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The Building Energy Efficiency Opportunity Heats Up


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One of the fastest-growing sectors of the property risk assessment industry is building energy efficiency. A confluence of economic, regulatory and technological forces are driving more attention onto a building’s operating efficiency. This trend is opening up new, exciting opportunities in the property condition assessment space. Speakers will address the developing ASTM Green.

PCA standard, the popularity of green lending programs at Fannie Mae and Freddie Mac and the data being harnessed to measure a property’s energy efficiency during property due diligence.

- Anthony Buonicore, Chairman, Sustainable Real Estate Solutions, Inc. and ASTM Green PCA Task Force
- Karyn Sper, Program Manager, Fannie Mae Multifamily Green Financing
- Emily McLaughlin, Senior Associate, Market Engagement, Institute for
Market Transformation

Published in: Environment
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The Building Energy Efficiency Opportunity Heats Up

  1. 1. ASTM BUILDING ENERGY PERFORMANCE & IMPROVEMENT STANDARD AS AN ADJUNCT TO THE ASTM PCA STANDARD PRISM Conference Omni Scottsdale Resort & Spa at Montelucia May 9, 2018 Presented by: Anthony J. Buonicore, P.E., BCEE, QEP Chairman, SRS, Inc. ASTM Task Force Chair
  2. 2. Overview  Driving Forces  Business  Legislative/Regulatory  Integrating Building Energy Assessments into the PCA  Value Proposition to Stakeholders
  3. 3. Driving Forces for Buyers: “Good Business Sense”  More Energy Efficient Buildings  Lower operating costs  Higher net operating income (NOI)  Rental rate premium  More valuable building  More attractive to tenants  More competitive in the marketplace  Less Energy Efficient Buildings  Less competitive in the marketplace  Higher obsolescence risk  Greater risk of default
  4. 4. Driving Forces for Buyers: “Energy Performance Disclosure Legislation”
  5. 5. Goal: Integrating Building Energy Assessments with Property Condition Assessments
  6. 6. Existing Multifamily “Green PCA” Protocols  Fannie Mae Green Rewards Program  High Performance Building (HPB) Report  Freddie Mac Green Advantage Program  “Green Assessment” protocol targeted at reducing energy use  HUD Green Physical Needs Assessment
  7. 7. Market Moving Toward “Green PCAs”  Institute for Market Transformation & Lawrence Berkeley National Laboratory (U.S. Department of Energy):  2017 Report: “Financing Energy Efficiency through Mortgage Loans”  More and more CRE investors are moving toward:  Marrying energy efficiency and commercial loans  While simultaneously reducing property default risk  “Energy efficiency may be integrated at the mortgage level through the PCA”  2016 survey indicated interest among lenders to include energy efficiency in PCAs
  8. 8. Useful Information Already Collected as Part of PCA  Building description (use, size, age, etc.)  Description of major building components impacting energy use (from PCA walk-through)  Lighting  Space Heating  DHW heating  Air Conditioning  Ventilation  Windows  Renewable Energy Systems  Remaining useful life of components to identify those at or near the end of their useful life (to develop probable costs)
  9. 9. Additional Information Would Need to be Collected from the Building Owner  Building energy use data  Latest full year of electricity and fuel consumption and cost  Copy of recent utility bill (according to ASTM E2797)  Recent major renovations, if any  Recent energy upgrades, if any
  10. 10. ASTM TASK FORCE MEETING APRIL 10, 2018 IN SAN DIEGO Consensus for a Two-Part Methodology  Screening Process  Conducted at the time of the PCA (pre-closing)  Relatively inexpensive  More Comprehensive Assessment Process  ASHRAE Level 2 Energy Audit or equivalent  Likely conducted post-closing  Gain greater certainty
  11. 11. ASTM TASK FORCE MEETING APRIL 10, 2018 IN SAN DIEGO Major Discussion Issues  Definition of an under-performing building against peers  General agreement on an Energy Star score less than 50  For under-performing buildings, to what performance level should energy improvements and their associated costs be targeted  General agreement on median of peer buildings (Energy Star score of 50)  Inclusion of water use/benchmarking for multifamily buildings  Details of screening and more comprehensive assessment methodologies
  12. 12. Conceptualized Screening Methodology  Benchmark building energy use against peers  Determine if building is “under-performing” against peers  If so, estimate what energy use savings might be needed to get the building to (or above?) the median performance of its peers  Identify energy improvements that might be made to achieve these energy savings and what it might cost  Presumably, a prospective purchaser desiring to be competitive in the marketplace can consider this cost in purchase price negotiations
  13. 13. Benefits to: Prospective Purchaser  Another issue to be used in price negotiations  Immediate financial benefits in owner-occupied buildings and buildings using gross leases with tenants (e.g., lower operating costs, higher net operating income)  In buildings with triple-net leases, tenants would have lower energy costs, thereby making the building more attractive to potential tenants  Energy efficiency improvements would make the building more valuable and better posture it for sale in the future  A “sustainable” building has a competitive edge in the market. “Incorporating energy efficiency into a standard PCA is a cost effective way to gain valuable sustainability related insights during the due diligence phase. From an investment perspective, it can add to capital and operational planning to maximize resource efficiency, and also provide early answers to questions that are relevant for investors and other sustainability stakeholders.” ~Becca Rushin, Vice President of Sustainability and Corporate Social Responsibility at Jamestown investors
  14. 14. Benefits to: Lender  Improved collateral value  Reduced probability of loan default (lowering risk)  Reduced potential for building (collateral) obsolescence  Improved borrower financials and “ability to repay loan” Benefits to: Due Diligence Consultant  Expanded PCA scope of work ($)  Competitive advantage (providing more value to clients)  Potential follow-on work (energy audit, etc.) after property transaction completed