A new pilot program proposed (at first) for Boston, Cambridge and parts of the Merrimack Valley by the Massachusetts Department of Energy Resources (DOER) asks commercial property owners to make a significant investment with absolutely no return.
Buildings would be measured against a hypothetical zero-net-energy building that produces as much (or more) energy as it consumes. How these existing buildings stack up against this imaginary wonder determines the rating they receive – the more energy efficient a building shell is, the higher the grade.
It’s a concept we might be convinced to applaud for its efforts at increasing energy efficiency in the commonwealth – that is, if it actually helped to increase efficiency.
Which it does not.
Under the program, one might assume that failure to keep an efficient house would result in some kind of penalty or an additional mandate to bring a structure up to a certain level of efficiency within a given period.
But this new program imposes none of that. Instead, the DOER seems to be relying on a system in which property owners stung by a bad efficiency grade are essentially shamed into upgrading their properties at their own cost.
DOER is basing much of its assumptions on the tenuous idea that, in looking at the grades of various properties under consideration, prospective tenants are more likely to choose efficient buildings over those that rate poorly.
But that logic illustrates a lack of even basic knowledge of how commercial real estate works. Most tenants, when evaluating space, have a specific set of needs – space, cost, location, function etc. – that are generally met by only a handful of available properties.
And because these needs are often so specific to one building type over others, one can assume that the buildings under consideration are all probably roughly similar to one another. And it seems they would also possess a broadly similar efficiency rating, which eliminates DOER’s potential deciding factor.
What’s more, even if a tenant were to make a choice based on efficiency, there is only so much of that efficient space available. Once it’s taken by other tenants, the new tenant has no choice but to “settle” for space in the less efficient buildings, anyway.
Finally, assuming all other things are equal, the majority of the time a tenant is going to choose a space based not on efficiency, but almost entirely on its cost.
And cost is where the program really falls apart.
DOER is mandating an audit every time the building is sold, refinanced and/or permits are pulled for new construction on capital improvements or tenant fit outs. In a given period, there could be dozens of required audits – paid out of landlords’ pockets.
The Greater Boston Real Estate Board estimates the audits to cost upwards of $30,000 apiece – $30,000 that could be spent on other things, like, say, investing in energy efficiency upgrades. Instead, these audit costs are almost certain to be passed along to tenants – the same tenants who are voting with their wallets and will choose the less efficient, but cheaper, building almost every time.
Instead of freeing property owners to spend their limited resources according to market demands, this program arbitrarily takes those resources away in service of an idea that accomplishes nothing.
After paying $30,000 to be assigned an F, there is no penalty and no further incentive to spend more money to upgrade your building to a D – especially when your competitors also have Grade F buildings. Nor is there an incentive for having a Grade A building, either, because landlords still have to pay to be audited just like their Grade F peers – and once their building is full, will watch tenants go to their competitors anyway.
In the end, buildings will not be made more efficient. Building owners will not feel more compelled to invest in energy efficiency. And tenants will be left with the check for occupying space in buildings no more or less efficient than before.
Tell us, DOER, who wins? What is the return on this investment?
