This comment reminded me of language in the NIBS report which noted that “[a]t an increasing rate, state and local governments and their code/regulatory agencies are adopting building rating/certification systems, intended as voluntary systems, to be their code or regulatory requirements, often without fully understanding their benefits, tradeoffs, and costs.” While the Atlanta restaurant industry seems more concerned with what it perceives to be a green building cost premium, the fact that its opposition is also grounded in the lack of sufficient input from stakeholders also echoes many of the policy issues we’ve raised here at GRELJ over the past year, particularly with respect to the rush to mandate green building requirements.

In that vein, it’s also interesting that although Atlanta’s Bureau of Buildings will enforce the ordinance, the city council has yet to determine what types of fines or other enforcement mechanisms would be imposed on buildings that fail to comply. “This is still a work in progress,” a spokesman observed, and the restaurant industry is pointing to this specific comment as one of the bases for arguing that the ordinance needs more work before the city council even considers passing it. Again, this echoes the types of observations noted in the NIBS report. While these types of details are being worked out, the restaurant industry is instead advocating for additional financial incentives (such as tax credits and building permit fee reductions); this also reflects the conclusions of the NAIOP report issued earlier this year, which called for financial incentives rather than mandates to bridge landlords’ payback period gap for most types of energy efficiency improvements.

On another note, the ordinance may present some novel green leasing implications which the restaurant industry has picked up on. Although building owners will bear the responsibility under the text of the ordinance for ensuring that the required standards are satisfied, the restaurant industry is warning restauranteurs who do not own the premises out of which they are operating to review their lease documents and confirm that they will not be responsible for executing the legislation’s required retrofits. It is not difficult to imagine the scenario where a lease includes a clause obligating the tenant to comply with all applicable codes and regulations, and the landlord pinning responsibility for any such retrofits on that tenant in the absence of affirmative language to the contrary.

Just a quick editorial note- this article will be the only new post here at GRELJ for the rest of the month as I am getting married this Saturday and then off on the honeymoon. Thanks to everyone for your support and comments since we launched this site almost a year ago (and patience over the past couple of weeks while the pace of our posts has slowed in advance of the wedding). See you on the other side!

• Operators in Atlanta Fight Forced Green Conversions (NRN)
• Costly Eco-Friendly Laws Overlook Industry’s Proactive Green Efforts (NRN)

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)