'Tenant Star' Label Would Engage Tenants On Energy Savings, Rewards

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While it stands to reason that tenants account for most of the energy use in office buildings, most current sustainability and green building practices, incentives and certifications are primarily geared toward building owners, property managers and developers.

Such programs as the U.S. Environmental Protection Agency's Energy Star program and the U.S. Green Buildings Council's s Leadership in Environmental Efficiency and Design (LEED) have scored major successes in achieving energy savings, improving building marketability and studies have shown, enhancing the value of investments.

However, engaging tenants more deeply in sustainability programs has long been a primary goal for green building and energy efficiency proponents.

Recent legislation introduced in both the House and Senate aims to link the interests of tenants with building owners. U.S. Sens. Michael Bennet (D-CO) and Kelly Ayotte (R-NH) introduced a bipartisan bill seeking to increase energy efficiency in commercial buildings by encouraging tenants to voluntarily implement measures to reduce energy consumption and utility costs.

The Better Building Act (S. 1191), creates a new "Tenant Star" certification modeled after the successful Energy Star program that would certify and recognize tenants that operate energy efficient leased spaces.

The Energy Star label for whole buildings has been in place since 1999. More than 20,000 Energy Star-certified buildings helped save more than $2.7 billion in annual utility bills in 2012, the EPA estimates.

Congressmen David McKinley (R-WV) and Peter Welch (D-VT) introduced a similar bill (H.R. 2126), earlier in June in the House of Representatives.

In addition to Tenant Star, the bill asks the Department of Energy to study private sector best practices of how leased spaces are designed to achieve high performance and help reduce utility costs for businesses - a process that will encourage high-performance design and construction of leased spaces in tenant-negotiated build outs and fit outs.

"Commercial tenants are most likely to make structural investments in the spaces they occupy at the time they enter into new leases, or renew leases," noted Brad A. Molotsky, executive vice president with Brandywine Realty Trust and vice chair of the sustainability policy advisory committee of the Roundtable, in testimony before the subcommittee.

"Building owners can only do so much, and leases dictate more of what happens in a building than an individual building owner can actually impact," Al Skodowski, managing senior vice president and director of Transwestern Sustainability Service, tells CoStar. "The more we can connect tenants to building owners, the more opportunities we will have to drive efficiency."

Skodowski's efforts in the area go back several years as a member of BOMA's Energy and Environment committee, which helped build a tenant engagement program in Chicago.

One recent example of the engagement gap between tenants and owners was a project Transwestern had undertaken on behalf of a tenant in Milwaukee trying to achieve LEED Gold for Commercial Interiors, one of the few certifications currently available for interior tenant spaces that seeks to evaluate spaces that are healthy, productive places to work, less costly to operate and maintain, and have a reduced environmental footprint.

A study and cost analysis of the space found excessive and antiquated 15-year-old lighting, with 34 watt lamps instead of more sustainable 25-watt lamps, Skodowski said.

The tenant's response was, 'We don't pay for electric.' Since electricity is a CAM (common area maintenance) charge, the tenant didn't stand to benefit from spending the money to install modern lighting. The building also didn't have separate electrical metering to help measure and quantify the savings, Skodowski said.

"There is an inherent disconnect between the brokers, the tenants and the building owners on this issue. The Tenant Star program is an opportunity to help bridge that, and if nothing else, help educate and reward them with a designation similar to the process and Energy Star certification that building owners receive," Skodowski said. By providing additional incentive, a Tenant Star program could achieve additional savings potentially left on the table by helping tenants understanding the connection between their energy use and costs that are likely already being passed down by landlords in one form or another, he added.

"It's not as simple as saying ‘I don't pay for the electric.' Somewhere they are paying for it. If tenants participate, they could understand the costs and benefits of installing separate metering. And it lays the foundation to grow a larger program."

To help understand the potential costs of implementing Energy Star, Skodowski's team surveyed Transwestern's local, regional and corporate offices to determine which spaces were separately metered and within existing Energy Star-rated buildings. Of responses on 45 spaces, only six had separate metering in place, and of those, only four were Energy Star buildings.

While just a small set of Transwestern offices could participate initially, the company now has the information as leases come up for re-negotiation to decide which buildings could be built out with tenants improvements that would allow installation of meters.

Such metering costs about $3,000 to install. not a great amount relative to the $25 to $100 per square foot to build out a space for a 5 or 10-year lease. In addition to having an existing Energy Star rating, the building owner and utility would have to agree to the metering to allow the tenant to take the financial credit for such efficiency measures such as lighting and HVAC controls and use of Energy Star rated computers and other office equipment.

Having the data and knowing the lease terms allows would also allow the company to manage costs more effectively and affect changes going forward.

"It's all about educating the folks in those offices, the owners, their brokers and the owners' brokers, and ultimately at some point, everyone realizes the value and stands to benefit," explains Skodowski.

Bipartisan Bill Called "Common Sense, No-Cost Proposal"
Bennet, a Democrat, and Ayotte, a Republican, noted that the voluntary program would help occupiers implement cost-effective measures to reduce energy consumption and utility costs.

"We sought to think about efficiency in buildings not only from the top down, where a building owner makes the improvements, but also from the bottom up, where a tenant would see advantages from designing and configuring their rented space in an energy-efficient manner," Bennet said during subcommittee testimony in late June.

Ayotte lauded the bill as a "common sense, no-cost proposal" that would hopefully be included in comprehensive bipartisan energy efficiency legislation expected to be considered by the Senate in coming weeks.

Molotsky said that in addition to Brandywine's building-based sustainability efforts, the Radnor, PA-based REIT has connected one tenant prospect with the National Defense and Resource Council (NDRC)'s Center for Market Innovation, which is helping create an integrated space design for energy use in a new leased space fit-out.

The design should save the tenant about $1.25 million in utility costs over the term of the lease, with savings of between $.85 to $1 per square foot in a 225,000 square foot leased space. In another set of tenants in the middle of their leases, Brandywine agreed to a 50/50 split to share the costs of lighting upgrades.

"The payback on this effort was less than three years, which was inside the lease term, a great result for the tenants and for our building's performance," Molotsky said. He added the REIT has met with various tenants on ways they can better manage "plug loads" and lighting loads within their leased spaces using wireless devices.

In addition to the Real Estate Roundtable, dozens of organizations from the real estate sector and construction industry have endorsed the bill, including the American Institute of Architects, the National Association of Home Builders, the NRDC, the Sierra Club and the USGBC.

"Tenants consume 50% or more of the energy used by commercial buildings, so they should be recognized for making smart choices in high-performance design and operations within leased spaces they control," said Jeffrey DeBoer, president and CEO of Real Estate Roundtable. "This bill is a major step forward to synchronize commercial landlords and tenants toward a common goal of lowering energy use in built environments across our nation."

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