Category Archives: Energy Audit

Property Condition Assessments in San Francisco

The real estate market in booming in the City of San Francisco and so is our Property Condition Assessment (a.k.a. Commercial Building Inspection) practice.    As real estate investors from inside and outside the Bay Area rush to invest in the nation’s hottest real estate markets, they need to understand the buildings that they are buying and for this goal they need local engineering expertise.   In addition to Property Condition Assessments, two other commercial building assessments San Francisco real estate investors and lender should consider are:

  • Seismic Risk Assessments, and
  • Energy Audits / Energy Benchmarking.

San Francisco Property Condition Assessments

Property Condition Assessments (PCAs) are performed for lending institutions or prospective purchasers of properties and the scope of work can vary depending on the intended use.   For lenders the Property Condition Assessment provides a tool for comparing the cost of maintaining the property to the property’s income.  For prospective purchasers, a Property Condition Assessment provides an understanding of the building systems and associated issues and the potential costs with owning a property and the findings of the PCA can be used in negotiations with the seller.  The user of a PCA should carefully consider their requirements and the purpose the report is serving, as well as their risk tolerance, in determining the appropriate level of inquiry when ordering a PCA report.  Partner can provide assistance in determining what level is appropriate for specific transactions and our expertise in San Francisco and our knowledge of the area’s developmental history and building practices allows us to service our clients efficiently and effectively.

Seismic Risk Assessments in San Francisco are Critical

A Seismic Risk Assessment – a.k.a. Probable Maximum Loss (PML) estimation – is a valuable tool utilized to evaluate expected seismic losses for properties in regions such as the San Francisco Bay Area.  A seismic risk assessment evaluates the regional seismic hazard, site conditions, and building vulnerability.  A loss estimate, referred to commonly as the PML, is calculated based on the synthesis of the regional seismic hazard and the expected performance of the building(s).  For seismic due diligence related to commercial real estate transactions, the Probable Maximum Loss is most often expressed as the Scenario Expected Loss (SEL), which corresponds to the mean or average expected damage based on an earthquake with a 475-year return period.  This earthquake scenario is referred to as the Design Basis Earthquake (DBE) ground motion, which is used as the basis for design of new buildings and rehabilitation of existing buildings in accordance with modern seismic codes.  The key to obtaining a good quality Seismic Risk Assessment is engaging a qualified company with licensed professional engineers experienced in building design, retrofit, and seismic risk assessments.  The center of Partner’s seismic risk practice is located in San Francisco.  Partner’s engineers utilize the industry best practices and decades of structural engineering experience to provide comprehensive seismic risk and hazard mitigation services.

San Francisco Energy Audits and Benchmarking (Commercial Building Energy Performance Ordinance)

The City and County of San Francisco adopted the San Francisco Existing Commercial Building Energy Performance Ordinance in 2011 requiring owners of commercial buildings to obtain energy efficiency audits and to disclose energy performance annually (benchmarking).   Building owners are responsible for annual benchmark reporting using the Energy Star Portfolio Manager tool.  The first deadline for compliance, requiring buildings greater than 25,000 square feet to submit an Annual Energy Benchmark Summary (AEBS) report, has already passed.  AEBS reports are due annually on April 1st and energy audits are required once every five years.  Building energy consumption is a controllable operating cost of building owners and is a larger source of greenhouse gas emissions than transportation.  Paying attention to energy efficiencies and other “green” features in buildings can increase the value of the property and also allow building owners to be more competitive in attracting quality tenants.   A large number of buildings have failed to submit AEBS reports by the first reporting deadline and are out of compliance.  Partner’s energy practice can provide professional engineering services to get your building into compliance and keep it in compliance.

San Francisco Existing Commercial Buildings Energy Performance Ordinance

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Last week San Francisco passed a landmark energy Ordinance requiring owners of commercial buildings to perform energy benchmarking.   The San Francisco Existing Commercial Buildings Energy Performance Ordinance requires annual bench marking and energy audits every five years. 

Annual energy benchmarking is defined as follows:

(a)   Annual Energy Benchmark Summary Reporting. The owner of every non-residential building in the City shall annually file with the Department of the Environment an Annual Energy Benchmark Summary report (“AEBS”) for each covered building using ENERGY STAR® Portfolio Manager and according to the schedule set forth in Section 2004 of this Chapter. The AEBS shall be based on assessment in Portfolio Manager of the entire non-residential building and related facilities, and must use 12 continuous months of data ending no earlier than two months prior to submittal to the Department of the Environment.

Compliance with the energy benchmarking is staggered based on the size of the building, but the first group of buildings, non-residential buildings over 50,000 s.f., is due in April of 2011.  

The energy audits requirement is also staggered over 5 years, as the population of qualifying energy engineers could not otherwise meet the demand.    The energy audits are required to be done to ASHRAE Level II Standards.   The American Society of Heating, Refrigerating, and Air-conditioning Engineers Inc. (ASHRAE) maintains well established energy audit standards.  

 Energy Efficiency Auditor Qualifications

The San Francisco Existing Commercial Buildings Energy Performance Ordinance provides clear criteria for the qualifications of the energy engineer / energy auditor:

(c) Energy Efficiency Auditor Qualifications. An energy professional performing or supervising energy efficiency audits must hold one of the following qualifications:

(1) Licensed Professional Engineer and one of the following:

(A) At least 2 years experience performing energy efficiency audits or commissioning of existing buildings; or

(B) ASHRAE Commissioning Process Management Professional Certification; or

(C) Similar qualifications in energy efficiency analysis or commissioning.

(2) Association of Energy Engineers Certified Energy Manager (CEM);

(3) At least 10 years experience as a building operating engineer, or at least 5 years experience as a chief operating engineer and one of the following:

(A) BOC International Building Operator Certification; or

(B) International Union of Operating Engineers Certified Energy Specialist; or

(4) Equivalent professional qualifications to manage, maintain, or evaluate systems, as well as specialized training in energy efficiency audits and maintenance of systems, as determined by the Director.

By requiring serious credentials the San Francisco Existing Commercial Buildings Energy Performance Ordinance will ultimately make the data generated more useful to building owners.

The benchmarking piece of the law will dovetail nicely with California law AB 1103, which requires building owners to disclose their Energy Star Ratings at during sale, lease, or financing transactions.  

Upcoming ASTM E2797-2011 BEPA (Building Energy Performance Assessment) Standard

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The draft ASTM E2797-2011 BEPA (Building Energy Performance Assessment) Standard will provide another method to assess and disclose the energy efficiency of commercial buildings.  The standard is expected to be published in 2011, though no date has been specified.

BEPA was created in an effort to standardize the process of assessing the energy efficiency of a building for the purposes of pre-transaction disclosure.  Building purchasers will want to know the building’s energy consumption, and lenders will want to understand the building’s operating costs. 

BEPAs were designed to be conducted in concurrence with a Phase I ESA or PCA; however, BEPA buyers need to be aware that the personnel used for the site inspection during a Phase I or PCA may not be trained appropriately to conduct the BEPA.  The inspector for BEPA should be a mechanical or other engineer, Certified Energy Manager (CEM), LEED AP or other professional with training in building and energy systems.

More states are requiring energy efficiency disclosure of commercial buildings.  As this trend continues, more building owners, purchasers and commercial real estate professionals are recognizing the value of energy assessments not just because of these regulatory requirements, but because energy efficiency initiatives really work.  In addition to greater marketability of a building, capital investments into energy efficient system upgrades will yield substantial return on investment.

According to Tony Liou, President of Partner Energy, the EPA’s Energy Star program is currently the most commonly used energy disclosure and benchmarking tool; however, Partner Energy structures each assessment according to the client’s specifications and the most appropriate method, whether the Energy Star program, ASHRAE audits, or the upcoming BEPA standard.

Partner Energy specializes in an array of energy services including audits, modeling and benchmarking.

Property Condition Assessment and Energy Audit

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Adding an Energy Audit or Energy Benchmarking to a Property Condition Assessment (PCA) can put dollars in your pocket.  A PCA gives you an indication of the current and future costs of building maintenance, but you could be missing out on many cost-savings measures. 

Energy Benchmarking is a cost-effective first step to understanding and reducing your energy consumption and carbon footprint.  Benchmarking studies a building’s current energy usage and helps determine achievable and cost-effective energy reduction goals. 

An Energy Audit is a comprehensive look at how a building consumes energy along with recommendations to reduce energy use (via no/low cost measures or capital intensive measures), costs to implement, projected cost savings and payback period.  While an Energy Audit is a more involved process and can vary in the level of detail (ASHRAE Levels 1, 2 and 3), the potential returns on investment are significant.

A building purchaser would be interested to know, for example, if a lighting system upgrade could result in a 34% internal rate of return.  Well, that’s just what one of Partner Energy’s audits uncovered.  A combination of new high-efficiency lighting and motion sensors (at a total cost of approximately $44,000) resulted in an annual energy cost savings of $14,700 and a relatively short payback period (less than 3 years).  At an 8% cap rate, the building value increased by $183,000 (over 4 times the installation cost) – certainly a sound investment!  And that did not account for potential rent increases, increases in absorption and decreases in vacancy for Green Labeled buildings.

By reducing operating expenses and increasing building value, an Energy Audit and its recommended energy efficiency measures can help building owners and purchasers achieve their energy efficiency and capital investment goals.

Property Condition Report plus Energy Audit

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Real estate investors routinely order a Property Condition Report in order to understand the condition of the asset that they are purchasing.    The Property Condition Report should illuminate any immediate repairs or deferred maintenance issues and should provide a schedule of capital replacement reserves.   But the Property Condition Report only addresses what is broken and what will need to be replaced.   What about the opportunity to save money?

An Energy Audit in conjunction with a Property Condition Report will illuminate how a building should be performing.    Often the Energy Audit will discover multiple aspects of a buildings energy management program that are suboptimal and can easily be corrected.     Energy Audit will also give the user a list of potential energy efficiency investments and will rank these investments in terms of payback period—often several opportunities with sub-3-year payback periods are indentified.

The Energy Audit and Property Condition Report go well together as they are addressing the same systems.   The Property Condition Report may schedule the replacement of a roof mounted HVAC system in year 8 of the replacement reserve as that is the end of its useful life; however, the Energy Audit may make a case for not using an old inefficient system until it fails; rather, the building owner may receive an positive return by replacing it sooner.

My company, Partner Engineering Science, and our sister company Partner Energy routinely provide these services in tandem.

Energy Audits

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Energy Audits should be a standard part of building due diligence.  When you buy a car you know its fuel effiency, why not understand the same about the commercial building that you are buying?    Commercial building energy efficency can vary widely.   Two building of similar age and construction often vary as much as $1.00 per square foot per year in energy costs. 

Of course, the cost of energy is in the operating expense, so why pay $1,000 to $3,000 for an energy audit?   What you cannot see in the operating expenses is the opportunity to reduce.   Often a poorly preforming building can be brought in-line with its peer buildings for a minimal investment and these savings contribute directly to the building’s Net Operating Income.

In California there is another reason to do it:  the results of a basic energy audits will be a required disclosure item duirng leese, sale, and financing transacitons in 2010 for non-residentail buildings per AB 1103.    AB 1103 requires that non-commercial buildings are enrolled in EPA’s portfolio manager program and that the 1 to 100 rating given by EPA Portfolio Manager is given to the prespective tenant, buyer, or lender.