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ASTM’s Incorporation of Building Energy Performance into Commercial Property Due Diligence

An Interview with Mike Eardley, Director of Energy and Sustainability at EBI Consulting

 

High-Profile: What is ASTM E-3224 (BEPIE)?

Mike Eardley: Similar to ASTM E-2018, ASTM E-3224 is an industry guide on baseline standards for conducting property condition assessments. But unlike E-2018, the new ASTM E-3224 is only focused on energy performance and improvement.

E-3224, Building Energy Performance and Improvement Evaluation (BEPIE), provides a blueprint to determine how a building’s energy performance compares to similar buildings.

The new standard also helps identify the actions and costs necessary to improve energy performance to at least be comparable to market norms.

HP: How does ASTM E-3224 (BEPIE) affect lenders?

ME: There are four major ways E-3224 could bring tremendous value to lenders:

1. Improvement of Collateral Value: Energy savings can help reduce a substantial portion of a building’s operating expense, turning a building with energy-saving measures into a more attractive and valuable asset for both buyers and tenants.

2. Reducing Default Risk: Energy efficient buildings have lower energy costs, which can increase
cash flow. This helps improve the affordability of loans or mortgages, and reduce risk of default.

3. Reducing Obsolescence Risk: A building that consumes large amounts of energy wrestles with higher operating costs, and could be vulnerable to local laws on efficient energy consumption, fines, and reduced competitiveness in the marketplace. As an underperforming building, it is at
a much higher risk of obsolescence.

4. Reducing Repayment Risk: A borrower who invests in energy benchmarking usually holds investments of comparative higher value, with higher net operating incomes, and tends to experience lower default rates.

All of these positives contribute to a reduced repayment risk.

HP: How does ASTM E-3224 (BEPIE) affect property owners and investors?

ME: On the buyer side, a growing number of states and municipalities now have building energy
disclosure requirements and some even impose heavy fines on energy under-performers, with penalties expected to rise substantially in the coming years. Investing in energy efficient buildings positions the buyer to achieve a higher net operating income from the property and maintain a competitive position in the marketplace.

On the seller side, maintaining a building to BEPIE standards will not only be cost-saving in the period of property ownership, but also useful as a negotiation leverage tool and for price positioning at time of sale.

HP: How will property condition assessments change with the arrival of ASTM E-3224 (BEPIE)?

ME: Most of the information needed for the BEPIE is already collected as part of the property condition assessment. The BEPIE is designed to be an adjunct to the property condition assessment, with the goal of determining whether a building is underperforming compared to its peers, and if so, identify the cost of potential measures to improve energy performance to at least achieve parity with peers. ASTM E-3224 calls for these simple steps:

  • Collecting building and energy-consuming equipment information, including whole building
    energy consumption
  • Weather-normalizing the building’s energy consumption
  • Benchmarking the building’s energy consumption by comparing it to the energy consumption of
    peer buildings in the same geographic area and climate zone
  • Determining if the building’s energy consumption meets, is greater than (underperforming),
    or is less than the energy consumption of peer buildings

And it utilizes most of the same information already collected in the standard PCA:

  • Building description information (use, size, age, etc.)
  • Description of major building components impacting energy use, such as lighting, space heating, DHW heating, air conditioning, ventilation, windows, renewable energy systems
  • Remaining useful life of building components to identify those near, at, or beyond their useful life (to develop probable replacement cost)

HP: Who is qualified to conduct an ASTM E-3224 building energy evaluation?

ME: As commercial real estate owners, investors, and lenders gain valuable insight to potential impacts and risks associated with a building’s energy performance, it becomes increasingly likely they will request that due diligence consultants incorporate the ASTM E3224 BEPIE.

 

 

 

Mike Eardley

Mike Eardley has more than 20 years of experience in energy consulting, commissioning, and mechanical engineering.