The amended complaint – which also features two engineers (Andrew Ask and Elisa Larkin) and an architect (Matthew Arnold) as plaintiffs – is notable because it is no longer structured as a class action, and essentially asserts false advertising claims directly against USGBC under federal, state, and common law. However, the plaintiffs continue to seek injunctive relief against USGBC, enjoining it from promoting the energy efficiency of LEED buildings and/or “benefits of the LEED system” and compelling it to “disclose the actual energy use of LEED properties,” as well as money damages. Also of interest is that Rick Fedrizzi, Rob Watson, and the other individuals named as defendants in the class action are no longer parties.

The Southern District’s docket numer is 1:10 CV-7747, and the USGBC (which is being defended by Proskauer Rose) has until April 7 to respond to the complaint, presumably by way of a motion to dismiss.

A copy of the First Amended Complaint is available for download here.

The USGBC August 25, 2009 press release about their Building Performance Initiative implies that a large-scale collection of energy data from LEED® buildings will improve energy performance. This suggests a response to escalating criticism about the actual energy use of LEED® certified buildings compared with all others. Why do few published stories about these buildings include metered energy and water use data? If these buildings can waste energy efficiently, perhaps one answer is not to include those measures that allow that to happen.

The reality is that neither predicted nor actual measured energy use determines whether a building is energy efficient. Nor does energy use alone determine whether a building meets or exceeds all required or desired criteria, or provide the accountability necessary to achieve those results.

I have been collecting and evaluating detailed metered and measured building energy performance data for 40 years. Collecting the data is one thing, even if done completely and correctly. However, evaluating the data and then making comparisons among buildings is something else. Buildings alone do not use energy. The occupants, operators, and systems do.

In an extreme case, look at apartment buildings where each apartment is identical, and the metered energy use per apartment can easily vary by 2 or 3 to one, or more. Individually metered floors in office buildings occupied by the same company or tenant also can vary by 2 or 3 to one.

The functions in a building can also have a major influence on building energy use. The presence of a laundry in a hotel or hospital can make a 25 to 50% difference in total building energy use per bed, room, or square foot compared with an identical building on the same street.

Buildings with intermittent occupancy present similar dilemmas. How does one estimate, predict, or compare the energy data for two identical churches on the same block built at the same time, when one is only occupied for a few hours each Sunday and on some holidays, and the other is occupied most days of the week?

Comparing metered energy use to modeled energy data is not a valid measurement of anything. If the modeling and estimating methods were sufficiently accurate, utility companies would not require the use of meters.

Some articles I wrote 25 years ago show apartment by apartment or office floor by office floor metered energy use data in the same building. For another good example, look at the range of energy data for any given building type shown in the statistically significant quadrennial CBECS reports, collected at a cost in eight figures.

That reminds me of an energy research project 35 years ago during the 1970’s energy crisis. The US Postal Service spent hundreds of thousand of dollars instrumenting and recording the detailed energy use in a large postal facility. The conclusion was that they could collect lots of data.

The answer in evaluating and comparing energy data is using professional judgment and experience. That involves knowing and understanding not only the energy use and particulars of the subject building, but also the energy use and particulars of comparable buildings in the area. Comparing the energy use of a suburban office building in Boston with suburban office buildings in Providence without knowing the particulars is not likely to be meaningful or conclusive. This is much like the commercial real estate appraisal profession.

I think that there are a few important things to consider here. First, in USGBC’s Building Performance Initiative press release, LEED Senior Vice President Scot Horst notes that “[p]lenty of people are content to simply point to these longstanding issues [relating to LEED building performance] without offering a constructive way to address them. We’re going to take them on and engage practitioners and thought leaders alike in establishing a national roadmap to optimize building performance.”

After last fall’s Greenbuild, I suggested over at gbNYC that, if USGBC was serious about improving the energy performance of LEED buildings, it needed to engage building scientists such as Henry Gifford, Joseph Lstiburek, and Mr. Spielvogel in a meaningful way- certainly through more of an effort than simply collecting more data. As Mr. Spielvogel notes in his letter above, “[b]uildings alone do not use energy. The occupants, operators, and systems do.” This, of course, is what makes the type of predictive energy modeling on which LEED relies so imprecise and why project teams need to remain careful about the types of representations they make to their clients about the performance-related results of potential LEED certification. As Pat Murphy noted in a recent comment here at GRELJ, “[t]here is a crying need for accurate, verifiable and reliable energy rating systems. If LEED doesn’t fill the bill, other options will come forward.” I agree with Mr. Murphy and, in conclusion, would suggest that this is precisely what should give policymakers pause as they consider incorporating LEED- as currently constituted- into state- or local-level green building legislation.

• The Ugly, the Bad, & the Good: Thoughts on Greenbuild 2008 (gbNYC)
• Some Buildings Not Living Up to Green Label (NYT)
• Building Performance Initiative (USGBC Press Release)

If you recall the comments from NAIOP President Thomas Bisacquino in the aftermath of the uproar created by the NAIOP study, Waxman-Markey may ultimately create the precise scenario that NAIOP and its constituents feared: 30 to 50 percent reductions over ASHRAE 90.1-2004 in the short-term. As you may remember, Mr. Bisacquino stated that “to mandate these targets right now, of 30 percent efficiency by 2010, is unrealistic for a lot of properties.” (Note that, even if the bill passes, it will likely not impose the first round of reductions until 2011 or 2012). In the study, NAIOP also argued in favor of increasing available incentives at the local, state, and federal levels to create more palatable payback periods for commercial owners and operators. Accordingly, it will be interesting to see if NAIOP pushes DOE to relax the Section 201 requirements if Waxman-Markey makes it through the Senate, or if this particular section of the bill generates any additional commentary from NAIOP or Mr. Bisacquino. Regardless, it’s clear that building performance- and associated liability concerns- will become increasingly critical issues moving forward if every building in the country is required to meet these new national energy efficient building codes.

• Energy and Climate Bill Would Set National Energy Codes (Worldchanging)
• American Clean Energy and Security Act (Section 201 available at Page 214)

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.

• NAIOP Study – Facts
• NAIOP Study – FAQ
• Thomas Bisacquino Interview (GlobeSt.com)

As you may know, the NAIOP study evaluated a handful of energy efficiency measures as implemented across the same building type in three different U.S. climate zones in order to determine the feasibility of 30 to 50 percent reduction targets over ASHRAE 90.1. The energy model used in connection with the study considered enhanced wall and roof insulations, varying levels of exterior glazing, efficient windows, reduced air infiltration, reduced lighting power densities, efficient HVAC equipment; and photovoltaic electricity energy generation.

The results were as follows:

Chicago: 23 percent in energy savings; $188,523.45 cost increase; 8.8 year payback;

Baltimore: 21.5 percent in energy savings; $165,148.13 cost increase; 11 year payback;

Newport Beach: 15.8 percent in energy savings; $169,898.13 cost increase; 12.2 year payback.

In a press release detailing the results of the study, NAIOP president Thomas J. Bisacquino said that “[w]ith the results of achieving higher efficiency targets differing so greatly across the climate zones, the study reveals that a ‘one-size-fits-all’ approach to mandatory energy reductions does not work in legislation or other mandates. It is important that policymakers and others realize the economic consequences that imposing mandated targets will have on the development industry.” As I noted above, many commentators decried the study’s methodology, arguing that it failed to consider numerous other energy efficiency strategies, including site orientation and other passive design techniques. For example, on his blog, Jerry Yudelson said that “It’s all about integrated design; that’s why NAIOP’s study is plain wrong as a general rule. You have to “build it in, not bolt it on, meaning that if you take a conventional building and attempt to add energy-savings features to standard design, it’s always going to be less and less cost-effective to go beyond, saving 15% more savings.”

Regardless of the resulting furor, I think it is important to note the study’s results for a few reasons. First, ConSol used the Department of Energy’s EnergyPlus Version 2.2 simulation tool in order to derive its results. The study was based on a projection and not actual data. Second, other studies promulgated by some of the organizations that decried the NAIOP study have also been heavily criticized. For example, as we noted last fall over at gbNYC, NBI’s highly touted study only obtained data from 22 percent of the LEED-certified buildings in the country, compared it to a national database (CBECS) that includes buildings dating from the early part of the 20th century, and then compared the median energy consumption for LEED buildings to the average of the pool of comparable buildings. This study was widely disseminated for the proposition that LEED buildings were performing 25 percent better than comparable buildings with respect to energy efficiency. Interestingly, according to CoStar, USGBC issued a statement in response to the NAIOP report that LEED-certified buildings are “proof-positive that you can achieve 30 percent and greater energy efficiency using integrated design with little or no additional first costs.” CoStar also quoted Dave Hewitt, executive director of the New Buildings Institute, that the study was “artificially constrained to suggest that you can’t get there from here.”

I don’t disagree that integrated design is green design and will likely lead to higher efficiencies, but I do think that one point to take from the NAIOP study, in the context of commercial real estate, is that passive solar design or other integrated design features that were mentioned in the response to the study may not be possible for certain types of building stock. Particularly here in New York City- or in the rest of the country where new construction has grinded to a halt- the “bolt it on” types of green improvements may be the only option. In that context, the NAIOP study may be particularly useful to policymakers who are considering mandating the 30 to 50 percent improvements in efficiency that the study was specifically contemplating. If those improvements are not possible, or are more difficult than many believe, design professionals, contractors, and consultants may also be exposing themselves to significant liability absent sufficiently protective language in their construction agreements. From the lawyer’s perspective, I think the critical points to take from all of this are that until we get studies that are grounded in actual performance-related data, it is dangerous to advocate for policies that are based on energy models. Moreover, I think it emphasizes the importance of transactional risk management – in the form of a fully vetted construction agreement- in connection with green building projects that aim for increasingly higher levels of energy efficiency.

While the results and merits of this particular study continue to be debated, what is clear that building performance, contracts, and risk management will intersect significantly as we move forward during the course of 2009. I am also curious to see what NAIOP’s reaction to the backlash will be – if any – and whether any building science experts (like Henry Gifford and Joseph Lstiburek, whose work we have referenced previously over at gbNYC) chime in.

• Commercial Developers Try to Debunk Green Building (Fast Company)
• A Hog in a Tuxedo is Still a Hog (Architecture 2030)
• Experts Reject NAIOP Study, Citing Flawed Analysis (CoStar)
• Yudelson Associates Blog
• Study Shows ASHRAE 30 Percent Difficult to Meet (BD+C)

The American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) offers multiple opportunities for property owners, developers and other stakeholders in the green building arena. There are tens of billions of dollars in funding initiatives for green building in the Recovery Act. Many of the provisions are complex and the specific projects that are to be have yet to be fully provided. That being said, the commitment to green building is clearly apparent throughout the Recovery Act and a quick summary of the critical green building funding proposals are detailed below:

• Federal Building Efficiency: At least $4.5 billion is allocated to the U.S. General Services Administration (“GSA”) to convert GSA facilities to “High-Performance Green buildings”, thus making federal buildings more energy efficient. Pursuant to that certain GSA Memorandum to Assistant Regional Administrators, PBS Regional Realty Service Officers from Samuel J. Morris, III, Acting Assistant Commissioner for the Office of Real Estate Acquisition – PQC, dated December 27, 2007, the GSA has adopted the U.S. Green Building Council’s (“USGBC”) LEED certification system and has set a goal that new construction or substantial renovation of a building or leased space over 10,000 rentable square feet receive at least LEED Silver certification.

• Establishment of Office of Federal High Performance Green Buildings: $4 million in funds were set aside for the establishment of the Office of Federal High Performance Green Buildings within the GSA, which office was created by the 2007 Act. The Office of Federal High Performance Green Buildings may have the longest lasting impact on the green building movement based upon the future actions it will take regarding federal government office space and buildings overseen by the GSA

• Green Building Training: $3 million has been allocated for a green building training and apprenticeship program for federal buildings.

• Renovation of Department of Defense (“DOD”) Buildings: A portion of the $4.2 billion in funds to modernize various DOD facilities will go toward green building related improvements.

• Local Government Energy Efficiency and Conservation: $6.3 billion in grants to help state and local governments make investments that make them more energy efficient and reduce carbon emissions.

• Energy Star Appliances: $300 million to provide consumers with rebates for buying energy efficient Energy Star products to replace old appliances.

• Public Housing Capital Fund: $4 billion is allocated for the Public Housing Capital Fund to retrofit the public housing projects to make them more energy efficient.

As detailed above, the specific projects that will receive allocations pursuant to the Recovery Act have not been fully released. A multitude of websites are being increasingly utilized and/or created in order to provide up-to-date information as to the available Recovery Act projects. The website www.fedbizopps.gov is an excellent resource for federal projects. As of March 1, 2009, conducting a “Quick Search” using the term “LEED” results in 313 specific federal opportunities. Another useful site is www.recovery.gov, which provides specific details regarding the Recovery Act, including a useful tool that contains links to each of the individual state websites that have been created in connection with the Recovery Act. Here at GRELJ, we will continue to track the Recovery Act and keep our readers aware of where things go from this relatively early point forward.

Geoff White is a Senior Associate in the Commercial Transactions and Real Estate Group at Frost Brown Todd. He is a contributing author to Green Real Estate Law Journal. He also oversees the Green Building Series on the Frost Brown Todd’s Construction Law News website. Mr. White is licensed to practice law in Kentucky and Ohio and is a member of the Kentucky Chapter of the U.S. Green Building Council. Learn more about Geoff at http://www.frostbrowntodd.com/geoffwhite/

Perhaps the most critical provision for commercial owners, operators, and tenants to note is the Energy Efficient Commercial Buildings Tax Deduction, which was enacted back in 2005 as Section 179D of the 2005 Energy Policy Act. Prior to the Bailout, Section 179D was slated to expire at the end of 2008, but has now been extended through December 13, 2013. In this article, I will review Section 179D in detail. A subsequent post will detail the Bailout’s significant expansion of the Business Energy Tax Credit that was previously enacted as Section 48 of the 2005 Energy Policy Act.

It is critical at the outset to note the distinction between a tax deduction (an offset of the total amount of taxable income that a taxpayer has in a given year) and a tax credit (which is a dollar amount applied against the total amount of tax that is owed for a given taxable year). Section 179D provides a tax deduction of between .30 cents and $1.80 per square foot (depending on the type of technology that is being installed) for owners of both new and existing buildings (and also lessees who make qualifying expenditures) that install (1) interior lighting systems, (2) building envelope improvements, or (3) HVAC systems that reduce the building’s total power and energy costs by 50 percent or more compared to the ASHRAE 90.1 baseline. Note the significant implications here of how a tenant’s lease is structured in terms of whether it will choose to make any qualifying expenditures- I will discuss much more about this critical issue in subsequent posts here at GRELJ.

Examples of the types of equipment that will qualify under Section 179D include water heaters, lighting controls or sensors, chillers, furnaces, boilers, heat pumps, air conditioners, cogeneration facilities, caulking and weather-stripping, duct/air sealing, building insulation, and even efficiency upgrades to windows, doors, siding, and roofs. Tenants in particular should note that a .60 cent per square foot deduction is also available for individual installations that would “reasonably contribute” to an overall building savings of 50 percent if other systems were installed as well (even if they are not).

In order to prove that the required reductions are met, the installations must be certified by a “qualified individual,” who is defined as a party that is not related to the taxpayer and is a licensed contractor or engineer in the jurisdiction in which the building is located. Taxpayers are not required to attach the certification to their tax returns, but must retain sufficient books and records to establish entitlement to the amount of any deduction that’s being claimed for the given taxable year. As we have discussed extensively at gbNYC, note the potential professional liability insurance policy implications for design professionals who make this certification absent sufficient protective language in their agreements with the taxpayer.

This target reduction in annual power and energy costs to which the “qualified individual” must certify is calculated using the performance rating method. An ASHRAE 90.1 baseline building is used as a standard and compared to the taxpayer’s building. The reference building must be in same climate zone and otherwise comparable to the taxpayer’s building, but all building systems must meet the minimum requirements of ASHRAE 90.1. The percentage reduction in energy and power costs is determined by subtracting the proposed building annual energy and power costs from the reference building annual energy and power costs, and then dividing the difference by the reference building costs.

The maximum deduction allowed cannot exceed $1.80 times the building’s square footage, less the aggregate of any previous deductions taken for the same building under Section 179D. Critically, if multiple taxpayers (i.e. tenants) install qualifying energy efficient equipment in the same building, the maximum deduction taken by all those taxpayers cannot exceed the $1.80 times the building’s square footage amount.

A building’s square footage is defined as all interior conditioned areas with headroom height greater than 7.5 feet. Excluded spaces from the square footage calculation include covered walkways, porches, or exterior terraces.

A final caveat- the tax code is incredibly complicated and it is critical for any taxpayer seeking to claim any of the deductions described herein to consult both with an attorney, as well as their accountant.