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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   September 2014

Better Living Through Benchmarking

Comparative energy-efficiency disclosure data reduces buildings’ carbon footprints

Energy benchmarking is the process of standardizing the energy capability of a commercial building, with the potential necessity of disclosing the findings to interested or required parties. These parties may include building owners, property managers, utility companies and government agencies, in addition to real estate and mortgage professionals involved in the sale and financing of commercial properties.

The objective of this benchmarking is to create a carbon footprint or energy-efficiency disclosure as a measure of energy consumption compared to other buildings of the same type. The disclosure depicts how the building’s efficiency rates in several prescribed categories. Benchmarking is somewhat akin to appraising, in that it provides a standardized rating mechanism whereby similar buildings of design and purpose may be compared and contrasted as part of a national database.

Benchmarking also provides the ability to measure a building’s efficiency against itself over time. It provides data for energy conservation and sustainability for maintenance purposes. Public officials use benchmarking as a method of identifying wasteful or inefficient buildings in the government portfolio, and through this process and the data acquired from it, incorporate lessons learned in the formulation of future legislation.


There are a number of U.S. jurisdictions, including two states, one county and nine major cities, that have legislation and disclosure laws enacted and in effect requiring energy benchmarking. California and Washington state lead the nation with their statewide benchmarking requirements. Montgomery County in Maryland has had legislation in place since this past April, and nine cities require energy benchmarking and disclosure requirements: Austin, Texas; Boston; Chicago; Minneapolis; New York; Philadelphia; San Francisco; Seattle; and Washington, D.C.

Much of the legislation enacted regarding benchmarking has been in the works for years, with a key milestone coming in November 2007, with the passage of California Assembly Bill 1103 (AB 1103). The initial disclosure date for AB 1103 was set for January 2010, but the bill was delayed several times, finally going into effect this past January.

Disclosure requirements

Benchmarking disclosure requirements vary slightly by jurisdiction, but almost all jurisdictions require a minimum of reporting the benchmarking data to the government. Several jurisdictions require public website disclosure, and many go even further, mandating disclosure of energy ratings at the time of a transaction to buyers, lessees and lenders. For example, California, Washington state, San Francisco and Seattle all require mandatory energy disclosure in the cases of buying, selling, refinancing or leasing commercial property.

The Institute for Market Transformation identifies three building types affected by benchmarking: municipal, commercial and multifamily. Each jurisdiction has its own requirements for the minimum size of buildings that require benchmarking, but all use square footage or unit count as qualifiers.

Among the jurisdictions, municipal buildings have ranges from 10,000 square feet to 50,000 square feet, commercial buildings include ranges from 5,000 square feet to 50,000 square feet, and multifamily buildings have mixed minimum ranges of 20,000 square feet and 35 units. This past January, when AB 1103 compliance went into effect, California’s commercial building minimum was 10,000 square feet, but effective this past July 1, the minimum was reduced to 5,000 square feet.

The most common benchmarking rating system utilized by all jurisdictions is the Energy Star program. The Energy Star system assigns an efficiency score of 1-100, with 100 being the most efficient. A score of 50 is considered a median energy-efficiency rating, and a score of 75 or higher means that the building performs better than 75 percent of its peer buildings in the nationwide database, and hence may be eligible for the desirable Energy Star certification.

Qualified inspections

Energy costs make up a significant portion of any business’ operating expense, and may represent 30 percent or more of the operating costs of a typical office building. Property owners are generally aware of their energy usage and take measures to control it, but many may not fully understand the extent of the possible energy savings.

Benchmarking provides guidelines and comparative data that help identify and unlock potential savings on energy costs. In addition to benchmarking disclosure information, to maximize potential savings, mortgage professionals and their property owners may wish to employ a qualified energy inspector to measure a property’s energy expenditure and its associated costs.

The inspector will make recommendations that directly impact and lower costs, as well as reduce a building’s carbon footprint. A qualified inspection will accomplish many objectives:

  • Satisfy regulatory compliance requirements
  • Suggest energy-savings improvement in as many as nine categories
  • Recommend capital improvements to positively affect profitability
  • Create an energy-management plan with quantifiable benchmarks
  • Provide information on tax credits, utility rebates and other incentives
  • Reduce an asset’s carbon footprint and add measurable value

• • •

Energy benchmarking and disclosure for commercial property benefits society through the reduction of pollution and draining of energy resources, and provides building owners with long-term savings opportunities. All mortgage professionals and their clients, not just those in the jurisdictions that now have requirements in place, should be aware of the importance and use of energy benchmarking in property assessment and valuation.  


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