Massachusetts Green Buildings Used 40 Percent More Energy Than Predicted

http://www.greenrealestatelaw.com/2009/10/massachusetts-green-buildings-used-40-percent-more-energy-than-predicted/

 

Full study can be downloaded here:

http://www.greenrealestatelaw.com/wp-content/uploads/2009/10/green_buildings_mass_solar2007-conference.pdf

 

Summary from J Howry:

The 40% underperforming metric is supplemented by photovoltaic systems performing at ~80% of their projected contribution.  Nothing like over exaggeration to give a good idea a bad name!

Dan Winters of the Capital Markets Partnership on why energy alone is not sufficient to show solid financial performance of buildings:

 

In an effort to be helpful in advance, here's a summation of what we've learned in CMP's ANSI process that resulted in the approved Underwriting Standard:

 

 

The identification of factual information that determines an asset's green building attributes contributing to areas of economic value / reduced investment risk (Reduced OpEx / Improved NOI / Relative Value Increase) was an area of lively discussion / debate during CMP's ANSI consensus process.......CMP members were intently focused on defining those green building attributes that had a tangible financial impact to the asset.

 

CMP's consensus was that energy-efficiency alone, while necessary, was not sufficient in determining the "green value" attributes impacting a property's value.  The participants unanimously concluded roughly 15-20 USGBC-defined LEED credits across the various rating systems have a financial impact and/or reduce ongoing financial risks.  These items went beyond energy use / consumption and include location, water use and disposal, waste disposal, indoor environmental quality issues, and other building-specific features that positively impact ongoing OpEx and/or financial risk compared to buildings without those features.  Key is the last part of that sentence.....the risk profile of the subject asset compared to other assets in the market that do not have those features.

 

The key we saw with LEED was the verification process - this is a requirement when providing capital market confidence in the rating.  This is one of the advantages of the ASTM standard we are engaged in developing which is why I support this process and look forward to continued engagement going forward.  

 

It should be noted during CMP's ANSI process, all parties agreed it is difficult outside of LEED to truly verify certain things like water use reduction which is why the CMP Green Building Underwriting Standard relies on a drill-down into the LEED scorecard and achievement of a specific LEED credit as an underlying component.  

 

The second component - the asset's EnergyStar score - gets to the heart of relative energy consumption by benchmarking the asset against a larger data set.  This allows the Underwriting Standard to address energy consumption within the CMP Green Value Score by formulaically blending the energy points achieved on the LEED scorecard with the asset's EnergyStar benchmark score.  Adding additional transparency, clarification and reporting on a building's energy-related aspects, particularly with focus on functional and operational detail by way of the ASTM process will be of significant benefit to the investment market. 

 

The resultant product of the CMP member consensus process is the CMP Green Value Score which weighs financially-tangible 'green' attributes that impact value/risk by confirming: 

 

            1) the achievement of specifically identified LEED credits as scored by an Environmental Professional / LEED AP

            2) determining and reporting the EnergyStar energy efficiency rating

            3) certifying the building as climate neutral 

 

After completing the Underwriting Standard process, each asset obtains a standardized score from the perspective of the economic value identifying a property’s green building attributes contribute to the assets investment risk profile.  In pilots, CMP members / users continue to find the financial value / risk reduction orientation of the Green Value Score methodology well-suited in the context of a real estate transaction.

 

For additional backgorund, I'm including a link to a document on CapitalMarketsPartnership.com that goes into further detail on these aspects

 

             http://www.capitalmarketspartnership.com/UserFiles/Admin%20Assessment%20-%20CMP%20Green%20Value%20Score.pdf

 

Again, very sorry I cannot attend the meeting in Atlanta - I look forward to being an ongoing contributor and source of information as this process unfolds.  Please contact me at any time.

 

 

 

 

Dan Winters, Managing Principal

Evolution Partners Real Estate Advisors

1511 Wisconsin Avenue NW, #200

Washington, DC  20007

 

202.997.3922 - p

202.338.2800 - f

dan@evolutionpartners.com

 

www.EvolutionPartners.com 

 

As the economy takes its toll on corporate balance sheets, property managers work overtime to keep tenants happy.

HERE IS A THREAD DISCUSSION WITH MANY THOUGHTS....

All-

 

I would like to keep this short… we are back to the question of what does the market need….

 

1. there are LOTS of regulations coming on line that relate to energy efficiency.

2. there are a few programs/certifications that can be followed/applied for that also seem to be heavily reliant on energy efficiency.

3. From a banking world perspective, energy efficiency is one of the few sustainable metrics that can be somewhat easily quantified, predicted, compared year over year, compared to regulated thresholds/mandates.

4. It also most directly (and quite quickly in some cases) translates into money.

 

BUT, is that what green building due diligence is about?

 

I would still suggest some other components such as water management (storm water and water conservation) and transportation.

 

Please let me know of anyone you would like to see added to this effort.

 

I think energy efficiency should be at the core of any green building diligence since it is uniformly included in every local program and will be part of any federal program. The other green issues like water conservation, stormwater runoff and indoor air could be like the non-scope items in ASTM E1527-05. Those lenders or owners who are concerned about the other issues can add them to their scope depending on particular aspirational goals and local requirements.

 

For example, I do not see proximity to mass transit being a big issue to green buildings in NYC b/c of the extensive mass transit. Water conservation and storm water are certainly important and laudable goals but they are more critical in some parts of the country than others.

 

 

Larry

 

 

Fyi – energy efficiency, water conservation, and pollution reduction/eradication are all admirable goals to strive for in green building design and due diligence.  From a valuation standpoint, however, only quantifiable benefits (or detriments) as perceived by market participants affect market value.

 

I propose a 2-tiered approach: 1) maximize “green”-ness; 2) seek marketable value benefits where available.  Most emphasis for global preservation purposes is on #1 goal, but the driver in many cases may be #2 as it is money or other intrinsic/extrinsic benefits that move the world’s players.

 

Mitch Kreeger, MAI, SRA

Vice President / Chief Appraiser

Affinity Bank

625 East Santa Clara Street, Suite 101

Ventura, CA  93001

(805) 804-1623 phone

(805) 585-1287 fax

 

Wasn't able to make the call but I agree Mary.  Article in LA Times on Sunday indicates that Freddie and Fannie have been directed to develop mortgage products and more flexible underwriting guidelines to reward energy-conscious borrowers and builders but may not grant concessions for homes in far-flung neighborhoods that have long commutes that would add to carbon emissions.  I wonder what this will do initiatives like light and high speed rail?  Water conservation is also as critical as energy when it comes to the west.  With mandatory rationing in LA (reduced water use in June to that of 20 or 30 years ago), make this a very real issue that needs to be addressed.  I could go on about stormwater and the economic impact it has on coastal communities etc., but I know we need to keep focused and manageable but I am a strong proponent of including water management into this mix. In most places the metrics are there and at least out here it translates into money.

 

These past two emails bring to light one of the challenges to developing standards, as well as the entire Green philosophy.  Should being able to (easily) assign a monetary value to an item be the deciding factor on whether it is considered?  Or should we be just as concerned with less tangible items, more in line with LEED and Reduce, Recycle, Reuse concepts. 

 

Yes, the financial sector, appraisers, owners, and buyers look to the dollar first and measurable cost items are much more easily digested that more abstract items. 

 

Yes, it is difficult to set value to abstract things that would be agreed to industry wide, and usually that’s what it takes to get something to be considered as a “standard”.

 

But there are times when small things can make a difference on the large scale and not have a significant impact on the individual balance sheet.  Take the toilet for example.  Does the average business owner really see a substantial cost savings from saving 0.4 gallons per flush.  Not really.  But the community does once everyone upgrades and now 1.6 gpf or better is a standard.

 

Maybe we should consider ALL ideas, measures, and abstract items.  Why shouldn’t the office building in Manhattan get a few points over the newer suburban office complex for proximity to Mass Transit?  Water conversation and storm water are important everywhere, just maybe in different ways.  In AZ it’s a matter of need.  In NYC it may be a matter of need (reservoirs in the Catskills can get pretty low) but also the impacts of discharges to the Hudson and East Rivers. 

 

Maybe if ALL ideas are included, there would be a way to assign applicability based on location, etc.  A/C efficiency is very important in FL but Heating is not.  The opposite might be said for Portland, Maine.

 

If cost is the sole metric, then let’s just call it an energy audit and be done with it.  It may be time to start thinking a bit outside the box.  Maybe if we lead, others will follow.  I hate to sound like a billboard, but “if not us, who?  If not now, when?”  It’s not easy to get it all done, but it might be worth it.

 

Sorry if I sound a bit too tree-huggerish.  I truly am an engineer at heart.

 

David A. Jermakian
President, DEA, Inc.

Office (877) 968-4787
Cell (860) 919-2619

 

Interesting discussion…

My idea is that there should be a strong emphasis on standardizing metrics for energy efficiency.   But there should also be an optional “Green” checklist which is not quantified or linked to a metric at this time.  The checklist could look a lot like the Transaction Screen Questionnaire – where the site contact answers the questions – and the consultant also looks for visible evidence of the features.  This needs to be quick and easy – and not be a certification that any of these things would qualify for LEED points – or save X amount of money.  It would just be a series of check boxes for “Green” features.  Sort of a Green flag checklist if you will. 

The form would need to have lots of caveats to show that a check in a box does not certify that item meets a particular standard.  It would allow a brief and low-cost way for the consultant to list possible green features – but not to take the time and expense to certify them.  The results of the checklist could stand alone and would not affect the energy efficiency metric. 

 

I think this could be a good way to start to collect “Green” information – but would still keep the due diligence quick and not too expensive. 

 

Harriet Greenwood

Greenwood Solutions, LLC

greenwood@envreview.com

313-441-1414

 

 

What Larry is suggesting is what I believe this group – as opposed to our ASTM committee – should do i.e., define and develop some version of a “standard” scope of work for all the non-energy issues.  If you dig back in your e-mail archives for this group, you will find some strawmen for the elements to be involved that were distributed by Jack.  In my mind, it’s not to set a firm requirement, just something that can be discussed, modified and agreed upon by users and their consultants.

 

Mark

CONFLUENT SOLUTIONS

phone 770-617-2010

 

 

I agree.  This is what I had hoped would be the outcome when we first began talking about GBDD.  Without prejudice to our larger institutional members, think about what a relatively small investor would be seeking, as far as baseline data, with a goal of moving his new building the LEED=EB or other standard ranking.  I am campaigning for a green  “transaction screen” as Harriet has described. 

 

Mark

CONFLUENT SOLUTIONS

 

 

Now it looks like we are taking a step backwards.

 

As I have said before, I dont think a mere checklist or transaction screen provides sufficient information to help either a purchaser or lender. What would the checklist say-that the building has low-flow water faucets? What kind of analysis will accompany such a statement? will it indicate if the various green components are in compliance with current local requirements?

 

The only role that I see a checklist performing is to serve as a starting point for the consultant like the questionairre serves for E1527. Otherwise, we will just facilitate "greenwashing" and will also open the market up to the commodity shops who will then start us to the race to the bottom.

 

Larry

 

 

As the commercial real estate market is not in good shape for the foreseeable future I think we are viewing this discussion from past thence,  the 20th capture economic model.  

The driving force for the 21st entry seems to be shifting from the transactional model to the operational model of where the corporation is most interested in sustainability. 

Simple put. no one is considering the cooperate client in their analysis.  Suppose there has been a shift.  The transactional model of profit shifts to the corporate operational model?  In other words, a client asks, how can I become green?  What does the report tell them? 

Who is the client? 

How about large corporations who want their companies to be green..  Any thoughts? 

Are we so bound by the transnational business model we are totally missing the main trust of "GREEN"?

What are you thoughts?  Email me as I am interested in hearing from your experencses because the folks with the money are asking for differnt information.

The 20st centry model for profit may hqve expired.  What dose your business tell you?  Are you growing?

Change seems to be in the air/

Thomas Clark, CTO and Principle,
National Asset Recovery Group

 

 

Checklist sounds like a good idea as a starting point for identifying “green” features as perceived by the property owner.  How do we translate these identified features into value-add?  Or is this to note intrinsic positives?

 

I think Thomas is saying that it is fine to measure results, but that puts the cart before the horse – how do we inform corporations on how to become “green” and reap its intrinsic/extrinsic benefits?

 

Mitch Kreeger, MAI, SRA

Vice President / Chief Appraiser

Affinity Bank

625 East Santa Clara Street, Suite 101

Ventura, CA  93001

(805) 804-1623 phone

(805) 585-1287 fax

 

 

I think that a Green flag checklist could be done in such a way as to be educational – and not green wash.  Believe me I don’t like the race to the bottom. 

As I see it the market needs a quick and cheap way to evaluate “Green-ness” at the transactional level.  A checklist should be just the tail on the dog for a quantitative standard that focuses on energy efficiency.  It could report the owner’s claims for various things such as water efficient plumbing, bioswales, etc and report whether or not each item on site has been certified by a standard such as LEED or ASHRAE (owner would need to furnish documentation).  If green features are listed but not already certified, the checklist would just give an organized listing of the owners statements plus simple observations made by the consultant in a site visit.  The consultant could suggest certification opportunities as the next step to verify the onsite “Green” features. 

Green flags could be an opportunity to encourage additional certification and documentation.  The checklist would need to state that it was a subjective and non-verified listing and recommend as a next step certifying important features.  The checklist alone should not have an impact on appraised value – but would just add some narrative. 

 

 

Harriet Greenwood

Greenwood Solutions, LLC

greenwood@envreview.com

313-441-1414

 

 

Well, as somebody said in this chain:  it looks like we are going backward.  While I hope that isn’t true, it does feel like we are going in many different directions and maybe talking past each other a bit in the process.  Additionally, we don’t seem to have a common vocabulary so sometimes using shorthand like “transaction screen” prompts an immediate reaction – before we have even defined what the scope and use would be.

 

As the risk of an additional round of rotten tomatoes coming my way, I think we are talking about different levels of assessment and a mix of client types with differing wants and needs and jumbling all those together trying to make one product.

 

I don’t know what (if anything) bankers and even some institutional lenders really want regarding the green status of the financed building.  I leave this one to them to define.  My bank clients are not yet aware/interested in green building issues, and are not factoring anything into loans at the this point.  Caveat – my bank clients are primarily community banks and these are small deals; I don’t have an experience framework from which to opine about BOA, Wells, Comerica, etc.  I look forward to learning more from their representatives in this group.

 

Then, we have owners, and they fall into several categories.  My clientele is made up of a number of small and medium investors, M&A legal and business brokerage firms, and corporate clients.  They run a huge gamut of requirements based on their objectives for any given deal, property or company.  As the small investor community becomes interested or required to make green decisions during investment (due to corporate commitment, tenant requirements, local codes, etc.), they need to know what green features exist, what is reasonably possible and what is not.  Yes, this is generally in the framework of an existing “standard” like Energy Star or LEED-EB.

 

I’ve have advised on a couple of deals where the Buyer corporation has some “green” corporate mission and want a similar amount of information about the company and property being acquired.  Larger corporate clients are in some level of transition to CSR and/or green; the checklist is not enough here and a larger assessment is warranted.

 

So, maybe we have at least three levels of work product to consider: (1) just simple yes/no data, (2) data with analysis and discussion, and (3) a full green building review, including more engineering and cost estimating – some version of a green PCA.

 

PS – I started this before Harriet’s more reasoned response, so I hope I add a little value to the discussion, and don’t further fog the air.

 

Mark Shearon ^{LEED AP}
phone 770-617-2010

 

 

I agree that in the embryonic state of green building, there are varying levels of client awareness and concern about this issue. I suspect this will continue to be the case until it becomes apparent to all market participants that a green building will mean for buildings what air conditioning and elevators did in the 20th century.

 

We have incredibly skilled and intelligent professionals in this group and I think the real value we can create for the marketplace is to define what a minimum green building assessment should look like rather than trying to fit a standard into the needs of different levels of client needs and sophistication. Otherwise, we will allow the uninformed, uninterested or flinty clients to create a race to the bottom.

 

I have not encountered the race to the bottom issues with PCAs as I have with Phase 1 ESAs. Im not sure if this is a function of of the type of lenders I represent or if this is truly the case. If it is the latter, then we should attempt to define the groundfloor for a green building assessment.

 

We should be able to agree on what minimum amount of work needs to be done to create a green baseline for a building. Clients could be free to go above that floor much like the way that clients include non-scope items in their E1527 reports.

 

Larry 

 

 

Mark

Yes the transactional model will always be important.  Yet many large companies today are creating green initiatives like Starbucks, Walmart, Levis, etc.   This is a larger developing market  that needs to be serviced.  It seems to me the 3rd party consultants could loose an opportunity to contractors without an out reach program.  But first we we need to learn how to serve this market by bringing the coorperate clients into the mix.

Unlike transactional bussiness many companies believe there are opperational dollars to be saved by going green as well as supporting a positive corperate image which expands  opportunity to provide additional services, such as solid waste managment plans as just one  example.

We also can expect government policy to support cooperate initiatives with tax incentives like they are doing in the residential markets.  Companies will be asking what is the best results for dollars spent which requires surveys and planning.  Who will capture the market?  Today my bet is the design community which is ahead of the consultants in this arena.

Thomas Clark

 

Here is a mockup of what we’d like to create.   A no cost map of plotted LEED and EnergyStar properties around your “target property”.  What do you think?