SAN DIEGO—Commercial real estate owners and investors can implement a few profitable strategies for greater energy efficiency, San Diego Energy Desk's chief efficiency optimizor Randy Walsh, CCIM, tells GlobeSt.com. The firm recently shared the stage with EPA Administrator Gina McCarthy and San Diego Mayor Kevin Faulconer as the Timken Museum of Art was officially awarded first and third place in the EPA National Building Competition. Of more than 5,500 competitors, Timken's 50% energy-use reduction placed the museum in third place overall and in first place in the entertainment/public assembly category. San Diego Energy Desk led the project team and facilitated the operational, technological and financial elements of this successful energy-efficiency project, reducing energy use by 50% over the past 12 months, reducing energy expense by more than $1,600 a month and securing utility rebates, incentives and 0% financing totaling over $100,000 to fully fund all projects with no money out of pocket. We spoke exclusively with Walsh for his suggestions about energy-saving strategies that other buildings can employ.

GlobeSt.com: As the market responds to the potential impacts of extreme climate change and pushes for greater energy efficiency in commercial buildings, what is the first step CRE owners and investors should take in achieving energy efficiency?

Walsh: A new level of transparency is coming to the market via CRE energy-use disclosure regulations popping up around the US. Ideally, those buildings showing greater energy-efficiency performance are more highly valued in the marketplace. Whether public or private disclosure is required, the first step to position the asset competitively is to understand the energy-efficiency performance of the building today. From this “benchmark,” performance goals can be set with a realistic budget and timeline. It is important to underscore the importance of understanding the methodology behind Energy Star Portfolio Manager, the software platform available through the Environmental Protection Agency and the reporting tool mandated by many disclosure regulations. The program evaluates energy-efficiency performance over 12 months; it will take a full 12-month period for the full value of any energy-efficiency projects to be reflected in the performance results.

GlobeSt.com: What should owners do regarding tenants to ensure compliance with efficiency policies?

Walsh: It's crucial to resolve split incentives. Write lease agreements that facilitate the flow of data and capital and clearly outline reciprocal performance expectations. Responsibilities and responsible parties remain the same, but expanding the language to develop more-collaborative relationships focused on finding and financing energy-efficiency projects creates an opportunity for all parties. Empowering tenants with an equal investment in improved energy efficiency overall ensures performance over the entire hold period.

GlobeSt.com: How can owners and investors remain cash-flow positive when implementing energy-efficiency measures?

Walsh: They should source alternative financing mechanisms for energy-efficiency projects. Power purchase agreements, short-term equipment-lease agreements, utility rebate programs, PACE financing and “paid-from-savings” programs are all viable options. In many service territories, utility-based rebate and incentive programs are expanding to include improvements that can reduce energy use—roofing, window glazing, insulation, etc. Capturing any and all cost savings from these projects—regardless of the beneficiary—will provide a continuous stream of income to finance future projects.

GlobeSt.com: How should they deal with load or demand charges?

Walsh: In those utility-service territories where load or demand charges are a factor, focus on reducing energy use during the most expensive time of the day to generate immediate energy cost savings. Before on-site generation is considered, reduce, reduce, reduce energy use as low as possible. There are two advantages to this approach. First, cost savings are immediately available, and second, the scale and scope of on-site generation can be reduced to match the lower energy requirements of the subject property at a lower cost.

GlobeSt.com: What else should our readers know about energy-efficiency measures for real estate?

Walsh: Reset the relationship with the key triad of design professionals, construction contractors and building service providers. As the market continues to shift, there is an overwhelming amount of new thinking supporting fresh approaches in design, construction and maintenance of physical structures. Rely on this key triad to devour, distill and discern the most-innovative and cost-effective energy-efficiency strategies and to accelerate their implementation. Now, more than ever, their contributions to property operations may have a direct impact on asset value.

Legislators and regulators have identified the commercial-building stock as both partial cause and partial cure for climate degradation. Unfortunately, policy is being established with little regard to the sometimes-lengthy contractual relationships that exist between parties to a commercial real estate transaction. CRE owners and investors who can reconcile progressive regulations and established commercial real estate business practices will lead the market. Planning and preparation are critical to realizing profits in this changing market.