The intent of LEED CI Credit 3 - Energy Use Measurement and Payment Accountability is to "provide for the ongoing accountability and optimization of tenant energy and water consumption performance over time". If the Tenant is less than 75% of the building, this is done by submetering the Tenant's space and including a "direct pay" clause in the lease. If the Tenant takes up over 75% of the building, a computer model is required, as well as the installation of various energy and water performance equipment along with a Measurement and Verification Plan that compares predicted to actual savings. But a really important question to ask yourself is: Which party is reasonably more likely to be acting in its own self interest in optimizing tenant energy use and water consumption over time, the Tenant or the Landlord?

If my experience with real estate investment is any guide, I'm betting on the Landlord, which is the opposite of what LEED CI Credit 3 is all about. LEED is aiming for the Tenant to be responsible (to varying degrees depending on the amount of space they occupy in the building) for cutting energy and water use.

On the face of it, the logic seems sound: Tenants who are responsible for paying for their energy and water use will be more careful about what they use. But in actuality in a standard Landlord/Tenant relationship, this doesn't usually happen because the Tenant is focused on its core business (not necessarily real estate) and the Landlord is focused on creating and maximizing return on real estate investment value. The Landlord has a greater motivation to increase value than the Tenant in many cases and, I would argue, is more focused on - and willing to - cut costs on energy and water purely based on the savings alone.

Lets assume a 75,000 square foot Tenant in a 100,000 square foot office building with operating costs of $9.50 per square foot, assume energy costs are $2.00, or approximately 20%, before energy efficiency measures. A 40% reduction in energy costs for the building is quite achievable based studies of the performance of Energy Star rated buildings in the U.S. Thus, by making certain changes to the entire building's energy use, a Landlord is saving .80 cents (40% of $2.00) per square foot. Apply a capitalization rate of 7.5% to the .80 cents of earnings (or savings) and you've created about $10.60 in value per square foot for your building. In a 100,000 square foot building, this is $1,060,000 of value, immediately. Also, by applying the energy efficiency measures to the entire building, not just the 75% Tenant space, the Landlord is achieving economies of scale (a 30% additional yield on investment) by including the whole 100,000 square feet, not just the 75,000 square foot tenant space, and adding $80,000 per year to the bottom line.

Now let's make an apples to apples comparison to determine the Tenant's savings. Say the Tenant can achieve the same savings of 40%, or .80 cents a foot, times their space of 75,000 square feet. Over the course of a year, this is a $60,000 savings, or $5,000 per month. To a Tenant paying rent of $15.00 per foot (the equivalent of $1,125,000 per year or $93,750 per month in rent alone) a $5,000 savings per month may not be compelling or material enough to them on a consistent basis.

Depending on the company and industry, when thinking about cutting operating costs, energy and water are not typically not the first thing employers think about when faced with reducing overhead, they look to reducing employee costs by making layoffs or cutting perks. Whereas to the owner or Landlord, there are two ways to increase value in a real estate operation: 1) increase revenue or 2) cut costs.

It seems to me that LEED CI should keep the intent of EA Credit 3, but toss out the requirement that accountability lie with the Tenant alone, while encouraging Landlords to adopt energy efficiency measures as broadly as possible.

Green-Buildings.com

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