Coming to NYC: Building Energy Grades

In July 2010, the Health Department began requiring restaurants in all five boroughs to post letter grades summarizing their sanitary inspection scores to help achieve three goals: 1) to inform the public about a restaurant's inspection results in a simple, accessible way; 2) to improve sanitary conditions and food safety practices in restaurants; and 3) to reduce illnesses associated with dining out.

Following suit, energy efficiency will soon be hitting the public eye.

Beginning in 2020, all buildings in NYC over 25,000 square feet will be required to post an energy grade in a highly conspicuous location, like the letter grades we are used to seeing at the entrance to restaurants. This development is mandated by Local Law 33 - designed to promote energy efficiency, and publicly shame those who do not board the efficiency bus.

The Grades

The basis of the letter grade achieved by a building is the building’s ENERGY STAR score (1-100):

• A: 90 or above
• B: 50 – 89
• C: 20 – 49
• D: 0 – 19
• F: buildings that don't submit required benchmarking information
• N: buildings exempted from benchmarking or not covered by the Energy Star program

The law also includes a requirement for the Department of Buildings to annually conduct spot audits of energy benchmarking information. This element of audits adds teeth to what might otherwise be an exercise in fudging the tru... Not unheard of here in the Big Apple.

What it Means for The Real Estate Market

In tandem with the Local Law 84 mandate for energy consumption benchmarking, Local Law 33 means that tenants seeking space in NYC will have access to a tremendous amount of transparency into the operations of their potential building choices.

While benchmarking outcomes might be confusing to those who may be unfamiliar with the ENERGY STAR rating system or even what a "kBtu" is, everyone is familiar with the letter grading scale from A-F. In order to push building managers in the right direction, City government is banking on the fact that no one will want to rent space in an F-rated building. On the flip side, it will be very easy for tenants to narrow their search to high performing buildings.

During the recent Energy Delegation to Germany, we took a peek into how our European counterparts approach building labels or grading. No surprise here: they are about 18 years ahead of us. Since 2002, the EU has required building energy labels, known as Energy Performance Certificates (EPCs). Because individual EU members are responsible for implementation, programs have varied, and the outcomes have been a mixed bag. There are studies in certain countries showing that EPCs do ultimately impact sales and rentals, but there isn't enough public data to analyze in most jurisdictions.

In the years ahead, we anticipate following the response from the real estate community to determine if public shaming does result in a drive toward greater energy efficiency. Known for their competitive nature, we believe the new drive for "Class A" space will take on an entirely new meaning. Stay Tuned.