Task force to Mayor Newsom: “Your 7 keys to existing building efficiency in San Francisco.”

How can green finance help increase existing commercial building efficiency?

As a member of the Mayor’s Task Force on Existing Building Efficiency, I had the pleasure of attending Mayor Gavin Newsom’s Friday announcement of his introducing new legislation, aimed at improving the energy efficiency of existing buildings in San Francisco.

The contemplated legislation is the product of a task force of 19 key stakeholders convened by the Mayor.  I was happy and proud to contribute to the financing aspects of this work and you can download the entire report here:  Report of Mayor's Task Force on Existing Buildings (187)

Goal: Cut energy use by 50% from existing buildings by 2030

The back story on San Francisco’s sustainability challenges reveals high stakes:

The operation, construction, and demolition of buildings accounts for almost half of San Francisco’s greenhouse gas emissions. Commercial, industrial, and municipal buildings account for 63% of building-sector emissions.

The City has established high standards of environmental performance for new construction. However, at the historic rate of 0.8% new buildings per year, it could take more than sixty years to ‘green’ even half of San Francisco.

As a result, the task force recommended that San Francisco move to help cut energy use by 50 percent, or 2.5% p.a. by 2030, from existing commercial buildings.

7 big ways San Francisco can achieve energy reduction goals via existing commercial buildings

The Task Force distilled its research down to seven big ideas that would help the City achieve the above GHG reduction targets by 2030.

1. Identify cost-effective savings in every commercial building: Require buildings to conduct an energy audit every 5 years.
2. Disclose energy performance information: Require building owners and managers to share energy data with the City.
3. Resolve split incentives: Provide a green lease toolkit and make submetering a policy priority.
4. Make incentives easy: Develop a web-based tool that finds all incentives and financing options for building owners in one place.
5. Educate, train, mentor and market existing building efficiency: Promote programs, facilitate mentorship and partner with institutions.
6. Lead by example in public facilities: Benchmark and disclose energy performance in public facilities.
7. Provide financing: Launch the San Francisco Sustainable Financing program and require that funding from that program prioritize efficiency before renewables.

Green finance focus - comprehensive incentives and smarter EE financing terms

Green finance mechanisms, the area I collaborated within, focused on recommendations #4 and #7.

Task force members reported seeing incentives either being ignored or misunderstood by property owners,  depressing the acceptance and prevalence of retrofits. Those problems were exacerbated by the fact that appraisers, contractors, lenders and others were equally unaware of the positive impacts that incentives could have on improving the economics of any commercial building retrofit program.

Based upon our own experience with assisting property owners in comprehensively sourcing incentives, I felt strongly that San Francisco should integrate a sourcing tool that would make it easier for property owners to quickly obtain comprehensive information on retrofit incentive options that were available to them.

We also made underwriting recommendations to the planned San Francisco Sustainable Financing program, to help it avoid problems that we’ve noticed in the loan programs of some of the other energy efficiency financing districts that are up and running.

Essentially, solar installers have a larger marketing force on the ground than energy efficiency retrofitters. As PACE loan programs are being rolled out across the country, we are getting reports of the unfortunate situation where the loans are going primarily for renewable energy, with energy efficiency funding running a distant second.  This results in the problem of solar panels supplying energy to “dirty” buildings. The regions in question are faced with achieving less of an impact from existing buildings to their climate action goals.

The financing recommendation to the City was that their own program include a provision to prioritize the funding of energy efficiency measures first, then renewable energy second. In our opinion, this requirement will would go a long way in making sure that the loans actually achieve the kind of impact expected by this financing mechanism.

I believe that even greater assurance of positive impacts from energy efficiency financing could be achieved by any program by further prioritizing energy efficiency measures according to the ‘loading order’ suggested by McKinsey in their recent studies. That level of detail was beyond the scope of our financing group’s work within this particular task force, but you’ll hear about it in upcoming posts.

At this point, it is gratifying to see that Mayor Newsom is moving forward with legislative action based upon a collaboration with key real estate industry stakeholders.

The task force has given him a lot to work with, assuring that San Francisco stands out as a leader in achieving real transformation through increasing the energy efficiency of existing buildings.

Get the Best Valuation for Your Green Real Estate Project

The appraisal industry is just starting to incorporate sustainable design considerations into the valuation practice. So how can you navigate your green project towards its maximum appraised value?

We recently heard Wells Fargo’s appraiser James Finlay’s personal perspectives on how the appraisal industry is working to adapt valuation standards to sustainable real estate.  Here’s a short summary of his comments:

Green Project Valuation Road Bumps

• On-site distributed energy systems: The real estate appraisal might overlook the value of these components. A lot of these systems would best be appraised by an M&E (mechanical and electrical) appraiser. Additionally, systems like geothermal heat pumps may also require the services of an M&E appraiser.
• Appraisers can’t base their operating expense assumptions on your energy savings projections alone. Claiming that your asset is designed to use 30% less energy than conventional product is not evidence enough- what happens when the performance is suboptimal? If you don’t support your case for the lower operating expense projections, don’t expect the appraiser to go out on a limb for you- it’s their job to be conservative.
• Appraisers are unlikely to value incentives. Simply stated, banks won’t lend on property tax credits or any other green incentives that would flow through the asset’s revenue stream, so don’t expect your appraiser to value them.  Expect them to be reversed out so that the appraisal is based upon the assets true economic performance. (Our note: we’ve seen cases of owners negotiating large incentive packages –and their lenders ignoring the fact that some of these incentive benefits could also be additional collateral that secures loan repayment).

Preparing for a Good Appraisal

Finlay provided the audience with key suggestions on how to manage the appraisal process in order to maximize the appraised value of high-performance assets:

• Hire an appraiser with green experience. Look for a local appraisal expert with some green experience, who is eager to learn more about green building systems. If a perspective lender has a go-to appraiser, find out in advance of agreeing to terms whether they have any green experience. If not, offer up an experienced, alternative appraiser.
• Proactively provide your appraiser with as much relevant and organized information as you possibly can. Don’t just assume that an appraiser will be able to value your advanced building systems- provide them with the data and evidence they need to do so. It’s your responsibility to build the case for higher than market value.

Most importantly:

• If you are not monitoring and tracking the performance of your green buildings, you are not maximizing appraisal value. Want an appraisal to accurately reflect the superior energy performance of your asset? You need to track your data. Additionally, utilizing building management systems and commissioning (or retrocommisioning) are great ways to show an appraiser that the asset will continue to outperform market assumptions.

By the way, there will be great case studies and valuation discussions at the upcoming Green Building Finance and Investment Forum, which will be held here in San Francisco next week on March 2-4, 2009.

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Green Roof Incentive in New York

Photocredit: dreamymo
Folks love the green incentives that have immediate, easily calculated cash value.

Environmental Leader (a green newsletter we dig) has put out the word on New York’s new green roof tax credit of $4.50/sf, up to $100,000 for installing a green roof. It’s structured as a one year credit off property taxes.

It comes out to an approximate 25% reduction off the cost of the roof — a significant value. I checked around with a couple of sources who said that this is a “decent estimate” of the savings. Which we took to mean that you need to factor in variability in the roof pricing — and hence, the credit’s actual value.

Not bad — a green roof in New York for 75% of the price. And that’s not including the heating and cooling benefits the roof brings to the building as well as the reduction of the heat island effect in the city.

Go Big Apple!

Persuasive ‘Everyday’ Sustainability Case Studies

To lots of companies, sustainability can seem like a pretty exotic exercise. This perception can make it hard for us to convince clients and colleagues about the benefits of green building. That may not have to be the case.

‘Tackling the Energy Monster’ was today’s Wall Street Journal report on how soaring energy prices have triggered a reality check among small businesses, which often pay higher utility rates than large companies and are less able to pass their cost increases on to their customers.

This article was packed with eight great case studies of specific ways, backed by cash results, that companies re-tooled their businesses to cut or avoid energy costs. I call these actions ‘everyday sustainability’ because they’re rather unflashy, but are accessible to many businesses and deliver long term positive results.

Here’s a partial list of the winning actions:

• Missouri delivery company: Using GPS-route mapping software from United Parcel Service, Inc. to eliminate excess miles driven by drivers. 25,000 miles were cut. Even though unleaded gas prices rose 31% last year, this company only experienced a 1% increase in fuel costs for that period (!). The company even saved more than that since the drivers were paid by the hour. Less miles driven = less payroll expense.

• Oregon shoe manufacturer: Had new facility built using designed-in energy saving options. The energy-saving improvements cost an additional $149,140. An energy audit revealed that the company saved $32,000 annually with the new facility. In addition to that, the new building qualified for $52,000 in state tax credits to offset the costs. The company figures it will recoup its entire (additional) investment within three years.

• San Francisco civil engineering firm: 40 employees and a second office in New York. Employees now travel 70% less than before due to web conferencing. The web camera and projector cost $70 and $850 respectively. The firm saves $30,000-$40,000 annually.

• Interest-free financing from public utility: Southern California Gas & Electric and San Diego Gas & Electric offer interest free loans of up to $50,000 to small-business customers if they use the funds for energy efficiency upgrades and equipment. That’s in addition to the free utility audit.

So, check the article out and add it to your arsenal of proof that sustainability initiatives are real world actions and save lots of money.

If you’ve got any good case studies to share with the rest of us, send them along so everyone else on the Green Journey can benefit from your good experience.

Economic Stimulus vs Renewable Energy

Strange, but true. With all the focus on the gloomy credit markets and national politics, there has been surprisingly little media attention on federal lawmakers quietly killing the renewable energy tax credit extension last December in order to use the funds for the economic stimulus package.

At least that is the accusation being made by the renewable energy industry. The wildly popular $5.5 billion in federal tax incentives for renewable energy - officially called the federal Production Tax Credit - was reportedly used to fund the economic stimulus package instead.

To get a sense of how surprising this is, keep in mind that most people in the renewable energy industry have been high-fivin’ themselves over presumed passage of the tax credit extension for over a year. Actually, a lot of us in the green building industry had been high-fivin’ each other, too. Its passage was deemed to be virtually certain. One comment to the news echoed the cynical disbelief of many:

“Can you imagine what the renewables industry could do with 10% of the $500 billion we just spent trying to steal Iraq’s oil?” - Commenter, RenewableEnergyAccess.com

However, the renewable energy industry is not taking this one sitting down.  Cleantech Revolution co-author Clint Wilder went on a lengthy tirade about federal clean-tech policy, calling it the ‘Theater of the Absurd’.  Read it for yourself.

As of last Friday, the Senate Finance Committee announced that it had included the Production Tax Credit extensions in its own version of an economic stimulus package.

The word is that the vote for this updated version of the economic stimulus package has been delayed until after Super Tuesday. It will happen next week. Everyone in green building should keep their fingers crossed.

Photo Credit: Flickr/pcesarperez - Centinelas de Eolo

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