Basics and impacts of energy benchmarking: What every property owner and manager should know

Last May 1, many New York City property owners completed their Local Law 84 benchmarking reporting. Benchmarking requires owners with buildings over 50,000 s/f to benchmark their energy use annually to improve energy efficiency. Failure to report may result in fines of $500 up to a maximum of $2,000 per year. It has been estimated that over 75% of city carbon emissions come from these 24,000 buildings compared with 39% nationally. New York City has already benchmarked 2,730 municipal buildings using the Environmental Protection Agencies Energy Star Portfolio Manager tool. The 1,162 public schools had an average benchmark score of 53, slightly above the national average of 50. Public hospitals scored worse with an average score of 33. Courthouses and city offices had average benchmark scores of 54 of 59 respectively. The full report is available at http://www.nyc.gov/html/gbee/html/plan/ll84_scores.shtml. Two states and four other major U.S. cities have passed similar policies, including Los Angeles and Seattle. What is Benchmarking? An energy benchmark compares the energy consumption of your building to similar state and national buildings. Benchmarking measures performance using energy consumption per s/f, which allows for comparison over time, across building type or across portfolios. It is an interactive tool that tracks and assesses your energy consumption to improve building operations, identifies under-performing buildings, verifies efficiency improvements and sets improvement priorities. Benchmarking rates the energy performance of your building on a scale of 1-100, with 100 being the highest score. A rating of 60 basically indicates that your building is performing more energy efficiently than 60% of the buildings in Portfolio Manager. Benchmarking is completed by first collecting all your electrical, natural gas, fuel oil and related utility bills. Along with other basic information, the data is entered into the Portfolio Manager database. Program algorithms then determine the energy rating of your building. The EPA is making several improvements to the benchmarking process and plans to release a new version in March 2013. The new release will be more streamlined, more user friendly, have increased web services, improve sharing features and the database will be optimized. Efficient buildings are more valuable, often yield higher leasing rates, often yield higher occupancy rates and help to drive the real estate market. An independent study by CoStar titled "Does Green Pay Off?" revealed that occupancy rates were 4-5% higher for Energy Star rated buildings. To qualify for the Energy Star label, your building needs to be rated at 75 or higher. To put this in perspective, the typical monthly rent for a one bedroom apartment in the city is $3,500. If you have 200 apartment units, you would be losing over $30,000 a month or almost $400,000 per year, without having the Energy Star rating. Another Costar report revealed an increase of 16% in property value for Energy Star buildings. Effects of Releasing Benchmark Scores The city is planning to release benchmarking scores for nonresidential buildings in September 2012 and residential buildings September 2013, though results may be delayed due to reporting extensions. Consequently, anyone will be able to view benchmark scores. This provides additional information to evaluate real estate opportunities. Could these scores significantly affect the real estate profession? Tenants and buyers have more important considerations for selecting a particular building than energy consumption, but benchmark scores may be included in the conversation. While the purchase price and other factors are of more importance, monthly and annual operations costs are another important consideration and energy directly impacts monthly and annual operations costs. We may discover that benchmarking scores segregate the real estate market. Proactive owners of more efficient buildings may receive a premium for their buildings and may see more offers. Could they receive better lending rates from banks who are more comfortable partnering with foresighted owners? Could tenants or buyers use benchmarking as a screening tool? Could an assertive buyer who likes a particular building, though not the annual operations costs, insert a contract clause requiring improvements to raise the benchmarking score and lower operations costs? Lower performing buildings may need to undertake intensive building improvements projects, possibly raising future lease rates. At a minimum, tenants and buyers will likely demand to see benchmarking scores in a manner that is similar to the Carfax vehicle history report for the used car industry. All these considerations may place a premium on attaining the highest benchmarking score attainable, to keep buildings as marketable as possible. Improving Your Benchmark Score How can you improve your benchmarking score? One way to improve your score is to fill in the benchmarking information to best represent your building. Information may be filled in for mixed use buildings that do not capitalize on opportunities to characterize the building in the best light. Another way to improve your score is through energy conservation measures that offer a one year return on investment. You may consult with a consortium of electrical and natural gas providers to obtain the lowest rate in a manner that is similar to Lending Tree for mortgages. You may conduct an entire building evaluation rather than a superficial survey. The entire building evaluation may uncover hidden improvements such as trending, sensors, envelope, voltage losses, phantom loads and recirculation. Your consultant should obtain the most incentives to pay for your improvement projects and offer full project financing. We recently consulted with a historical landmark building which did not apply for a city incentive that could have provided over $1 million in additional funding. Tom McGovern, PE, LEED AP is the founder and CEO of Geatain Building Energy Management, Holbrook, N.Y.