The green building movement is all too familiar with building codes.  Sometimes they are useful tools, like California’s Title 24, which has pushed developers and architecture/engineering/construction (AEC) professionals to go above and beyond the industry standard for energy efficiency.  However, these typically prescriptive measures can be overly complex and inhibit the growth of innovative solutions.

A good example is that building code requires water pipes to be connected to waterless urinals just in case the building owner decides to change them back into conventional urinals.  In other words, the building code states that extra money needs to be spent so that one can decide to take back green progress at a later date.  Strict regulations regarding cistern water capture and on-site grey water reuse serve as another example.  These codes exist to keep building occupants safe, but the prescriptive measures can inhibit creativity and the adoption of “modern” technology.

Another option for regulation is what I call a building responsibility code.  This type of regulation would set a performance goal, but would not provide prescriptive measures to reach that goal.  Along these lines, my company developed the concept of BeyondFire.  First, it is a philosophy of using buildings as a basic unit of change to move beyond the harmful combustion based energy system.  Second, BeyondFire is a building responsibility code that mandates sourcing 100% of the annual net-energy needs from clean renewable sources while providing a safe place to live, work, and play.  It does not matter what combination of technology is used achieve this goal; simply proving the performance is what would meet code.

BeyondFire is also a building performance label.  These labels are extremely valuable tools to all stakeholders in real estate, which is technically everybody.  For developers, a performance label adds value.  For AEC professionals, a performance label is a clear goal to achieve.   For regulators, it allows easier bookkeeping regarding impacts and a more streamlined ability to discuss performance.  For tenants and citizens, it creates a clear understanding of how their lives will be influenced and shows them who in the real estate world is actually trying to make a difference.  Most people look at the “performance label” of a $1.50 soda, and the government mandates these labels, so how on earth is it not required to label a $50 million building?

To ground the above with some data, building energy performance has been shown to significantly influence appraisal value.  According to a 2009 report from The Boston Consulting Group and NRDC, energy-efficient buildings generate an annual net present value of more than $100 per square meter.  In addition, they generate profits that are 10-15% percent higher than those of less efficient buildings, and they have occupancy rates up to 4% higher.  Interestingly, developers pursuing this route face a relatively modest cost premium of 4-5%.  The Responsible Property Investing Center and Benecki Center for Real Estate Studies have proven that energy-efficient properties have 25 cents per square foot (5.9%) higher net operating incomes due to 9.8% lower utility expenditures.  Furthermore, they have 13.5% higher market values per square foot, and 0.5% lower cap rates.*

If you read the last paragraph carefully, you should be asking what does it mean to be an energy efficient property?  What label proves the performance?  In the cases above the researchers were reviewing EnergyStar properties in comparison to “conventional” properties.  At this early stage in the market acceptance of green value, it matters little if an unlabeled property has equivalent performance to an EnergyStar property.  This is because appraisers do not know how to value energy performance directly, but they know how to value labels.

The fundamental point is that little value is created without reliable performance labels.  To have reliable labels, performance needs to be checked continuously through systems like monitoring-based commissioning (MBCx).  Just like labeling cars with MPG ratings influenced people to care more about efficiency (at least when gas is expensive), labeling buildings will cause a shift in how we determine our purchasing decisions in real estate. 

*Note: “Energy Efficiency and Real Estate: Opportunities for Investors” is a great summary report complied by Mercer and Ceres