Commercial buildings in the United States are responsible for consuming an enormous amount of energy. In fact, buildings overall are responsible for an estimated 40 percent of total energy use in the United States.
Although residential properties account for the lion’s share of that energy use, commercial-building energy use is increasing rapidly. Total electricity consumption by commercial buildings, for example, nearly doubled between 1979 and 2012, according to a recent U.S. Energy Information
Administration report.
A building’s energy consumption should be of interest to commercial mortgage brokers because it can affect a property’s value, and hence the terms of financing in any deal. With that in mind, brokers should familiarize themselves with the current movement toward energy-data
benchmarking, which involves comparing a specific property’s performance against a data-based industry standard. Benchmarking is now helping to guide energy-performance improvements for commercial real estate on a global scale.
Benchmarking performance
The Global Real Estate Sustainability Benchmark (GRESB) is an industry-driven organization charged with assessing the sustainability performance of real estate assets, including real estate portfolios and infrastructure assets. Results of a 2016 GRESB survey, which covered more than
22,000 individual buildings, revealed demonstrated improvement by the global real estate sector in managing its carbon footprint, with 90 percent of property companies and funds reporting that they have integrated carbon-management strategies into their investments.
GRESB enables the real estate sector to reach improved sustainability performance and lower carbon emissions by providing a blueprint for success. By benchmarking energy and carbon data on an annual basis, the real estate sector is empowered to set goals for enhanced property performance.
GRESB also provides commercial real estate investors with essential tools required to accurately monitor and manage their sustainability risks, and to prepare for increasingly stringent environmental, social and governance (ESG) obligations. Rather than evaluating the performance of
individual assets, GRESB takes a wider view, focusing on real estate companies and funds as a whole.
Tracking data
After realizing the critical importance of tracking energy data to devise methods to reduce citywide energy use, an increasing number of cities are mandating the benchmarking of energy data. By requiring benchmarking and public disclosure of energy data, cities are highlighting opportunities for
increased efficiency and use of renewables — both of which are cornerstones of the Leadership in Energy and Environmental Design (LEED) certification program. Developed by the U.S. Green Building Council (USGBC), LEED is the most widely used green-building rating system worldwide.
In 2015, Atlanta became the first Southeast city to adopt a benchmarking policy, requiring building owners to track and report energy use of private and city-owned properties of more than 25,000 square feet to the city on an annual basis. Performance data will be available to the public, thus
recognizing and driving demand for high-performing buildings.
The Obama administration and private industry also have implemented policies to make energy information more accessible. Earlier this year, the U.S. Department of Energy (DOE) and CoStar, one of the nation’s largest commercial real estate information providers, announced a partnership
to increase the profile of benchmarking data, with CoStar pledging to provide building energy-efficiency information through its online property databases and marketplaces.
CoStar will display certain publically available data, including building energy-usage intensity, Environmental Protection Agency (EPA) Energy Star scores and annual greenhouse gas emissions. DOE and CoStar also will back research on the impact of energy efficiency and sustainability
real estate valuation; building-operating income and expenses; and tenant health, productivity and comfort.
This agreement builds on the progress made by USGBC and CoStar in 2006 to ensure that commercial properties achieving LEED certification are labeled as such. That initiative laid the foundation for increasing the visibility of buildings with certain energy and sustainability
distinctions, like LEED, while also enabling comprehensive research on the performance of green buildings versus their conventional counterparts.
Breaking ground
The EPA’s Energy Star program and the USGBC’s LEED certification program were among the first voluntary uses of benchmarking for building-energy use. The Energy Star score, which draws on Commercial Building Energy Consumption Survey data, is calculated by comparing a target property to similar buildings nationwide that have the same primary use. This comparison among peers allows project teams to benchmark their property’s own measured energy use against its historic baseline, as well as against other similar buildings
or portfolios.
“ Benchmarking is now helping to guide energy-performance
improvements for commercial real estate on a global scale. ”
LEED helps guide the design, construction, operations and maintenance of commercial buildings. Projects pursuing LEED certification earn points across several categories that address sustainability issues. Each category in a LEED rating system consists of green-building prerequisites and
credits. Prerequisites are required elements and credits are optional elements — or strategies that projects can elect to pursue to gain extra points toward LEED certification.
Credits earned through LEED are third-party certified and are developed through collaboration with USGBC stakeholders. As market readiness increases and new technologies emerge, these credits adapt and thus raise the bar for the next generation of building projects. LEED has continued
to evolve and increase in stringency and thus continues to move the nation’s buildings toward greater energy performance.
LEED has long incorporated benchmarking and energy performance as core components. LEED is being used to guide high-performing, energy-efficient buildings across the country. More than 79,000 projects in more than 160 countries and territories are now LEED-certified with an average
ENERGY STAR score of 89 points.
Improving performance
LEED also helps commercial buildings reduce their operating costs over time, with certified commercial buildings reporting lower maintenance costs that average nearly 20 percent less than conventional buildings. Between 2015 and 2018, LEED-certified buildings in the United States
generated an estimated $1.2 billion in energy savings, $149.5 million in water savings, $715.2 million in maintenance savings and $54.2 million in waste savings, according to the 2015 USGBC Economic Impact Study.
Benchmarking also is an integral piece of USGBC’s most recent update to LEED — called LEED v4. This latest version provides a specific, yet flexible roadmap for the real estate sector to achieve energy-efficiency and sustainability goals. As part of LEED v4’s Operations and Maintenance:
Existing Buildings (EBOM) rating system, projects are required to establish a minimum level of operating-energy performance to reduce the negative environmental and economic effects of excessive energy use. Project teams must meter a building’s energy use for one year and monitor it against a baseline
with the goal of achieving certain levels of efficiency improvement compared to that baseline.
LEED v4‘s EBOM rating system also incentivizes higher levels of energy performance. Properties that demonstrate increased energy efficiency or efficiency improvement beyond the required level can earn up to 20 additional points. LEED v4 ensures that building owners and managers will
benchmark energy performance to achieve peak efficiency, and the pathways available in LEED v4 serve as guidance for project teams to reach efficiency goals.
USGBC also has developed a software platform to generate a LEED score, which is the next transformative step for tracking building performance. Through this platform, projects receive a LEED Performance Score based on foundational practices and measured building data — including energy,
water and waste-disposal use as well as transportation and human experience.
The LEED platform provides building owners, managers and occupants with frequent feedback on the building’s performance, setting the stage for needed corrections and ongoing benchmarking. It also works with other key software platforms, such as the EPA’s Energy Star Portfolio Manager.
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The commercial real estate sector has made meaningful progress in improving its energy performance. Energy efficiency and sustainability add value to properties, a benefit commercial mortgage brokers should understand when shopping for financing for a client. There is always
more that can be done, however. As benchmarking opportunities become more accessible and flexible for individual building types, commercial real estate stakeholders, including brokers, should increasingly see its value as a tool for helping to reduce total energy costs.