days prior to the disclosure, the property owner must open an account on the Energy Star website for the building to start the process to obtain the disclosure and the energy Star rating. “Ultimately, the process will be mechanical, but the challenge is planning ahead. It’s critical to access your utility bills for the past 12 months,” Watson said.
Also during the seminar, consultant Marika Erdely, CEO of GreenEconoME.com in Calabasas, CA, provided a step-by-step guide to setting up an account on the Energy Star website, first underlining that it is critical to determine initially a building’s use designation based on activities that encompass more than 50% of the space. “Reporting the number of workers in a facility, the percentage of a space within a building that is air conditioned and how much parking is provided all can impact the template you create in the Energy Star account to report your data atwww.EnergyStar.gov,” Erdely said.
In addition, Erdely said the most recent energy-usage data can either be entered manually or certain utility companies will provide the information via a download. She noted that multi-tenant buildings require authorizations from each tenant, yet the transaction has to include the entire building. “The energy-efficiency disclosures can be equated to a home inspection. Brokers need to advise their clients to open an account at the website and plan ahead.”
Next, Watson commented on SB 1186, which, as GlobeSt.com previously reported, requires a commercial property owner to state, in every lease form or rental agreement executed on or after July 1, whether the property being leased or rented has undergone an inspection by a Certified Access Specialist. She said that the law affects commercial brokers in that after July 1 any documents for lease have to disclose whether a building has been inspected as regards compliance with disability-access regulations. “It’s up to the owner whether to get an inspection. But, if they do it, it must be disclosed to the tenant whether the building is in compliance.”
A silver lining to the law is that owners can benefit from SB 1186 in the event of any legal claims for deficiencies under the Americans with Disabilities Act because they can show that the building has been certified by a Certified Access Specialist, Watson said.