WASHINGTON, DC—The Senate voted 94-5 to authorized the US Environmental Protection Agency to create a voluntary "Tenant Star" program. This program is meant to encourage landlord and tenant teams to design, construct and operate leased spaces that achieve high levels of energy performance.

The House of Representatives passed the campaign bill last March, by a 375-36 margin.

The program is primarily aimed at office tenants who can account for more than 50% of the energy consumed in a building to incorporate into the build out of their office space energy-efficient measures.

The assumption is that tenants will favor landlords that support these investments, which presumably many will given the cost savings that accompany energy-efficient infrastructure.

The program will have the added attraction of attracting financiers and investors in these buildings, according to Jeffrey D. DeBoer, president and CEO of The Real Estate Roundtable. "It will boost innovation in the real estate sector and go a long way to help ensure that our country's commercial and multifamily stock – and the separate spaces leased within them – are at the vanguard of advances in technology and energy conservation," he said.

Indeed, one reason the commercial real estate industry has been in the forefront of investing in sustainable building and operations technology is because of their financial impact – and the favor by which these investments are received by investors. In an interview last year, Ari Frankel, head of ESG strategy, real estate, at Deutsche Asset & Wealth Management, told NAREIT that all of the studies that have looked at the connection between sustainability performance and financial performance have demonstrated a positive correlation, "which isn't the case in other asset classes."

Sustainability is also a factor behind tenant decisions. More than half of respondents in a Cushman & Wakefield survey last year said poor sustainability was a reason in not selecting a particular location.

But clearly there is a missing piece to these decisions: how to quantify the value these investments bring to an asset – and how to account for the opportunity cost of not pursuing them. The survey also found that just 35% of respondents set minimum performance standards around energy, water and waste that affect their site selection or day-to-day operations. "Occupiers and investors struggle with quantifying the premium being applied in the market for sustainable property," the report said.

Whether the Tenant Star can provide this missing data remains to be seen; advocates, for their part, say it is, at the very least, a step in the right direction.

Whether the legislation actually becomes law, however, is another crucial step that must be navigated. The Tenant Star provisions were passed as an amendment to legislation to approve construction of the Keystone XL pipeline—legislation President Obama has vowed to veto.

Instant Insights /

Senate Authorizes Tenant Star Program at EPA

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