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NAIOP Responds to Critics by Making Case for Incentives to Boost Efficiency in Commercial Office Buildings

I took great interest in a number of the documents that NAIOP released in the aftermath of its controversial energy efficiency study. The organization has compiled both an FAQ and fact sheet detailing the various assumptions it made and conclusions it drew in an effort to clarify some of the unproductive vitriol that has flown around the web over the past month decrying its conclusion that 30 percent energy reductions are not practicable for the majority of commercial office properties. Both the fact sheet and FAQ are available on NAIOP’s web site and point out that the results of the study do not apply to all buildings; “[t]he study analyzes a typical office building that represents more than 50 percent of new Class A construction [that took place] in 2008.” NAIOP also clarifies that the subject building is a real 95,000-square-foot, speculative commercial office property in California, and claims that the results of its study show what’s possible for the “vast majority of new construction without having to redesign a typical office building,” calling the results “impressive.”

As you will recall, NAIOP analyzed and then assembled a package of energy efficiency features that it identified based on a targeted 10-year payback period and then modeled the building in three separate climate zones to come up with its projected energy reductions over ASHRAE 90.1-2004. The study concluded by stating that the projected energy efficiency savings were “done primarily by upgrading the building envelope insulation and increasing efficiency of energy using sub-systems. Representing the practical limit of current construction, together, these upgrades will save enough energy in approximately 10 years to offset their marginal increase in cost. Solar can be used to make up the difference to 30 percent, but with a payback timeframe exceeding 50 years.”

NAIOP concluded that to reach the target reductions, an 11,000-square-foot rooftop photovoltaic system would be required at an installed cost of approximately $1.1 million; such a payback period would be in the range of 55 to 100 years. Interestingly, the report itself notes that “[a]fter upgrading building energy features, solar generation is the current solution for additional energy savings over the 90.1-2004 Standard. However, installed solar cost would need to come down by a factor of five for it to meet the ten-year payback criteria. This presents a significant economic barrier. Federal, state, and local incentives can further reduce this barrier.”

For policymakers, I believe that the study- and NAIOP’s response, particularly with respect to this latter point- is critical to consider, particularly in the context of crafting green building legislation in the form of a mandate rather than incentive. I think that it is critical for policymakers to understand that the the purpose of the study was to determine whether some of the 30 to 50 percent reductions in efficiency that are being discussed in many legislatures is practicable given current technologies and standard development practices. Absent significant financial incentives for developers that will bring expected payback periods in line with their business models, the types of efficiencies that we are hearing about are not economically feasible given current technologies. NAIOP’s FAQ actually notes that “a 10-year payback period is an extreme case for a developer to use as a business model” and many of NAIOP’s members have actually told it “that they cannot include anything beyond a 5-year payback in their business model.”

NAIOP President Thomas Bisacquino responded to critics in an interview he gave last month to GlobeSt.com with a number of interesting quotations that I have pulled and set forth below for your reference:

  • “The reaction to the study has been really blown out of proportion. It’s clearly a case of shooting the messenger for the message. I’m not saying the study is perfect. I’m sure there are technical flaws. But it generally gives you a sense that to mandate these targets right now, of 30 percent efficiency by 2010, is unrealistic for a lot of properties.”
  • “If these efficiency goals were set 3, 4, 5 years out, it would be a different story. A lot of these goals are here and now, the next 10 to 12 months. That’s where we see an issue.”
  • “We think it’s very positive that if you use standard design, you can reach upwards of 23 percent without building a green building.”
  • “I’ve read that you can use a lot of these technologies like solar to get a much quicker payback than our study indicates. They’re right, but where they’re suggesting that is where there are incentives at the city level, the county level, the state level. That’s what we’re advocating. We think incentives are good things. We don’t want mandates. We want incentives.”
  • “The bottom line is that we’re an industry that does make a profit, with investors who have to be satisfied. They have to look at the operations of the building. Profit is not a bad thing. That’s how these companies work.”
  • “We felt there were feel-good numbers being picked out of the air, [with some] saying ‘we need to mandate or legislate these targets through building code.’ They weren’t goals, or even nice targets to hit. They were going to become law. We asked, ‘is there data out there that supports these goals as something we can achieve and keep the building profitable. That’s the key.’”

Perhaps most interestingly, Mr. Bisacquino closed his interview with GlobeSt.com by noting that NAIOP is considering a variety of other building types for its next study, including a high-rise commercial office building or industrial property.

Just as a final note, while NAIOP acknowledges that much higher efficiencies are possible for trophy buildings or other types of development, I think that that the study helps buttress the argument that one-size-fits-all mandates will not make sense until a sufficient body of performance data emerges from an adequate cross-section of building stock.

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