Energy Efficiency & Property Valuation
IMT’s project on Energy Efficiency and Property Valuation focuses on transforming the practices of commercial property appraisers, and by extension, of real-estate lenders who use appraised value as a basis for loan decisions. The project targets both new construction and existing buildings in the commercial sector in California and New York. It could also yield significant effects in industrial buildings and multi-family residential income properties.
By transforming appraisal practice for greater recognition of energy-related asset value, IMT intends to stimulate expanded mortgage financing for efficient commercial buildings, without requiring the creation of special new categories of loans. Enhanced value and expanded financing would be powerful new incentives for building owners and developers to pursue and maintain energy efficiency across the whole range of end uses.
New York
In 1999, IMT launched the Project on Energy Efficiency and Property Valuation in New York State. IMT’s activity in New York is being conducted under the auspices of the New York Energy $mart program of New York State Energy Research and Development Authority (NYSERDA). Funded by a charge on the electricity transmitted and distributed by most of the State's investor-owned utilities, the New York Energy $mart program includes energy-efficiency services, including those directed at the low-income sector; research and development; and environmental protection activities.
The Project on Energy Efficiency and Property Valuation seeks to develop and deliver new methods and approaches for New York appraisers and lenders to use in considering the influence of energy performance on commercial property values.
Program activity includes:
- Market assessment of energy-related property valuation practices in New York.
- Development of recommendations and guidelines for energy reporting in property appraisal in New York.
- Promotion of the adoption of proposed recommendations and guidelines by appraisal groups and lending institutions.
- Research on market preferences and actual value impacts of energy efficiency in commercial buildings in New York.
- Evaluation of benchmarking regimes for appraisers’ comparisons among properties.
- Pilot projects in valuation and lending in New York.
- Continuing-education courses on energy efficiency for appraisers in New York.
- Final program evaluation and market effects study.
California
The Project on Energy Efficiency and Property Valuation began in 1998 with extensive survey and interview research into the valuation practices of California certified general appraisers. This research revealed that appraisers routinely ignore energy performance of building features and use cursory methods to assess energy costs. Thus, they often fail to recognize energy efficiency’s positive effects on net operating income and overall value — and building transactions and mortgage decisions fail to differentiate between high-energy and low-energy buildings.
IMT then sought to address this problem by promoting appraisers’ use of enhanced systems for documenting and benchmarking energy performance. In 1999 IMT completed a set of proposed policies and technical recommendations, Recognition of Energy Costs and Energy Performance in Commercial Property Valuation.
In California, the Project on Energy Efficiency and Property Valuation has been supported by the U.S. Environmental Protection Agency and by the Pacific Gas & Electric Company (PG&E). PG&E support originated from dedicated, legislatively-mandated "public goods" funds collected from California ratepayers and administered under the California Board for Energy Efficiency.
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