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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   November 2010

Does Your Building Measure Up?

Energy efficiency can affect an asset’s marketability and value

Does Your Building Measure Up?

In recent years, there has been a greater focus on energy efficiency in newly constructed and existing buildings. Initiatives aimed at measuring and curbing energy use are being enacted around the globe — from a 2003 European Union directive requiring buildings to have energy performance certificates to last year’s legislation from New York City requiring energy audits for buildings every 10 years. These measures aim to make public the energy-efficiency rating as well as the environmental impact ofbuildings. In addition, they provide potential buyers and tenants with a standardized methodology to compare the energy efficiency of buildings in anticipation of purchase or rent.

As energy efficiency becomes an increasingly valuable asset in commercial buildings, mortgage brokers should be aware of the latest standards and regulations so they can better advise their clients.

Energy-efficiency advantages

Energy efficiency can be a valuable component of a real estate asset. Positive ratings can increase a building’s marketability and drive competition among building-owners and managers.

With growing awareness of energy issues, property due diligence by prospective purchasers likely will expand to include energy use, particularly because energy efficiency can impact property values and rental rates.

Energy efficiency may affect marketability and value in the following ways:

  • Poor energy performance may reduce the prospective tenant pool.
  • Energy-efficiency requirements in local building ordinances may impact the capital cost of building renovation.
  • A lack of energy efficiency may make buildings less competitive in the marketplace and necessitate rental discounts.
  • Green buildings can be more valuable and can command higher rents.
  • Green buildings experience higher occupancy.

Local initiatives

This past December, the Greener, Greater Buildings Plan was passed in New York City. The law requires most buildings to undergo energy audits every 10 years and update their lighting systems to more-efficient technology. It also requires all buildingslarger than 50,000 square feet to benchmark and publicly report their energy and water use by this coming May 1. Data for commercial buildings will be available to the public starting Sept. 1, 2012.

With energy-efficiency data soon to be available immediately to prospective tenants or buyers, building-owners should know how their property compares to others in the area. The availability of the Energy Star score will make energy efficiency a potentiallyvaluable component of every real estate asset.

Setting a standard

Awareness of energy efficiency and green buildings is increasing, but a standardized methodology for the collection and reporting of energy data has not been established. ASTM International, the leading standards-development organization, set out todevelop a standard practice for the collection and reporting of energy-use data for commercial buildings.

The result was the standard practice for Building Energy Performance Assessment (BEPA) for a building involved in a real estate transaction. As of press time, the BEPA standard was still in a working group but was expected to be passed by ASTM in Octoberand published in December. With this measure, ASTM hopes to create a standardized practice for collecting and analyzing energy-efficiency information for commercial buildings.

The standard includes guidelines for what needs to be done during a BEPA study. The study’s goal is to document historical energy performance, identify the range of building energy use and cost, and provide a pro forma energy use and energy cost forthe building. It includes a site visit, interviews, records collection, records review and analysis, and a report on findings.

Using the new standard

A BEPA study may be used as a standalone due-diligence process at the time a building is listed to prove the owner’s need to prepare energy-performance disclosure information for prospective purchasers and lenders. It also can be used in conjunction with a Phase I environmental site assessment or a standard property-condition assessment as part of property due diligence.

Users of the BEPA process should evaluate the consultants performing the assessment and confirm that they have enough knowledge of building and energy systems; training in building assessments; and the experience necessary to conduct the site walk through,interviews, data collection and analysis defined in the BEPA practice.

As energy efficiency and environmental awareness continue to grow, commercial mortgage brokers must be aware of the potential implications of new standards and regulations as they pertain to their clients’ properties and prospective properties. Brokers who gain the proper knowledge can better help clients navigate property assessments and succeed with smart purchases that give energy efficiency  its due. 


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