One of the “next steps” emerging from January’s Commercial Buildings Workshop in Long Beach, Calif., was to learn more about the commercial real estate (CRE) sector and how members can engage this group in their programs.

The CRE sector, where the property generates income for the owner, is quite diverse and often involves numerous stakeholders for any given property.

For energy-efficiency program administrators, these market features can make it a challenge to reach this audience with traditional approaches.

“It is important to find ways of communicating energy-efficiency messages to CRE professionals, owners, managers and real estate agents in terms they understand that will motivate them to take action,” said CEE Program Manager Jason Erwin.

To achieve these objectives, CEE’s Commercial Whole-Building Performance Committee hosted Webinars in March and April to help members learn the nuances and complexities of commercial real estate.

These events were also an opportunity for members to share information about their programs, with the goal of designing (or revising) programs that target this market.

Each Webinar featured a guest presenter, who was followed by a group discussion.

In March, Mark Jewell, consultant to Xcel Energy (Minnesota), provided an overview of the CRE market and described Xcel’s efforts in this area. April’s Webinar featured Cliff Majersik from the Institute for Market Transformation (IMT), a nonprofit environmental group that promotes energy efficiency and green buildings.

Majersik presented information about the commercial real estate sector from the perspective of appraisers and real estate agents.

A-B-Cs of CRE
Jewell started off with some definitions of commonly used terms in the CRE sector and described the decision-making chain. He explained how improving energy efficiency can create value for the landlord, the tenants, or both.

Jewell pointed out that it’s very important to know how the lease is structured: how and when savings will accrue and to whom, landlord or tenant (based on lease types).

The most popular appraisal approach for commercial real estate, the “income approach,” can create opportunities to make a good business case for energy efficiency, he said.

By reducing energy costs, repairs and maintenance, the owner’s share of operating expenses decreases and the corresponding net operating income (NOI) increases.

Under the income appraisal approach, increases in NOI significantly increase the building’s overall appraised value.

One of the keys to Excel’s efforts, Jewell said, is screening properties to find the highest value projects and then designing programs and messaging that resonate with CRE decision-makers’ mindsets and needs.

He noted that Xcel Energy set up lunch meetings with the local Building Owners and Managers Association (BOMA) to communicate Xcel’s new CRE program to local owners.

In this way, Xcel immediately interested several building owners and enrolled customers in its pilot efforts.

Jewell also described other areas where program opportunities exist. Leasing professionals, for example, are often uninformed or do not adequately communicate the value of a high-performance, energy-efficient building to prospective buyers or tenants. There are opportunities to educate these agents and brokers to understand the business value of energy efficiency.

Agents and appraisers
According to Majersik, appraisers and real estate agents are also key players in communicating the value of building efficiency to current and potential building owners and managers. Yet these professionals often ignore, or are uninformed about, the benefits of energy efficiency on a building’s value.

He went on to say that many real estate professionals favor immediate cash returns and low first-costs. Since most energy-efficiency investments show returns over the lifetime of a particular measure, the tendency is for appraisers to undervalue efficiency.

Often, appraisers, brokers and lenders ignore the influence of energy entirely, Majersik said. Yet utility bills, which account for 30 percent of the total operating expense of a building, are the largest controllable expense.

While appraisers and lenders don’t initiate energy projects, he explained, they can derail good projects. Therefore, it’s important that they understand the concept of energy efficiency and its affect on a building’s value. Another factor is a disconnect between real estate operations and financial personnel.

Program support
The Commercial Whole-Building Performance Committee is working to help members take advantage of national programs, like ENERGY STAR®, and leverage local programs and forums, such as those offered through local BOMA chapters.

ENERGY STAR provides a commercial buildings benchmarking platform, called Portfolio Manager, and maintains additional tools and guidance for specific building types, including commercial real estate.

The BOMA Energy Efficiency Program (BEEP) offers training to owners and real estate professionals about low- and no-cost efficiency opportunities.

“We want to encourage members to leverage ENERGY STAR’s free resources to support their own programs,” said Erwin. “There are also local options for program support. Commercial real estate appears to be a big opportunity for energy efficiency but it’s a complex market. “By better understanding the market and needs of these professionals, members can design more effective programs.”

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