Roundtable Weekly - July 19, 2019

ENERGY STAR - Energy, Climate and Immigration

EPA Releases Updated ENERGY STAR Scoring Model for Office, Retail, and Other Properties

The U.S. Environmental Protection Agency (EPA) on July 15 released highly anticipated updates to its ENERGY STAR scoring model – a key federal label that rates and compares U.S. buildings' energy performance. The scoring update includes changes advocated by The Real Estate Roundtable and other real estate organizations. 

EPA on July 17 released a 23-page presentation –  Update on the ENERGY STAR Office Model for U.S. Properties .

  • ENERGY STAR is a widely recognized, national label used as a market signal for well-managed property assets with smaller carbon footprints.  The label impacts nearly 35,000 buildings and plants nationwide, representing more than 5 billion square feet of commercial space. ( ENERGY STAR "Facts and Stats ")   
  • In a significant improvement affecting office and other property types, EPA will reintroduce a heating degree day (HDD) adjustment into the scoring process.  Including HDD in ENERGY STAR equations will result in more equitable ratings for properties in all climates.  As a result, some office buildings in colder climates will see score increases – and buildings in warmer locations will not see score decreases.  (Analysis and Key Findings from EPA's Review of the ENERGY STAR Score Model for Office Properties, July 15) 
  • Last August, EPA announced the first updates to its ENERGY STAR office rating model in over a decade.  Initial analyses by The Roundtable's Sustainability Policy Advisory Committee (SPAC) indicated that EPA's equations at that time produced arbitrary scoring results.  In particular, a SPAC working group initially identified and then advocated for the result ultimately announced by EPA this week – to include the HDD scoring adjustment.  
  • Since last September, EPA has suspended certifications for office, warehouse and other property types during a "study period" to assess its scoring models with stakeholder groups.  (Roundtable Weekly, Sept. 14) 
  • The Real Estate Roundtable sent a summary of   recommended changes to EPA on Nov. 26, urging revisions to the scoring model so that buildings of all sizes located in varying climate zones across the country are rated fairly.  (Roundtable Weekly, Nov. 30)

    The Roundtable's Sustainability Policy Advisory Committee (SPAC) is led by its Chairman, Anthony E. Malkin (Empire State Realty Trust), left, and Vice Chair Daniel Egan (Vornado Realty Trust)

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  • "The Roundtable's constructive engagement with the EPA over the last 10 months has resulted in a better outcome on an issue with massive national implications for our industry," said Anthony E. Malkin, Chairman and CEO of Empire State Realty Trust, and Chairman of The Roundtable's Sustainability Policy Advisory Committee (SPAC).  "We commend EPA for acting on our feedback and their transparency and candor, which led to an improved set of ENERGY STAR scoring models.  In particular, the agency took the corrective action to account fully for climate variations so that all types of commercial buildings – no matter where they are located, in hot or cold temperature zones – are on a level playing field as owners respond to investor, tenant, and other market demands to attain ENERGY STAR ratings for their assets."
  • On July 17, EPA released a 23-page presentation –  Update on the ENERGY STAR Office Model for U.S. Properties   
  • On July 22, updated office property scores will be live in EPA's Portfolio Manager, an online tool used to measure and track energy and water consumption, as well as greenhouse gas emissions.  EPA advises stakeholders to download their current scores before July 21, as Portfolio Manager will be unavailable that day to allow for the release of the updated score model.  
  • On July 31, EPA will reinstate ENERGY STAR certification for office buildings, after its suspension since last September. (EPA's ENERGY STAR resources)

Malkin also noted, "The Roundtable's work with EPA is far from finished. We are in the midst of active engagement to ensure that federal-level building energy data, on which ENERGY STAR is based, is robust and reliable; that EPA continues its recognition programs for tenants to label high-performance leased spaces; and that the EPA provides critically important federal guidance to help synchronize emerging state and local mandates that address buildings and climate change.  The ENERGY STAR whole-building rating program is now back on track, providing The Roundtable with the policy foundation we need to pursue other important objectives on SPAC's agenda."  

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Energy Efficiency Legislation - Portman-Shaheen

Senators Portman, Shaheen, Reintroduce Energy Efficiency Bill

A bipartisan bill reintroduced July 17 by Sens. Rob Portman (R-OH) and Jeanne Shaheen (D-NH) includes provisions to advance energy efficiency standards for U.S. real estate by fostering market incentives, data-driven research, and open government procedures.  

Roundtable President and CEO Jeffrey D. DeBoer, left, with Sens. Rob Portman (R-OH) and Susan Collins (R-ME) at a press conference to support the Energy Savings and Industrial Competitiveness (ESIC) Act.
  (  Video of DeBoer's statement and  the entire press event)

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  • Roundtable President and CEO Jeffrey D. DeBoer joined other industry and environmental group leaders at a press conference Wednesday in the Senate to support the Energy Savings and Industrial Competitiveness (ESIC) Act.  (Video of DeBoer's statement and entire press event)
  • The ESIC Act is a revived version of comprehensive energy efficiency legislation introduced in prior sessions of Congress. (Bill summaryand  text.)  
  • The Real Estate Roundtable has long endorsed the ESIC Act.  The bill contains no mandatory federal building or climate-related regulations.  It aims to improve energy efficiency across U.S. buildings by:  

    • Importing new economic, cost, and small business impact considerations into the process by which the U.S. Department of Energy ("DOE") proposes revisions to "model" building energy codes, that state and local bodies may ultimately adopt; 
    • Providing stakeholders with opportunities to comment on code revisions suggested by DOE – to correct the currently closed process by which federal code proposals are developed without industry input;  
    • Clarifying standards for real estate appraisers and banks to consider energy efficiency capital investments when determining an asset's market value; and
    • Creating a voluntary program that can lead to lower interest rates and greater qualifications for buyers seeking mortgages on new energy efficient homes.
            
  • The Portman-Shaheen bill also includes new Section 103 , strongly supported by The Roundtable.  This provision would require coordination by federal agencies to gather and report higher quality data on energy consumed by U.S. buildings, through the nationwide Commercial Building Energy Consumption Survey (CBECS).   Data from CBECS provides the underpinning for EPA's ENERGY STAR scores.  (See Roundtable Weekly  energy policy story above)
  • In a July 18 Senate news release , 15 business and energy efficiency sector leaders expressed support for the latest Portman-Shaheen bill – including DeBoer and Henry H. Chamberlain, President and CEO, Building Owners and Managers Association (BOMA) International.
  • DeBoer stated in the Senate news release, "The [ESIC Act] is exactly the kind of smart, forward-looking policy that will help building owners respond to our modern, evolving economy.  The needs of business tenants have changed dramatically since the turn of the century to power the data centers, IT, and communications systems upon which our workforce depends.  Building owners are meeting their tenants' 24/7 energy demands while constructing and managing their assets more efficiently – and reducing their carbon footprints."
  • During the July 17 news conference, Sen. Portman added that the bill would save consumers $13 billion a year – the equivalent in emissions savings of taking 11 million cars off the road within 15 years. (Video of press event, July 17)

In a positive sign, a swath of energy efficiency bills are moving through both the Senate and House, indicating that energy policy could pass in a divided Congress.  ( The Washington Examiner , July 18) 

 
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Current Expected Credit Losses (CECL) Accounting Standard

CECL Accounting Standard Implementation Delayed for Certain Lenders

The Financial Accounting Standards Board (FASB) on Wednesday passed a proposal that would give more time to smaller lending institutions to adopt the Current Expected Credit Losses (CECL) accounting standard, which forces lenders to book losses on bad loans much faster. ( ABA Banking Journal , July 17)

FASB Chairman Russell Golden stated, "Additional time would give the stakeholders more ability to learn from larger lenders, more ability to have resource providers available, and more ability to look at best practices for disclosures and controls."  

  • The delay would set January 2023 as the new deadline for small public lenders, private lenders and nonprofits (such as credit unions) to implement CECL.  (Credit Union National Association, July 17) 
  • CECL would still take effect for publicly traded U.S. banks beginning in January 2020.  The regulatory change in how banks estimate losses in their allowance for loan and lease losses (ALLL) will require substantial changes in data analytics and financial methodologies. 
  • FASB Chairman Russell Golden stated, "Additional time would give the stakeholders more ability to learn from larger lenders, more ability to have resource providers available, and more ability to look at best practices for disclosures and controls." (Wall Street Journal, July 17) 
  • FASB is expected to release the proposed accounting standard changes in August, subject to a 30-day comment period.  
  • For real estate, there is concern that banks may reduce lending volumes as they build up additional capital reserves to be in compliance with CECL.   A business coalition that included The Real Estate Roundtable wrote to the U.S. Securities and Exchange Commission (SEC) and FASB in March, urging further study amid concerns that CECL may soon begin to reduce aggregate bank lending.  (Coalition Letter, March 5 and Roundtable Weekly, March 8) 
  • Congressional legislation to delay CECL's implementation was introduced in the Senate on May 21 by Sen. Thom Tillis (R-N.C.) and in the House on June 10, led by Rep. Vicente Gonzalez (D-TX). (S&P Global Intelligence, June 11) 
  • This week, FASB posted a Q&A document addressing various CECL implementation issues, including how to make a "reasonable and supportable" forecast of expected loan losses.  FASB also plans a series of CECL educational workshops throughout the country.  (FASB Advisory, July 17) 
  • The CECL accounting rule change was issued in June 2016 by FASB as a result of the 2008 financial crisis.  (FASBCredit Losses)  

The Roundtable's Real Estate Capital Policy Advisory Committee (RECPAC) will continue to address the potential impact of the new accounting standard and work with the CECL business coalition on implementation issues. 

 

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