Three points toward a trend

Galley Eco Capital fleshes out a recent NYT article on pension fund investments in sustainable buildings. Noting that the article said little about groups such as CERES or Business for Social Responsibility, GEC recommends that general partners have some information about their portfolio’s sustainability at the ready.

Without providing a timeframe, GEC says simply ‘soon’. Given the hellacious market conditions, most GPs or LPs are probably just trying to keep above water (or no more than 3″ below the surface). Certainly I’ve become much more skeptical of GP claims about pending payments and improved performance. Until we finish triaging portfolios, I’m not sure we will see an increase in portfolio reporting requirements. Once that process is complete, probably by 2Q 2009, we’ll need to start working on financial stabilization or exit strategies for properties. At that point, I think there is a tremendous role for sustainable analysis to play.

In that vein, here are a couple of articles inspired by recent postings at Globest.com. Globe Street is terrible about their paywall, so I’ll link directly to the source material where possible. CalPERs announced on November 30th that its real estate partners reduced energy consumption in 2007 by 13%, partway toward their goal of a 20% reduction in energy use by 2009. The primary vehicle is the Hines Green Development fund, which currently has $725mm for promotion of sustainable real estate holdings. The methods identified by CalPERs are standard steps any responsible owner should be taking such as low-flow and sensor-operated fixtures, recycling programs, and preemptive, onsite water treatment.

The more important (and actually reported) article discusses a new CA law mandating utilities to maintain an Energy Star Portfolio Management Database for all non-residential properties in CA. Contained in Assembly Bill 1103:
1) Requires electric utilities, beginning January 1, 2009 and upon the written request of the owner or operator of a nonresidential building, to provide the owner or operator monthly energy consumption data for the building in a format that is compatible for uploading to the US Environmental Protection Agency’s (EPA) Energy Star Portfolio Manager.
2) Requires electric utilities, beginning January 1, 2009 and upon the written authorization of a nonresidential building owner or operator, to upload monthly energy consumption data for the building to ESPM.
3) Requires an owner or operator of a nonresidential building, on and after January 1, 2010, to disclose to a prospective buyer, lessee, or lender the ESPM benchmarking data and scores for the building.

Writes Globest’s Brian K. Miller:

One year from January, anyone looking to buy, finance or lease an entire building will be entitled to obtain the building’s Energy Star Portfolio Manager benchmarking data and ratings. The Energy Star program rates buildings on a scale from 1 to 100 against other buildings within its class. Buildings within the top quartile will be eligible to be recognized as an EPA Energy Star Building and can use the “Energy Star Label” to communicate its energy efficiency to tenants, lenders, and other stakeholders.

Obviously buyers and owners do this kind of comparison already, but with the addition of the Energy Star scoring, all parties will be in a position to both analyze and act upon energy efficiency opportunities rather than passively accept the consumption rates.

My East Coast bias won’t allow me to say that most initiatives begin in California, but by sheer market size, these requirements or requests for information are likely to start moving east in the next 18-36 months.