One of GSA’s unique challenges is that it must adapt its leases to accommodate a vast array of laws, executive orders, federal regulations and other agencies’ policies. That’s a hard thing to do and it’s made more difficult by the fact that GSA isn’t always an active participant in the creation of these laws and regulations. More often they find themselves very nearly at the bottom of the hill, down which these edicts flow. And, at the absolute bottom of the hill are the landlords.
Such has been the case with the government’s Energy Star policy. The Energy Independence and Security Act of 2007 (EISA), included a clause which read: “…no Federal agency shall enter into a contract to lease space in a building that has not earned the Energy Star label in the most recent year.” On the face of it this appears as progressive government leadership in sustainable design, except that the law has a fatal defect: A brand new existing office building–even one with a LEED rating–isn’t qualified to receive an Energy Star label because the certification requires at least 50% occupancy for a minimum of 12 consecutive months. So, in effect, a new existing building is ineligible to lease space to federal tenants (unless no other competing buildings have an Energy Star label).
Obviously, this was an unintended consequence of the law but GSA dutifully implemented new leasing policy that it knew was flawed. Since then, the playing field for winning government leases has been set on a steep slant. Incumbent lessors (who are exempt from the Energy Star provision) have held a decided competitive advantage, generally renewing their tenants and often at inflated rents due to limited competition. Energy Star labeled buildings have reigned supreme in new lease procurements knowing that their competition is substantially diminished.
The original Energy Star policy took effect December 19, 2010 yet GSA continued working to figure out how to comply with EISA and also craft leasing policy that is rational. Last September, largely unnoticed by the real estate community, GSA introduced a revised approach that is dramatically improved. This policy has recently begun to find its way into new leases and it will qualify many more buildings to compete for federal tenants.
The primary innovation is that GSA’s new Energy Star policy no longer requires buildings to be certified if they experienced insufficient occupancy to do so in the year prior to GSA’s due date for final lease proposals. The new lease clauses merely require property owners to demonstrate that they can achieve the Energy Star label within 18 months of GSA’s occupancy, so long as their buildings conform to one of these eligibility profiles:
- Buildings that had an Energy Star label in the past but lost it due to insufficient occupancy.
- Newly built buildings that used Energy Star’s Target Finder tool and either achieved the “Designed to Earn the Energy Star” certification or received an unofficial score of 75 or higher (subject to Target Finder’s usage instructions, including energy modeling) prior to issuing GSA a final lease proposal.
- Existing buildings that demonstrate, through the use of energy modeling or past utility and occupancy data input into Energy Star’s Portfolio Manager tool or Target Finder, that they can receive an unofficial score of 75 or higher.
Is this new policy perfect? No. EISA’s explicitly stated requirements still beget awkward policy. It’s unlikely that this issue can be fully resolved without Congress amending its legislation, but we don’t count on that happening any time soon. In the meantime, landlords will need to position their buildings precisely to meet the new leasing guidelines.