Embedding Energy Efficiency in the Business of Buildings: Commercial Real Estate Contracts & Transactions

The commercial real estate market is a web of contractual and financial relationships. Layers of formal and informal agreements assign and obligate how multiple stakeholders – tenants, owners, investors, managers, operators, and brokers – can utilize buildings to meet their needs. In viewing the market from this perspective, energy efficiency is equally dependent on business negotiations as on building operations, technologies, and incentives that support their installation. The leasing “split incentive” problem, whereby tenants and landlords can have misaligned financial incentives, is a commonly discussed market barrier. Yet other interactions have equal, if not more, long-term influence on how energy efficiency manifests itself in commercial property portfolios. Due diligence procedures for the purchase of properties, property management contracts, standards for tenant improvements, and underwriting approaches for lending decisions all influence how energy is managed in the commercial marketplace. Recent policy movements in many jurisdictions mandating disclosure of energy performance, and the growing evidence of a market premium for “green” buildings, magnify the role these relationships play in energy efficiency. This paper will detail recent efforts by the program to influence these processes with the goal of greater transparency, accountability, and persistence in energy management. Through partnering with multiple parties in the real estate value chain, groundbreaking work is underway in drafting template language, practices, and specifications for greater adoption by the marketplace.