California has long been known as the leader with environmental laws. Now the state is again leading by requiring mandatory energy disclosure for nonresidential buildings with Assembly Bill 1103 and Assembly Bill 531.
The governor signed AB 1103 in 2007 which among other things requires Energy Disclosure for nonresidential buildings when they are sold, leased, or financed. The bill requires that building owners enter their buildings’ energy related data into EPA’s Portfolio Manager database and get an Energy Star rating. Building’s energy consumption is rated against similar buildings, then assigns a score from 1-100, with 100 being the best most energy efficient score. The bill originally required that energy disclosures begin in January of 2010. In October of 2009 the Gov. Schwarzenegger signed AB 531 which deleted the January 1, 2010 deadline and replaced it with a disclosure schedule developed by the California Energy Commission (CEC).
Even though the energy disclosure requirements will not hit the unprepared real estate industry in January of 2010, building owners would still be well advised to get ready for the world of energy disclosure.
In anticipation the need to disclose their buildings’ energy rating, what should real estate owners do now? Building owners should consider ordering Energy Audits or energy bench marking reports from an energy engineering company. Energy Audits can tell them not only what their energy expenditure is, but also how to lower it. Incidentally, this also solves the problem with Portfolio Manager’s operational rating system, since an energy audit is essentially asset-based and will paint a more complete picture for prospective buyers and tenants.
Let’s face it – the future is green. Being environmentally friendly is not only politically correct, it is also fiscally responsible. Despite the delay, it seems inevitable that a better building energy rating is going to become synonymous with better business.
Sunday, November 1, 2009
Probable Maximum Loss Reports for Lenders
In today’s market lenders must actively manage all type of risk to their portfolio, including seismic risk. The lender’s tool of choice of managing seismic risk is Probable Maximum Loss (PML) reports. The PML predicts the amount of damage a building will experience with the 475-year earthquake happens. The damage is expressed as a percentage of the replacement cost. Most lenders consider a 20% PML an unacceptable risk without some other sort of mitigation such as insurance.
PMLs are a tricky product for lenders and real estate investors as there is more than one way to calculate a PML. Methods employed to calculate the PMLs vary significantly. Recently, ASTM has published two standards ASTM 2026-2007 and ASTM 2557-2007 to address this issue. By following these standards a more consistent product will be delivered, but the ASTM Standards do not go far enough. ASTM 2026-2007 is very flexible—it is more or less a set of definitions and a tool box so that engineers can at least use terms consistently. ASTM 2557-2007 provides specific recommendations for lenders.
Lenders should insist that their engineers provide PML Reports transparent, understandable, and consistent with others in the standards of the financial industry. One way to achieve transparency is by requiring engineers to show the math. Giving a PML result without showing how it was derived makes conducting a peer review difficult.
The last piece of advice for lenders is to work with an engineering firm with a registered engineer. Ordering engineering report like a PML from an environmental consulting firm is generally a mistake. The practice of structural assessment and PML modeling is clearly in the domain of the engineering profession.
Probable Maximum Loss Reports are a great tool to manage your seismic risk; however, be careful with this product as PMLs are not as standardized as other due diligence products such as Phase I Environmental Site Assessments and Property Condition Assessments.
PMLs are a tricky product for lenders and real estate investors as there is more than one way to calculate a PML. Methods employed to calculate the PMLs vary significantly. Recently, ASTM has published two standards ASTM 2026-2007 and ASTM 2557-2007 to address this issue. By following these standards a more consistent product will be delivered, but the ASTM Standards do not go far enough. ASTM 2026-2007 is very flexible—it is more or less a set of definitions and a tool box so that engineers can at least use terms consistently. ASTM 2557-2007 provides specific recommendations for lenders.
Lenders should insist that their engineers provide PML Reports transparent, understandable, and consistent with others in the standards of the financial industry. One way to achieve transparency is by requiring engineers to show the math. Giving a PML result without showing how it was derived makes conducting a peer review difficult.
The last piece of advice for lenders is to work with an engineering firm with a registered engineer. Ordering engineering report like a PML from an environmental consulting firm is generally a mistake. The practice of structural assessment and PML modeling is clearly in the domain of the engineering profession.
Probable Maximum Loss Reports are a great tool to manage your seismic risk; however, be careful with this product as PMLs are not as standardized as other due diligence products such as Phase I Environmental Site Assessments and Property Condition Assessments.
Subscribe to:
Posts (Atom)