Four Keys to Streamlining Energy Disclosure Compliance

Four Keys to Streamlining Energy Disclosure Compliance

Ten cities, two states and one county have adopted energy disclosure laws for commercial buildings, requiring building owners to benchmark and disclose the energy efficiency of their properties. Although this list represents just a fraction of real estate markets in the United States, some of the largest real estate markets (by rentable square footage) are impacted, including New York City, Chicago, Boston, San Francisco, Los Angeles and Washington, D.C. In addition, 84 percent of U.S. REITS hold assets that are subject to energy disclosure policies, and on average, the policies impact 17 percent of their portfolios. Those who monitor energy disclosure policies predict that five to 10 additional cities may pass legislation within the next year.

Here are four steps owners can take to ensure compliance with current energy disclosure laws and prepare for future legislation:

Know which policies impact you. The best sources for information are partner organizations Institute for Market Transformation (IMT) and BuildingRating. By reviewing IMT’s Policy Matrix and U.S. Map, you should be able to quickly understand if you hold assets in jurisdictions with energy disclosure policies. From there, drill into the details on building size, type and configuration to understand which of your buildings may be impacted. And finally, understand what event triggers disclosure (in some areas energy disclosure is required during a transaction, while in others it’s an annual obligation). 

Will Teichman, senior director of strategic operations at Kimco Realty Corp., has implemented an operational compliance program for his company's portfolio. To stay current, he recommends subscribing to IMT and Building Rating’s digital newsletters, which have information on new, pending and proposed legislation. Teichman noted that he keeps an eye on municipal disclosure requirements, since they sometimes signal a potential trigger for future commercial compliance.

Begin the benchmarking process early. Despite differences in requirements between jurisdictions, all existing policies leverage Energy Star Portfolio Manager, an online tool that uses utility data (normalized for weather variation and operating characteristics) to determine how efficiently buildings use energy on a scale of 1 to 100. The tool requires at least 12 months of utility data, so it’s best to begin early, especially if there are multiple meters at the property, or if you find that you have a low score and want to pursue efficiency projects to improve it. Joyce Mihalik, vice president of energy services for Forest City Enterprises, stressed that the investments her company has made to better manage energy, both in terms of personnel and energy management software, have made it easier to achieve compliance across Forest City’s Portfolio.  

Collect the data. Gathering utility data for Energy Star can be relatively straightforward for a single tenant property, but for more complex assets, it can present multiple challenges. For example, the owners of multi-tenant properties may not control all utility meters. In some jurisdictions, local utilities will supply utility data for Energy Star directly, but in others, privacy laws require obtaining a waiver from tenants. According to Kimco’s Teichman, this scenario presents the biggest challenge to compliance. He noted that he has had some success working with utility managers at larger national retailers because they are generally already familiar with the policies, and in many cases are already benchmarking for their own purposes. In addition, he shared that Kimco has built language around energy disclosure into new tenant leases, so that conversations can occur very early in the relationship.  

Get help. It’s certainly possible for owners to obtain their Energy Star score using Energy Star’s Portfolio Manager, and training sessions are offered both online and in person. Some attorneys recommend having a third-party obtain a score, in order to reduce liability. If you prefer to hire a consultant to manage the process, an increasing number of professionals can assist.  The scope of the project will vary depending on whether you just want to achieve compliance or if you want a more comprehensive review of your building, including opportunities for efficiency upgrades.

You’ve complied with the energy disclosure policies…now what? Despite the extra work required for compliance, ideally there will be a few benefits as well. Based on their experience managing compliance for Forest City and Kimco, both Joyce Mihalik and Will Teichman noted that they have additional data to facilitate more meaningful conversations about the cost of occupancy of their properties, something they feel is increasingly relevant. In addition, they see a potential impact on property valuations in the future, once energy-efficiency data is taken into account during acquisitions, and by other parties in the commercial real estate market, such as lenders and appraisers.  

Karla Zens is the director of business development at Capital Pacific, a commercial real estate investment sales company based in San Francisco, where she leads CP Green, the firm’s green brokerage program.

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