Ready or not, California owners of commercial buildings larger than 50,000 square feet will need to begin complying this year with a state law requiring the disclosure of properties’ historical energy usage data to prospective buyers, renters and lenders.
Assembly Bill 1103 was signed into law in 2007, but its implementation has been delayed several times. At press time, it was officially slated to take effect July 1, but the California Energy Commission was considering postponing the start again, to August or September.
The law currently is scheduled to take effect in 2014 for smaller commercial buildings — Jan. 1 for properties 10,000 square feet up to 50,000; and July 1 for those at least 5,000 but less than 10,000 square feet.
Officials of Irvine Co., San Diego County’s largest office landlord, said the firm has long been preparing for the implementation of the new law, which impacts all of the Newport Beach company’s local office portfolio of 7 million square feet.
“We already have a well-established Energy Star reporting system in place, so there are no issues for us in terms of our compliance,” said Rich Bluth, vice president of energy management with Irvine Co., who was active in working groups that advised lawmakers prior to the passage of AB 1103.
Bluth said the state likely still needs to finalize mechanisms under which building information is registered by utility firms with the U.S. Environmental Protection Agency’s existing Energy Star database. Utilities report the data after individual property owners set up an Energy Star account with basic building data such as size, number of occupants and types of equipment used on the premises.
The compliance measure itself did not create extra costs for Irvine Co., which has been upgrading its buildings in recent years to remain competitive.
‘Happy to Disclose’
“We’re actually happy to disclose Energy Star data,” Bluth said. “We have a full portfolio that is in the top percentile for energy efficiency.”
The disclosure law currently does not apply to commercial buildings less than 5,000 square feet. However, state officials are considering measures to address those properties, as well as apartment and other residential buildings, as California aims for net-zero energy usage in new buildings over the next 20 years.
Local green-building experts said owners of large commercial buildings have already been active in improving efficiency during the past five years, largely because it helps cut their own overhead and because efficiency is increasingly demanded by budget- and eco-conscious tenants.
“The larger building owners have been more sophisticated about these upgrades and reporting issues, and they have the most to gain on the bottom line from being more energy efficient,” said Sachu Constantine, policy director for the San Diego-based California Center for Sustainable Energy.
The mandatory disclosure of data will come into play during the due diligence phase of a property transaction, when the owner is finalizing a sale, financing, or large leasing deal that is otherwise nearing completion.
“Transparency is always important, and hopefully this will be a useful way to get this information into the marketplace,” Constantine said of the state law.
A 2012 report by brokerage firm CBRE noted that overall vacancy for San Diego County’s green office buildings was 4 percent lower than for nongreen properties — 11.7 percent at midyear, compared with 15.7 percent.
Green buildings also commanded a rent premium, with the average green-property gross rent at $2.42 per square foot, compared with $2.04 for their nongreen counterparts.
“For this law to really be helpful, the property owners who don’t already have it would need to have about a year’s worth of energy data collected,” said Matt Ellis, a former sustainability director with CBRE.
Ellis is now CEO of Green in a Box Inc., a San Diego-based provider of technology related to energy-use reporting. Commercial buildings in recent years have accounted for 30 to 40 percent of all energy usage in California, and Ellis said a rising number of jurisdictions nationwide are enacting or considering disclosure requirements.
Craig Isakow, a Washington, D.C.-based consultant with utility data technology provider WegoWise Inc., which has California clients, said an entire tech industry segment is growing around the steady support among communities for energy reporting related to buildings.
While Washington is the only other state with a law like California’s in place, Isakow said there are now 22 cities nationwide with rules in force or under review, including New York City and San Francisco.
Energy Star issues efficiency ratings of 1 to 100, with the average U.S. commercial building score around 50, and Isakow said prospective tenants and investors increasingly look for scores of 75 or higher.
“It’s probably going to become a bigger thing for the commercial building industry as it impacts occupancies and property values,” Isakow said. “Tracking this data is really no longer a burden at this point.”
Local energy consultant Randy J. Walsh said that based on his own discussions with the legal and real estate communities, there appears to be “very little knowledge” or understanding of the California law, and generally no urgency at this point.
Walsh said implementation will likely be delayed as utility firms synchronize their reporting systems with the recently redesigned Energy Star website. Once procedural and reporting matters are worked out, the law should become useful to the real estate community.
“Savvy property owners and tenants that understand the metrics behind the compliance documents will be in a stronger negotiating position during any transaction,” said Walsh, chief efficiency optimizor for San Diego Energy Desk.