Lawfully Green: New sustainable legislation impacts commercial property sector 

Over the past 15 years, several states and local municipalities have jumped on the green building bandwagon, with many of them mandating that public buildings be energy efficient. Some states and municipalities have even passed laws requiring that government buildings be built according to the U.S. Green Building Council's LEED (Leadership in Energy and Environmental Design) standards.

In October, President Bush signed the Emergency Economic Stabilization Act of 2008. Known as the "Bailout Bill," the legislation also extended a number of green-related laws. Also this year, states such as California, New York, and Virginia, along with the District of Columbia, have passed legislation that encourages green building and sustainability.

Here the Global Real Estate Monitor reviews the laws that will have the biggest impact on commercial buildings owners in the near future. While some of this legislation might be limited to specific states now, these laws lay the foundation for both the federal government and other states to enact similar legislation. 

H.R. 1424 – the Emergency Economic Stabilization Act of 2008

Designed to address the U.S. financial crisis, H.R. 1424 also includes some of the most significant federal policy ever enacted for the solar industry. The bill extends the 30 percent solar tax credit until 2016 for both commercial and solar installations. According to a new economic study by Navigant Consulting, Inc., the eight-year extension will create 440,000 permanent jobs and unleash $325 billion in private investment in the solar industry.

The bill also extends the Brownfields Tax Incentive originally passed in 1997. Under this tax incentive, which was designed to spur the cleanup and redevelopment of brownfields, environmental cleanup costs for properties in targeted areas are fully deductible business expenses in the year that costs were incurred and do not have to be capitalized.

California's Green Building Standards Code

California has adopted the Green Building Standards Code, which requires green building practices, including energy efficient measures to be implemented for all new construction in the state. It is the first state in the U.S. to approve green building standards to cut water and energy usage.

Adopted by the California Building Standards Commission, the code requires that all new construction including commercial buildings, homes, schools and hospitals reduce energy use by 15 percent, water use by 20 percent, and water for landscaping by 50 percent. The standards will take effect July 1, 2009.

Additionally, the code requires a detailed building and operation maintenance manual to be made available for all occupants moving into the facilities. In January 2011, air quality, moisture control and resource conservation standards will take effect.

Washington D.C.'s Clean and Affordable Energy Act of 2008

Earlier this year, Washington D.C. Mayor Adrian Fenty signed "The Clean and Affordable Energy Act of 2008."  For the first time in the U.S., the bill mandates annual ENERGY STAR benchmarking and disclosure for non-residential buildings starting with government buildings and later large private non-residential buildings.

Starting in 2009, all buildings over 250,000 square feet must participate. By 2013 most buildings in the District will have been phased into the program, according to size. Essentially the law requires commercial property owners to generate an Energy Star efficiency score for their buildings. That score will be made available online by the District’s Department of the Environment.

"This bill doesn't judge, it just provides information and allows building owners or prospective tenants to make a more informed decision regarding their energy usage, operating costs, and carbon performance," says Stuart Brodsky, sustainability leader for GE Real Estate's Americas’ Equity unit. "It's like walking into an auto dealership and seeing a car’s miles per gallon rating. With that information, the buyer knows which cars have higher fuel efficiency."

More than 70,000 buildings have been rated by the EPA's Energy Star tool, according to Tracy Narel, a project manager with the EPA. He contends that the EPA rankings are "a good indicator of buildings that have lower operating expenses."

Brodsky says bills that require benchmarking and disclosure of energy efficiency are market transformative for the real estate industry. They lay the groundwork for the industry to place higher values on high performance buildings. 

Experts expect more cities and states will adopt similar legislation. In fact, there are reports that New York City already has a bill pending before its city council. And, California already has a similar bill that requires Energy Star benchmarking and disclosure for any commercial building when a transaction (lease or sale) takes place. California's law requires that by next year, all utility companies make billing and energy consumption data available to building owners in a format that can be easily downloaded into the EPA's Energy Star tool. The law, as it applies to building owners, goes into effect in 2010.

California's SB 375

SB 375 is a landmark land use bill aimed at reducing greenhouse gas emissions by encouraging "smart growth". It was signed into law in September 2008 by Governor Arnold Schwarzenegger and it is expected to promote urbanization through infill development in an effort to reduce sprawl, pollution, and promote use of public transportation. The bill has been called the “holy grail” of sustainable growth, according to Todd Williams, a member of the real estate, land use and environmental practice groups at Morgan Miller Blair, a Walnut Creek, Calif.-based law firm.

Williams says the main thrust of SB 375 is to align regional housing and transportation planning. Specifically, the law requires that the regional transportation plan (the long-term blueprint of each region’s transportation system) for the state’s 17 metropolitan planning organizations must include a new "sustainable community strategy".

Under SB 375, funding preference is to be given to transportation projects that are consistent with the sustainable community strategy. And, as it relates specifically to commercial real estate, the bill requires cities to rezone certain areas near transit for residential use. That means more sites will be available for multifamily or mixed-use projects. Additionally, projects that are developed near transit may be able to avoid environmental review, Williams says.

What's ahead for 2009?

Green building and sustainability experts expect more cities and states to pass "green" legislation. And, there are signs that more federal environmental legislation is on its way.

"2009 is going to be a big year for green building legislation," says Chris Cheatham, a lawyer with Watt, Tieder, Hoffar & Fitzgerald LLP in McLean, Va. and author of the Green Building Law Update blog. "Both presidential candidates have indicated they would be more aggressive on the environmental front than previous presidents. And the Democratic Congress has said that addressing the environment, especially global warming, is important."

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