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New 'Tenant Star' Measures Gain Legislative Backing in House, Senate

Proponents Say Bipartisan Legislation Supports Tenant Buy-In On Energy Efficiency In Their Offices and Stores
March 12, 2014
Energy efficiency proponents have secured two major legislative victories in laying the groundwork for a series of incentives, certifications and best practices aimed at engaging commercial property tenants more fully in building sustainability programs.

The House of Representatives last week overwhelmingly passed H.R. 2126, the Energy Efficiency Improvement Act, which would create a "Tenant Star" program modeled on the successful Energy Star labeling program for building owners. The program would establish best practices and set up a voluntary certification system for efficiency in commercial tenant spaces.

The bill, passed by a vote of 375-36, is similar to a bipartisan energy efficiency bill that was reintroduced in the Senate late last month by Sens. Jeanne Shaheen (D-NH) and Rob Portman (R-OH). The Senate version also incorporates Tenant Star provisions supported by Sens. Michael Bennet (D-CO) and Kelly Ayotte (R-NH).

Among several other measures to eliminate waste, the House bill would also require federal agencies to adopt best practices to minimize electricity consumption by data centers and information technology networks, and require federally leased buildings without Energy Star labels to benchmark and disclose energy usage data.

Anthony E. Malkin, chairman of The Real Estate Roundtable’s Sustainability Policy Advisory Committee, and chairman, president and CEO of Empire State Realty Trust, Inc. (NYSE: ESRT), applauded the vote as "major step in recognizing the immense potential of a voluntary program to encourage energy efficiency in office tenant fit-ups."

Tenant Star will encourage commercial tenants, who can account for more than 50% of the energy consumed in an office building, and landlords to design and construct leased spaces in office buildings to achieve high levels of energy performance, Malkin said. Landlords will find that such common sense, cost-effective measures will yield excellent returns on investment over short pay-back periods, he added.

"Tenants will favor landlords whose buildings can support such installations," Malkin said. "Broad adoption will save businesses billions of dollars on energy costs in the coming years. The reduced consumption will afford savings in future capital outlays for energy generation and related infrastructure."

The green building industry is carefully following a demonstration project by the Natural Resources Defense Council's Center for Market Innovation (CMI) aimed at accelerating demand for high-performance office tenant spaces by demonstrating, and publicizing, their economic benefits.

Through case studies and development of a how-to guide along with a set of tools to help analyze the value of energy performance measures, the CMI's goal is to make high-performance tenant build-outs standard practice for the commercial real estate industry.

The CMI has enlisted real estate and financial industry leaders, including Empire State Realty, Goldman Sachs, Johnson Controls, JLL, Skanska and ULI/Greenprint, as technical advisers in the demonstration project. The project uses energy modeling, incremental costing and financial analysis to develop an optimal set of performance measures that will provide energy use savings 30% to 50% above a standard code-compliant build-out, with a payback period between three and five years.

The process equips the tenant and its existing facilities and design team with the information to determine tiers and packages of energy measures to incorporate into space design. The project team also works with each participating tenant to develop and execute a protocol to measure and verify the actual energy performance of the new space for 12 to 15 months after occupancy.

Tenants in the CMI demonstration project portfolio include Bloomberg LP, a number of major tenants at the Empire State Building in New York City, and Reed Smith in Philadelphia. The NRDC will prepare a case study for each project documenting the value analysis process, the tenant's selection of performance measures, and the return on the tenant's investment in those measures.

For example, Reed Smith’s tenant space is estimated to save more than 34% of expected electricity use and $1.8 million over the lease term, according to Wendy Foc, CMI project director of commercial buildings efficiency.

"From the initial success in Philadelphia, Reed Smith is now implementing the energy optimization process in new plans for offices in Washington, D.C., New York City, and all future space," Foc said.

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