SUSTAINABILITY FELLOWSHIP DELIVERS KEY INSIGHTS INTO TENANT ENERGY EFFICIENCY
You might have read on our blog this summer about Kimco’s participation in the Environmental Defense Fund’s (EDF) Climate Corps program. Climate Corps places top-tier graduate students into large organizations to make the business case for energy efficiency. This summer, Linus Ik-Pyo Hong, a graduate student at Columbia University, joined Kimco’s Sustainability Team. He led an internal effort to explore the potential for tenant energy efficiency improvements, in support of a partnership Kimco launched earlier this year with Pacific Gas & Electric at Westlake Shopping Center in Daly City, Calif.
His fellowship ended recently, and we talked to him about what he discovered about energy consumption at Westlake, as well as his recommendations for how to overcome barriers to greater energy efficiency at open-air shopping centers overall.
Now that your fellowship has come to a close, what have you completed exactly?
During the 10-week fellowship, I helped Kimco identify the types of energy retrofits and other conservation measures that could be implemented today in our building interiors versus common areas. I reviewed lease documents from a variety of different tenant segments and abstracted 30 key data points related to who (landlord or tenant) is currently responsible for actions and associated costs related to equipment maintenance, replacement, metering, utility consumption, and other areas.
Additionally, I created a multi-year financial model for analyzing energy efficiency investments, incorporating costs, projected energy savings, financing considerations, and other factors such as cost recoverability. I also analyzed seven separate models for financing and pursuing projects, including many of the popular third-party energy efficiency financing models being discussed by owners and policy makers nationally (e.g. Energy Service Agreements, Property Assessed Clean Energy Finance, etc.) These deliverables will set the foundation for Kimco in driving its energy efficiency efforts across its entire portfolio.
You’ve helped develop a set of recommendations to present to Kimco’s management and other project stakeholders. What can you tell us about those recommendations and guidelines?
Based on the analysis of both Kimco and its tenants, I identified short-term and long-term recommendations. In the short term, there are energy efficiency initiatives that are viable in the common area and within certain “gross lease” office areas. In the longer term, I provided recommendations for specific provisions within traditional “triple net” leases that could be modified to increase the likelihood that Kimco and its tenants could overcome “split incentive” barriers and implement successful energy efficiency projects in the building interiors.
Beyond these recommendations, it’s clear that improving the way that energy is utilized within shopping centers requires better access to information -- by both landlords and tenants. Sharing of information by tenants with landlords, as mandated by many recently passed building energy benchmarking and disclosure laws, and sub-metering of master meters by landlords to provide better information and motivation to tenants for conservation, are two trends that can aid in improving information access.
What is the most important information you need to know to develop an energy efficiency project that meets financial and operational goals? What role do tenants play in providing any information?
Actual energy savings depends on the baseline of energy consumption that was established during the pre-installation phase of a retrofit. Setting a baseline accurately and reasonably will provide confidence to all stakeholders involved in an energy retrofit that improvements are delivering projected results as-advertised. This is especially important in so-called “avoided cost” situations, where there is a need to demonstrate that post-project energy costs would have been higher if the project had not been implemented. Tenants can play an important role in making these projects successful by providing access to energy use and cost data.
What metrics should institutional investors and retailers use to gauge the fortitude of a landlord’s corporate responsibility program?
It is not always easy to grasp the extent of a company’s commitment to corporate social responsibility simply by glancing at existing financial or sustainability reporting, since energy and other costs are just one component of a company’s total financial picture and today almost all companies publish some form of sustainability reporting. To find out where a company is standing in terms of its sustainability efforts, one can start by looking at reports published by organizations like Carbon Disclosure Project (CDP) or Global Real Estate Sustainability Benchmark (GRESB). These reports provide third-party reviewed information and scoring on how well participating companies are performing relative to other organizations.
Based on your professional experience overall, what do you think is the biggest gap that needs to be filled when it comes to energy efficiency in the retail real estate sector?
Before starting this fellowship, I thought the knowledge gap between small business owners and landlords was the most serious barrier in implementing energy efficiency measures. After conducting an abstraction of lease agreements from different types of tenants, I realized that aligning the interests between large retailers and the landlord can be just as challenging. Many national tenants operate from their own base form leases, and the array of variations across those leases is wide. With relatively longer lease terms for larger retail anchors, and a lack of consistency across the lease provisions, advancing new energy efficiency programs across a portfolio of shopping centers can be challenging.
What do you think needs to happen to fill this gap?
Engagement between landlords and tenants is crucial for bridging past gaps and advancing energy efficiency. There is no silver bullet in advancing energy efficiency, and that’s particularly true when there are multiple stakeholders involved in the process. The key is getting the conversation started, because, as Kimco has found through direct engagement with tenants on this topic, when it comes to saving energy and reducing operating costs, landlords and tenants have more in common than you might think.