Understanding the different ordinances – it can be a jungle out there!

There is no National Legislation that requires consistent compliance. Cities and States are driving this issue independently. So the answer is: it depends on where the property is located.

  1. Varying from jurisdiction to jurisdiction is the size of the building (in square feet) that must comply. Usually it starts at greater than 250, 000 sq. ft. and drops to greater than 50,000 sq. ft. and then drops to greater than 20,000 sq. over several years. A stair step approach going after the biggest opportunities first.
  2. Many of the ordinances are designed to provide the key stakeholders (building owners, managers, lenders, and residents) with more information relating to energy usage when they are buying or leasing space within a building. The terms of when the benchmarking is required and the parties that may receive the results vary from city to city.
  3. Another key difference among the cities that have enacted legislation is whether or not disclosure is required to transactional counterparties (buyers and lenders) at the time of building sale or lease.
  4. Also, some jurisdictions require multifamily residential buildings to comply, while others do not.

Diving Deeper

  1. New York City, San Francisco, Minneapolis, Philadelphia, and the District of Columbia require energy benchmarking and also require disclosures to the local government; the results are then posted on a public website.
  2. The cities of Austin and Seattle require benchmarking and disclosure to both the local government and also require disclosure to the transactional counterparties at the time of a sale, but do not have a public website showing the results.
  3. Seattle requires disclosure to current tenants, upon request.
  4. Finally, the states of California and Washington require energy benchmarking and disclosure to transactional parties at the time of building sale or lease.
    1. In California, the state government can also access the energy benchmarking data, but will not disclose such information to the general public;
    2. In the state of Washington, the data is not publicly available.

When do I need to act?

If you own or manage a building in Austin, DC, New York, San Francisco, Seattle, you should have benchmarked and disclosed the results by now, depending on the size of your building. If not, you could be facing fines for non-compliance; for example, the fine in New York City is $2,000 per year.

Buildings of a certain square footage in the cities of Philadelphia and Minneapolis will be required to comply in 2013 and 2014 respectfully.

If you own or manage a building in the states of California or Washington (except in San Francisco or Seattle, respectively), you are not required to benchmark and disclose until the building is sold or leased. However, many managers and owners are encouraged to benchmark prior to the property becoming available, so as not to delay any lease or sale negotiations.

In some cities—including DC, Philadelphia, and Minneapolis—building owners and managers are also required to track and disclose the building’s water usage in Portfolio Manager. However, there is not a water benchmarking score provided in the Portfolio Manager tool. In Mutifamily there is no score for electric or gas.

Where is all of this headed?

There are lots of opinions and differences of approaches. On the public stage, they center around mandatory disclosures to voluntary disclosures. The target appears to be the 40 largest cities in the United States. The movement has picked up since Seattle first enacted their ordinance in 2010. It has been mostly focused on improving the environment.

In Multifamily, there is a different twist. Owners are focused on energy savings, NOI increases and improving cash flow. The EPA’s Portfolio Manager is a tool to assist Owners and Fee Managers in identifying outliers in their portfolios and taking action on improving their property. A by product of this effort is also improving the environment.

In the future this will become more about risk management and corporate growth. For example – In the Southwest, will there be adequate water to build communities? If we conserve – yes;  if we don’t – no.

 

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