USGBC Certifying Green Parking Garages Déjà Vu

Green Parking Council

Last month the U.S. Green Building Council announced that its certification body, the Green Business Certification Inc. will now administer the Green Garage Certification Program with its acquisition of the Green Parking Council.

In spite of the speculation over whether Uber means more car miles or less and what impact Zipcar and other car sharing programs will have, off street parking will still be required. Green Garage Certification will go a long way toward resolving the debate of whether off street parking can be sustainable.

Certifying green parking garages is a big deal if only because USGBC used to LEED certify parking garages and then, allowing those that saw a sustainable parking garage as oxymoronic to win out, it didn’t.  Today parking garages for cars and trucks may not pursue LEED certification. More specifically,  as of a LEED Interpretation issued on May 9, 2011, “buildings that dedicate more than 75% of floor area all square footage, to the storage and circulation of cars and/or trucks are ineligible for LEED.” This interpretation has fueled the debate, including because many saw it as disadvantaging urban projects that must provide structured parking in favor of green field development with surface parking. Additionally, the interpretation has been problematic when local laws or organizational policies require all building to be LEED certified (e.g., green bond funding for a parking garage).

So, it is positive that the Green Parking Council, an affiliate of the International Parking Institute, was the latest not for profit business acquired by GBCI.

The Green Parking Council provides “leadership and oversight for the green conversion of parking facilities to sustainable, environmentally responsible assets.” The Green Garage Certification program launched in June, 2014 is the parking industry equivalent of LEED certification.

The program was designed with the vision that “parking can be a ‘greener’ good, service, and real estate class.”  And facilities that adopt and promulgate the program can be more profitable and provide a higher level of service, advancing the industry as a whole.  The program seeks to provide and recognize best practices in the parking industry, including “to benchmark success as well as potential, measuring impacts to people, planet, and profit, so we can learn to create greater return on investment and raise the bar on garage performance.”

The program applies not only to new and proposed structures, but also to existing structures. Points are assigned to specific measures based on environmental impact. A total of 248 points are available, with Green Garage Certification achieved for new structures achieving at least 110 points with a minimum of 20 points in each of the Management, Programming, and Technology and Structure Design categories. New garages achieving 110 to 134 certification points are recognized at the Bronze Level, those demonstrating between 135 and 159 points earn the Silver distinction, and exemplary performers reaching at least 160 points are recognized as Gold Certified Garages.

Existing garages seeking certification must achieve at least 90 points with a minimum of 15 points in each of the categories.

Program details are contained within the Green Garage Certification Standard, a 195 page book available for purchase.

Applicants for Green Garage Certification are not required to use a program assessor, but there are trained assessors available.

Green Garage Certification is not LEED certification, but it is a very good thing. It might be even better if as part of this acquisition USGBC reopened the debate over the sustainable merits of structured parking and changing LEED so that parking garages may be included in the gross floor area of a LEED project building.

City of Rockville Implementing the IgCC

igcc

The City of Rockville, Maryland has adopted the International Green Construction Code 2012 as mandatory for all commercial and multi family building. But what may be most telling about this enactment is that before the change in law the USGBC listed Rockville as having more LEED projects than any U.S. city with a population below 100,000 and Rockville is in Maryland, ranked number 2 among all states for LEED building per capita.

A bit of background is also necessary because Maryland’s third largest incorporated city is substantially built out and all development is redevelopment with most new construction being interior renovation or additions to existing building. And Rockville has had a mandatory green building law in place for years that was tied to LEED, hence the large number of LEED projects, many of which were Core & Shell or Commercial Interior projects in high rise buildings.

And while some observers expressed surprise that the City with all those LEED projects opted to repeal that mandate in favor of the IgCC effective July 1, 2015, no one is surprised that with all that green building experience, the local regulation enacting the IgCC is elegant. The City has a high energy efficiency threshold, adopting the IECC 2015 at the same time as adopting the IgCC 2012 (but not the IgCC 2015 which version is not approved for use by Maryland code officials). Some suggest the shift to the IgCC was a concern over the materials credits in LEED v4.

The green building regulation applies to new commercial or multi-unit residential buildings or additions greater than 7,500 gsf, or alterations of more than 50% of gsf if the altered area is at least 7,500 gsf, as well as alterations to existing one and two family dwellings and additions.

That said, the City’s website makes clear “The City is willing to consider alternative methods of compliance, such as other rating systems or building codes, so long as they are deemed equivalent in spirit and stringency to the rating system, code or program referenced. The applicant must demonstrate equivalency to the City and develop acceptable compliance documentation.”

Each plan submittal is required to demonstrate compliance with either the IgCC (as amended by the local regulation), or ASHRAE 189.1, or the National Green Building Standard (ICC 700-2012).

Prior to building permit, the applicant must provide the information required in IgCC Appendix A (project electives), an energy report, a waste management report, an indoor air quality management plan and commissioning plan, each demonstrating compliance with the IgCC. Prior to occupancy, the applicant must provide a commissioning report and letter certifying owner receipt of building operations and maintenance documents.

These somewhat burdensome requirements for projects, most of which could be characterized as renovations, should be viewed against the backdrop that the City is located within Montgomery County, a jurisdiction that also had a mandatory LEED law on the books and is in the process of eliminating the LEED requirement in favor of its own adoption of the IgCC. Additionally, Rockville is a suburb of Washington, DC which has its own mandatory green building law in which the IgCC is an option.

That the IgCC has not been widely adopted across the country makes this switch from LEED to the IgCC all the more compelling a case study for jurisdictions desiring to be green.

Lest one think that Rockville will not continue to be LEED friendly, the City is continuing its High Performance Building Tax Credit For Existing Buildings available for existing buildings achieving LEED EB O&M. Construction will be in accordance with the IgCC and application may be made effective one year after occupancy for an EB-OM based property tax credit up to $400,000 and the City anticipates integrating the LEED Dynamic Plaque into that tax credit program when it is reauthorized.

The IgCC is new in Rockville. The City does not yet have any space delivered under the new mandatory green code. But in a market that has demanded Class A Building be LEED Gold or better, there has been little, if any, push back to the new green code. Developers and building in Rockville may be ahead of many places across America in that they realize green building can save the planet and we all can profit from it.

PACE Programs are Stepping Up the Pace

PACE

Property assessed clean energy (PACE) programs, where payments for energy efficiency, water conservation and renewable energy improvements to commercial real estate are made through a building owner’s property tax bill are beginning to hit their stride.

PACE state enabling statutes generally authorize local governments to work with private sector lenders to provide upfront low interest financing to property owners for qualified projects (e.g., HVAC system upgrades, photovoltaic systems, cool roofs, etc.), and to collect the repayment through annual assessments on the property’s real estate tax bill.  The term of PACE financing can be extended up to 20 years, often resulting in utility and other cost savings that exceed the amount of the assessment payment.

The concept is not new, but nationally, residential PACE programs generally have been put on hold or foregone as a result of concerns of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, that issued a directive in February 2011 that Fannie Mae and Freddie Mac refrain from purchasing mortgage loans secured by properties with outstanding first lien PACE obligations.

There were not similar concerns expressed about commercial loans. However, the extent to which similar concerns apply to multi family commercial mortgages does not appear to be entirely resolved, although the U.S. Department of Energy assures that the earlier expressed concerns were specific to single family home mortgage lending.

The Department of Energy says that there are active commercial PACE programs in at least 9 states and DC and enabling laws enacted or programs in development in another 23 states.

PACE offer a host of benefits depending upon the program design, including: removing the barrier of a large upfront cash outlay by the property owner; allowing 100% financing of improvements in amounts over loan value ratios available in the marketplace, including without disturbing existing mortgage financing; underwriting tied to the property and improvements and not individual creditworthiness; repayment over a long period of time (often 20 up to years); low interest rates resulting from high security of repayment; reduced utility bills that can offset the payments; the obligation to repay runs with the property and not the owner; the improved properties have an increased value, benefiting both the owner and the property taxing authority; the owner may be eligible to take advantage of federal, state and local tax incentives; under most commercial leases the PACE payment (on a property tax bill) can be passed along to the tenant avoiding the ‘split incentive’ problem; local government can facilitate the program with no direct debt obligation; and more.

Most enablng laws allow the PACE financing of any equipment, device or material intended to improve energy efficiency, including in new construction, from automated energy control systems and HVAC replacement to insulation of any wall or roof and replacement roofing or measure reducing water usage as well as any other installation or modification that is a utility cost saving measure.

In the event of a default, the liability is a property tax lien collected by the local government with the priority associated with other real property tax liens, so existing mortgage holder consent is required.

Commercial PACE programs are still very new. Despite enabling laws in 32 states, local enactments are almost always also required and then the program must be ramped up by the local governments and there are few programs actually up and running today. Early programs were financed with a pooled revenue bond or for large projects a standalone bond, but today private lenders have entered the open market. While Sonoma County was an early innovator, Connecticut has a widely admired statewide PACE program that is up and running. Maryland is more typical with a state enabling law passed in 2014, with SB 186, and local laws on the books in Montgomery County and Anne Arundel County, with at least one lender, Greenworks Lending, on board, but no PACE loans actually made yet. The Montgomery County program, hoping to close it first transaction in first quarter 2016, is among the most progressive in the nation when it makes easy for all lenders (including those brought to the table by borrowers) to participate and is not charging administrative fees (above that charged by the contracted program administrator).

There are now lenders eager to provide the upfront capital for PACE programs. The average building owner is desirous of reducing its utility bills. What is wanting is the broad regulatory framework that enables the ‘off balance sheet’ financing that is PACE lending.

PACE programs are good for the planet and good for business. There just needs to be more of them.

Nevada Stops Subsidizing Net Metering

Photovoltaic panels provide electricity at yak herder's house in Bhutan Photovoltaic panels provide electricity at yak herder's house in Bhutan

In the final days of 2015, Nevada became the front line in the nationwide debate over energy policy when the Public Utilities Commission of Nevada cut rates for net metering impacting homeowners with rooftop photovoltaic panels.

The 113 page draft order found that under existing net metering rates other ratepayers were subsidizing net metering customers (e.g., a homeowner with leased photovoltaic panels on their roof) in southern Nevada by approximately $623 per year, having the effect of increasing electricity costs for the many (including disproportionately, the poor).

The Public Utilities Commission was not acting in a vacuum, earlier in the year the Nevada legislature passed Senate Bill 374, directing the Commission to “examine rates applicable to net metering customers and to identify and eliminate any unreasonable shifts in costs from net metering customers to others customers.”

One day after the vote, on December 23 SolarCity announced that it was quitting sales and installation activities in Nevada, effective immediately. This announcement by the largest residential solar installer and lessor in the United States, and whose big banks and large corporate investors in its project finance funds that fund its leases and power purchase agreement options, are the largest beneficiaries of net metering laws across 44 states and Washington DC, might be hyperbole and an attempt at sending a message to other states contemplating similar action.

Note that this occurred in the same week that Congress extended the 30% federal investment credit for solar through 2021, which in large measure benefits the same banks and corporate investors.

And all of this is against a backdrop of more efficient and dramatically lower cost photovoltaic panels that call into question the efficacy of long term lease and power purchase agreements, in particular for homeowner rooftop installations, most of which have increasing electricity rates over time.

At its root, net energy metering is a method of measuring energy produced by a renewable energy generator when it is connected to an electric utility distribution system. Net energy metering generally utilizes the existing meter for all calculations thereby avoiding the expense and complexity of a second meter to measure incoming and outgoing energy separately. Net metering is permitted, usually by state law for solar, wind, and in some instances for biomass, micro combined heat and power, and fuel cells.

The term “net metering” actually refers only to measurement of electricity on the basis that is net of energy used and produced by an eligible customer generator during a single billing period (e.g., one month). However, in modern parlance, under net metering programs utility tariffs provide that the customer pays only for energy that is used, netted against any generation produced by the customer. The practical effect of this policy is to allow net metering customers to use the utility grid as if it were battery storage, so that excess energy produced at any given instant could be stored for later use.

The controversy is, in part, that tariffs also provide the dollar value of net excess generation is equal to the generation portion of the rate that the eligible customer-generator would have been charged by the electric company averaged over the previous 12-month period multiplied by the number of kilowatt hours of net excess generation (i.e., the retail rate versus the wholesale rate), often to incentivize roof top solar installations that count toward states self imposed renewable portfolio targets. But the retail rate is at an actual loss to the monopoly utility.

Net metering programs that exist today are a regressive income redistribution in support of a greater political goal. It is not good energy policy. It is not good environmental policy. And Nevada is not alone, Hawaii cut its net metering rate by half in October. In 2016, expect more states to roll back net metering tariffs that incentivize photovoltaic installations for the benefit of big banks and large corporate investors.

LEED Dynamic Plaque Coming to a Building Near You

Mahesh Ramanujam  and Scot Horst discuss the LEED Dynamic Plaque at Greenbuild Mahesh Ramanujam and Scot Horst discuss the LEED Dynamic Plaque at Greenbuild

With LEED Dynamic Plaques starting to appear in building lobbies it is a good time to understand this new U.S. Green Building Council platform. It is a whole lot more than a 7 lb. display unit.

While we are aware of six LEED Dynamic Plaque certifications, according to the USGBC, the Dexter Horton Building in Seattle was the first of the six buildings certified with the Dynamic Plaque. More precisely the building was LEED for Existing Buildings 2008 Gold certified in 2010 and with its five year required recertification approaching the owner determined to pursue recertification piloting the new LEED Dynamic Plaque.

The LEED Dynamic Plaque is a building performance monitoring and scoring platform.

Scot Horst, Chief Product Officer at the USGBC explains, “the LEED Dynamic Plaque changes the paradigm of green building certification by adding the dimension of performance. Now there are three broad categories of LEED: New (LEED NC, C&S, etc.), Existing (LEED EB), and Ongoing (LEED Dynamic Plaque).”

The LEED Dynamic Plaque measures building performance across five categories: energy, water, waste, transportation and human experience, and generates an ongoing performance score (out of 100) which is updated whenever new building data enters the platform.

Horst makes clear, “it is not a rating system in itself. It is designed as a recertification option. In the future an owner will be able to use the LEED Dynamic Plaque to certify when it is combined with elements of the LEED EB rating system; this approach is in development and has not yet been approved by the LEED Steering Committee.”

The LEED Dynamic Plaque does not override any other certification.  For example, a LEED NC, EB or C&S certification given in 2009 remains valid.  Rather, the LEED Dynamic Plaque keeps all these certifications up to date.  The LEED Dynamic Plaque is for all LEED projects (except not Homes) to recertify, whereas previously only EB projects were able (i.e., EB is actually required) to recertify and today, there are projects BD+C and ID+C certified and using the LEED Dynamic Plaque to gauge performance.

Accepting that smart building software is already a crowded space, the LEED Dynamic Plaque is designed to enable building owners, facilities managers, consultants and others to observe trends and make meaningful improvements to building operations that save money, resources and make building occupants more comfortable, the data collected through the Plaque can also be applied toward LEED recertification.

The platform is built with flexibility to allow high and low tech buildings to interact, from API connections for sophisticated building automation systems to a simple user interface and spreadsheet upload for a single user who doesn’t have a lot of time to spend on data.  The documentation requirements are minimal because the data is the documentation. This means lower soft costs for engaging with the platform.

The real gem of this platform is the bold statement made by public display of a LEED Dynamic Plaque. The display unit itself is only about 18 inches in diameter and weighs just under 7 lbs., but the continuous and changing display of a score engages a broader community. It lets everyone, from the boardroom to the visitor, know that their actions affect the building. There is even an app that allows an owners to share building performance information over Bluetooth with the public on their own mobile device. Put the LEED Dynamic Plaque in your pocket with the Android app or Apple app.

Admittedly it has become common to use an educational program about the LEED project to earn a point under Innovation in Design and those programs often consist of a kiosk, a website, and signage. But the LEED Dynamic Plaque is much more than that, .. ‘have you down loaded the app yet?’

Arguably any building can leverage the LEED Dynamic Plaque to measure and display its performance score. In fact there are about 70 buildings that are non LEED buildings, that did not pursue any certification that are today utilizing the performance score to ascertain areas for improvement.

At this time certification by Plaque does not satisfy the requirements for LEED certification under laws or regulatory programs, but such is likely only a matter of time. City of Rockville officials have indicated that in the next authorization of their tax credit program they will include LEED Dynamic Plaque recertification.

In addition to the Dexter Horton Building, you can see a LEED Dynamic Plaque at these buildings that recertified in recent weeks: the Alliance Center in Denver, 200 West Madison in Chicago, 53 State Street in Boston, and Maitland Promenade I in Maitland, Florida.

With 385 projects, comprising 107,300,000 sq. ft. (including subscriptions and strategic trials) using the LEED Dynamic Plaque software, you should consider subscribing to the Plaque platform because, no doubt, a Plaque will soon be tracking ongoing performance in a building near you.

LEED v4 Costs Demystified

The Cost of LEED v4 Building in Case Study The Cost of LEED v4 Building in Case Study

With the November 1, 2016 deadline approaching when new LEED projects must register under the new LEED version 4, the real estate industry has been uncertain about the first costs and benefits of LEED v4 building.

The uncertainty has been fermenting since the summer of 2102 when the vote on “LEED 2012” (now called LEED v4) was first delayed. And concern has only accelerated since November 2013 when projects have had the option of registering under LEED v2009 or LEED v4 because so few projects have opted for v4. Even today, there are only a very few new buildings actually v4 certified, so there is not much experience with v4 in the environmental industrial complex.

But a new authoritative report allays those concerns and much more, ..

The good folks at BuildingGreen, Inc., who among other valuable resources publish LEEDuser, have just published a report, The Cost of LEED v4. Not only does the report include a case study comparing the cost of LEED v2009 and LEED v4 on an actually constructed building, but it may be most useful in its credit by credit strategy for achieving each credit, which include costs.

But let’s not bury the lead, the case study was a 47,777 sq. ft. build-to-suit, ground up, slab-on-grade, four-story medical office building located in Massachusetts, constructed with union labor in a jurisdiction that mandates LEED certification or equivalent. The project construction cost was about $15,600,000 or $326.50 per sq. ft. The building was actually Gold certified under LEED for New Construction v2009 in 2013, with a total of 67 points. The case study is a riveting read .. admittedly it is not a Tom Clancy thriller, but is technically detailed like his military science storylines. And you will be enthralled by the denouement,

“it would take this LEED v2009 Gold building an additional $9,000 to achieve LEED certification in v4, which is 0.05% of the total original cost. To match its LEED v2009 Gold certification with a LEED v4 Gold plaque, the project would incur an extra cost of $78,400. With the addition of the $9,000 for LEED v4, this amounts to 0.533% of the original total cost.”

And while I have told you how the case study ends, that really is not a spoiler because it is just the climax of a chain of events and you will want to read the narrative as LEED credits are explained, including fascinating synergies among select credits that impact first costs and more.

I had an opportunity to talk with my friend, Tristan Roberts, one of the authors and he was excited about the elegance of the new v4 IPc1 Integrative Process credit and while there are likely soft costs for the new credit including for updated energy model requirements, there are potentially huge project wide saving that can be realized from this process.

Tristan was also high on teams pursuing the new SSc1 Site Assessment credit that carries “no added construction costs” and identifies strategies that lead to the efficacy of a green building project.

And Tristan admitted he “didn’t know much about demand response” before studying the new EAc4 Demand Response credit that for most new construction only results in very nominal costs, if any, for software programming in the building management system, but yields real energy savings.

The report allays our concerns and we now know you can deliver a LEED v4 certified building at minimal additional cost.

For readers of this blog, The Cost of LEED v4 is available for purchase, for a limited time, at a 20% discount. And it may only be a slight overstatement to observe, much as The Hunt for Red October captured the reality of life aboard a nuclear submarine, this report presents a very nuanced tour of a LEED v4 green building project.

GRESB is Huge with $2.3 Trillion in Real Estate so Follow the Money

GRESB at Greenbuild 2015 GRESB at Greenbuild 2015

Representing a huge share of the market capitalization of real estate across the globe, this year, 707 real estate companies and funds, with over 61,000 properties, having an aggregate value of $2.3 Trillion reported their environmental, social and governance information to Global Real Estate Sustainability Benchmark (GRESB).

To appreciate the order of magnitude of those numbers, 15 of the top 20 REITs in the U.S. participated in the GRESB 2015 survey, and 41 U.S. REITs in total participated.

And participation the 5 year old GRESB is growing. The value of the property companies and funds reporting to GRESB was $1.6 Trillion in 2013, $2.1 Trillion in 2014 and $2.3 Trillion this year. The total number of participating property companies and funds increased to 707 this year, a net increase of 11% over 2014.

A relative newcomer, the GRESB real estate assessment is becoming recognized as the global standard for portfolio level sustainability reporting in the real estate sector. While many track sustainability at the building by building asset level, GRESB is a portfolio of buildings assessment. Simply put, GRESB captures more than 50 data points of environmental and social performance business practices for each real estate company or fund, providing investors with a tool to enable evaluation and industry benchmarking of the sustainability performance of a real estate portfolio.

As Dan Winters, Head of North America for GRESB, describes, “Companies who track the energy, water, and waste data within their asset holdings, who have engaged with rating systems like LEED over the years, and who exhibit strong internal governance practices tend to do very well on GRESB, and more easily differentiate from their peers.”

And it is even bigger than that, as key findings from a new study by the University of Cambridge include “a higher sustainability ranking of REITs in the annual GRESB Survey correlates to superior financial performance.”

More than 50 institutional investors report they currently use GRESB data in their investment decision and engagement process. Banks are beginning to use GRESB data in real estate lending. It is clear that the finance industry is embracing green building.

The outcomes of the GRESB Survey are reflected in a GRESB Score, as well as sub-scores for Management & Policy (30% weight) and Implementation & Measurement (70% weight). In 2015, the performance of companies and funds reporting to GRESB increased quite significantly, with the average GRESB Score now at 56, as compared to 47 in 2014. The average Management & Policy Score increased from 54 to 63, and the average Implementation & Measurement Score increased from 43 to 52.

North American entities represent 42% of GRESB global participation by gross asset value and 34% by floor area. GRESB participants are an impressive list across 6 continents.

GRESB B.V. is a private limited company incorporated in the Netherlands. Today GRESB is a wholly owned subsidiary of Green Business Certification Inc., the District of Columbia nonprofit associated with the U.S. Green Building Council. GRESB is directed by input from its Advisory Board and its regional Benchmark Committees. GRESB was cofounded in 2009 by Nils Kok, a thought leader connecting real estate finance with environmental economics, and as its CEO based in Amsterdam remains actively involved in day to day affairs.

Based in Washington DC, Chris Pyke is the connection to GBCI and is responsible for developing GRESB’s overall business strategy, including the development of products and services. Also part of the GBCI contribution is Dan Winters, head of North America for GRESB and responsible for investor engagement and new product deployment across GRESB’s multiple platforms.

GRESB is continuing the grow including that it has announced a new Infrastructure Benchmark that offers investors an assessment tool to enable systematic evaluation and industry benchmarking of the sustainability performance of infrastructure.

This law firm is among the new cottage industry that have assisted real estate companies with their GRESB survey data.

Accepting that real estate portfolios are a source of challenges and solutions to the complex environmental, social and governance issues of the day, GRESB tracks the opportunities to create value in green building.

Congress Breathes New Life into 179D Tax Deduction

179d

Last week the 114th Congress passed the Consolidated Appropriations Act, 2016 and the Protecting Americans from Tax Hikes Act of 2015 when the Senate passed H.R. 2029 by a vote of 65 to 33. On December 18, 2015 President Obama signed the acts into law that will extend over 50 expired or expiring provisions of the tax code.

This blog post is not going to address the tax breaks for horse racing, Puerto Rican rum makers, NASCAR, or film productions, or for that matter most of the content of the 887 pages of the tax bill. Rather, for those interested in green building, this post will discuss the 179D energy efficient commercial building deduction that was to expire on December 31, 2014.

On page 834 of 887 pages, H.R. 2029 provides,

SEC. 190. EXTENSION OF ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

(a) IN GENERAL.—Section 179D(h) is amended by striking ‘‘December 31, 2014’’ and inserting ‘‘December 31, 2016’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to property placed in service after December 31, 2014.

It is significant that this tax deduction was extended for 2 years through December 31, 2016 and retroactively for 2015. This now allows tax planning utilizing this deduction. Last year planning was not possible because the 2014 tax extender bill expired 14 days after it was enacted on December 31, 2014, and, as such was only applicable to the 2014 tax year. The 179D tax deduction had previously expired at the end of 2013.

Using the 179D deduction, building owners and tenants who make expenditures to cause new or renovated commercial buildings to be more energy efficient and designers of qualifying government buildings will again be eligible for a significant Federal tax deduction, an immediate one time depreciation deduction of up to $1.80 per square foot.

Also significant, the bill alters and creates a higher threshold to qualify for the deduction, when it provides,

SEC. 341. UPDATED ASHRAE STANDARDS FOR ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

(a) IN GENERAL.—Paragraph (1) of section 179D(c) is amended by striking ‘‘Standard 90.1–2001’’ each place it appears and inserting ‘‘Standard 90.1–2007’’. …

(c) EFFECTIVE DATE.—The amendments made by this subsection shall apply to property placed in service after December 31, 2015.

The year 2007 standard is significantly more rigorous but meeting that standard will not be a high bar in states where the 2015 IECC is the adopted energy code. And with the LEED 2009 prerequisite of a 10% improvement in the proposed building performance rating for a new building compared with the baseline of that same ASHRAE Standard 90.1-2007, many if not most LEED 2009 certified buildings will still be eligible for this tax deduction even with the heightened standard.

The Section 179 provisions permanently extend the small business expensing limitation and phase-out amounts in effect from 2010 to 2014; and sets a new threshold at $500,000 and $2 million, respectively, from the current amounts of $25,000 and $200,000, respectively.

Also extended for 2 years by the bill are the $500 credit for the purchase of certain non-business energy efficient property and the up to a $2,000 credit available to the manufacturer of energy efficient homes, both of which advantage green building.

And while beyond the scope of most green building projects, there are other energy efficiency provisions in the bill including an extension of the phase out the wind production tax credit until 2020, as well as extending and phasing down the solar investment tax credit until 2022. Other energy technologies such as geothermal, biomass, landfill gas, incremental hydroelectric, and ocean energy projects will continue to qualify for the Production Tax Credit, but must start construction by December 2016.

Congress has greatly advantaged green building by extended the 179D deduction for 2 years. If we can assist you in planning to use the energy efficient commercial building deduction do not hesitate to give me a call.

Lawsuit over First LEED Platinum Building is Over

Image David Harp/ Chesapeake Bay Foundation Image David Harp/ Chesapeake Bay Foundation

With an Order Of Judgment, in favor of Permapost Products Company against Weyerhaeuser Company filed on November 17, 2015, resolving the final third party claims, the more than 15 year old disputes and differences over the construction of the Chesapeake Bay Foundation’s Philip Merrill Environmental Center, in Annapolis, Maryland, are over.

There is much to learn from this case involving the first ever LEED Platinum building.

I wrote an earlier bog post, Litigation over First LEED Platinum Building Comes to an End, when on July 23, 2015, parties in the lawsuit The Chesapeake Bay Foundation, Inc., et al v. Weyerhaeuser Company, et al, pending in the U.S. District Court for Maryland, filed a Stipulation of Dismissal with Prejudice following a confidential Settlement Agreement and Mutual Release. Because the settlement was confidential we did not know precisely how the case resolved. But Weyerhaeuser’s third party action against Permapost was unaffected by the dismissal and was just tried to verdict.

In the spirit of Paul Harvey’s “The Rest of the Story” radio program, the key players in this case were: Chesapeake Bay Foundation was the owner of the project. SmithGroup was the architect and responsibility for design. Clark Construction was the general contractor.  Weyerhaeuser was the subcontractor that supplied Parallams to Clark Construction for both interior and exterior use. Permapost had a subcontract to apply pressure-treated PolyClear 2000 preservative to the Parallams.

Parallams are a fabricated wood product made by gluing strands of second-growth trees together to form a larger and stronger engineered wood product.

One of SmithGroup’s design elements for the project was the use of external Parallams. SmithGroup approved PolyClear 2000 as the preservative for the Parallams. Permapost treated the Parallams with PolyClear 2000, beginning in March of 2000, however, Permapost did not properly treat the Parallams to “refusal” as required.

Five years later, the Chesapeake Bay Foundation discovered that various exterior Parallams suffered from deterioration.  And subsequently, the Foundation demanded that SmithGroup and Clark remedy the rot and deterioration by removing and replacing all of the exposed Parallams.

Clark asserted that it had costs to remediate the building in the amount of $3,115,793.

In September 2014, the Chesapeake Bay Foundation, SmithGroup, and Clark asserted total damages suing Weyerhaeuser and others in the amount of $9,687,816 arising from the damaged Parallams in the project.

The Chesapeake Bay Foundation, Clark, and SmithGroup completed the remediation of the building.  And in June 2015, plaintiffs and Weyerhaeuser settled their claims against one another for payment to the plaintiffs in an amount which has been testified to in this case and, therefore, is no longer confidential, $3 million, which has been paid to date, and an additional $500,000 to be paid at a later date.

In a telling quote from the Honorable Paul W. Grimm’s oral findings from the bench, after determining there were “design defects which exposed the end of each and every exterior use Parallam in that entire project” because they were cut and had holes drilled in them after being treated, “I find, given, one, the inappropriate use of Parallams as structural support without proper weather protection, plus I find that the specification by the architect based upon the recommendation of Weyerhaeuser and Osmose, but not Permapost, .. PolyClear 2000 was an inappropriate preservative for the conditions of the Chesapeake Bay Foundation.”

The court concluded, “these beams would have failed if the PolyClear 2000 had been properly applied a year or two later, they would have failed well before they got around to doing any remedial measures at all.” The judge said, “I find as a matter of law that causation has not been established.  They have not shown that the breach of contract .. that what Permapost did caused the damages that led to the replacement.” Whereupon the court denied the Weyerhaeuser third party claims entering “judgment in favor of Permapost on all counts.”

And now you know the rest of the story.

At its core this was a case arising from an improperly specified material. The case instructs there is no more liability arising from green building versus other construction, but that the liability is different.

It should give architects pause, now more than ever, that specifying new or untried materials and products (that are often the keystone of sustainable building) comes with unique risks; and in this case PolyClear 2000 was specified even before the emerging era of expanded liability arising from environmental product declarations and health product declarations.

Montgomery County to Abandon LEED Mandating IgCC for All Building

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Montgomery County, Maryland has proposed adopting the International Green Construction Code 2012.

At first blush this might sound like a good thing, until one considers that Montgomery County has long had mandatory green building laws for public and private construction, and the County today also offers significant incentives for green building.

Many hundreds of LEED projects have been registered in Montgomery County, putting the county near the very top of the list for green construction in the U.S. by county and within the County, Bethesda and Rockville top of the list for municipalities of less than 100,000 people across the country.

The ramifications have national import. Montgomery County is not only the most populous county in Maryland, it is one of the most environmentally progressive jurisdictions in the nation. It has also been ranked by Forbes as the 10th richest in the United States and accordingly first construction costs do not have major economic implications. Politically, the County is heavily Democrat with a Democrat County Executive and County Council. Observers are noting, if this anti-LEED sentiment can manifest it itself here it can happen anywhere.

Today local law requires any newly constructed building or extensively modified (non-residential) building or multi-family residential or mixed use building that is taller than 4 stories that has or will have at least 10,000 square feet “must achieve a Certified level in the appropriate LEED rating system.” The County also offers a real property tax credit in varying amount (10-75%) and term (3-5 years) based on the type project and the rating it achieves above the minimum Certified level.

The City of Gaithersburg, within Montgomery County, has adopted amendments to their building code that requires increased energy and water efficiency requirements that drive building to LEED Gold and better. As a practical matter, throughout the County the market now requires Class A office building be LEED Gold if not Platinum.

But all of that will be repealed and the existing LEED building requirements will be abolished. All new building, public and private, will instead have to comply with the IgCC 2012 or ASHRAE 189.1, the alternative compliance path built into the green code.

Proposed as Executive Regulation #21-15, by a notice published in the Montgomery County Register on December 1, 2015, the green building code will cover all new buildings and additions 5,000 square feet and larger. Single family detached and townhomes are not proposed to be included. Unless “disapproved” by the County Council, the effective date will be April 4, 2016.

Note, that Montgomery County is not adopting the 2015 International Green Construction Code.  While the IgCC 2015 was approved last year, that current code is not approved for use by the Maryland Department of Housing and Community Development which requires each jurisdiction in Maryland use the same edition of the same building codes. It is significant that effective July 1, 2015 all building in Montgomery County must comply with the International Energy Conservation Code 2015, with its energy consumption reduction requirements and many of those now existing requirements ameliorate the impacts of the proposed (3 year out of date) IgCC 2012.

After more than a year of seeking public comment, including studying the costs of implementation of this new code, County staff is proposing a modest number of amendments to the form IgCC. Most are being positively received and if there is a criticism, it is that they do not go far enough when many of elements of the code are being moved to appendix A and made optional. It is also suggested that requiring diversion of 50% of demolition debris and diversion of 75% on construction debris is below what the market does today.

The enactment attempts to correct some of the industry bias in the form IgCC when, in pursuit of heat island effect mitigation, Montgomery County reduces the IgCC mandated heat island mitigation “for not less than 50% of site hardscape” to “less than 40%”. The State of Maryland which approved the IgCC for use on Maryland capital budget funded projects (that includes Montgomery County public schools) reduced that percentage to 30% and Baltimore City addressed the flaw by permitting the use of “porous asphalt pavement” in addition to pervious concrete. It is suggested that Code officials have not been bold enough with the proposed amendments.

As progressive as this bill is, Montgomery County is one of a very limited number of jurisdictions mandating new construction and renovation of both private and public buildings must be green. The City of Rockville, within Montgomery County, adopted mandatory use of the IgCC effective July 1, 2015. And the County will join Rockville as the only jurisdictions requiring all building comply with the IgCC or ASHRAE 189.1, without alternatives. While Baltimore and DC have similar mandatory IgCC laws, they additionally permit alternative compliance paths, like LEED Silver certification, compliance with ICC 700, and Enterprise Green Communities verification. Recognizing that today Montgomery County requires use of LEED, but under the proposal will in the near future only allow use of the IgCC will be controversial.

It is worthy of note that a relatively few jurisdictions have adopted the IgCC with only a handful of IgCC new construction projects having been completed. Not a single IgCC building has yet to be constructed in the City of Rockville, nor under the State of Maryland or Baltimore City IgCC regulatory schemes (i.e., instead each of those two regulations allow alternative compliance paths and most, if not nearly all new construction is opting for LEED). And there are no completed 189.1 buildings, anywhere. Some are suggesting with this use of the IgCC Montgomery County is on the bubble.

A public hearing on proposed Executive Regulation #21-15 is scheduled for Thursday, December 17, 2015 at 1:30 p.m. in Rockville. Comments may also be submitted until January 14, 2016 as indicated in the Montgomery County Register. But it is the County Council that has the authority to halt this regulation.

We work with property owners and builders across the country, including to evaluate the impact of alternatives for green building, like the IgCC, now required of nearly all construction and renovation in Montgomery County. If we might assist you in evaluating green building, do not hesitate to give Stuart a call at 410-339-3910.

This blog post was updated to include information provided at the December 17, 2015 public hearing.

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