Page 26 — Office & Industrial Quarterly — September 2023 INDUSTRIAL — ENERGY B uilding owners are used to facing chal- lenges: keeping buildings leased, updating buildings to keep them from becoming obsolete, navigating chang- ing market conditions, etc. But now, owners have an additional challenge in front of them – energy efficiency. As Denver and other munici- palities throughout Colorado roll out energy-efficiency requirements for commercial buildings, industrial property owners face their own unique set of challenges. What makes industrial properties differ- ent when it comes to energy and energy efficiency are two primary factors: the diverse nature of industrial tenants and the lack of control own- ers have over the manage- ment of utilities in their build- ings. First, whereas office and retail build- ings can be occupied by a wide variety of different businesses, the uses for the space tend to not differ wide- ly from one tenant to another. Multitenant office buildings are particularly homogenous in nature with regard to their tenants and their tenants’ energy usage. Conversely, one industrial building could house a wide variety of uses, including stor- age tenants that consume almost no utilities other than basic lighting, and at the same time, other manu- facturing tenants that may have massive electrical needs to support equipment and require utilities to support a large workforce. Second, unlike office properties where the utilities are centralized for the entire property and own- ership and/or property man- agement is able to regulate its usage, in industrial buildings the utilities are generally all separate from tenant to ten- ant and separately metered. Without centralized utilities, in industrial buildings prop- erty management usually has little control of usage, and usage regulation is left up to the tenants and their ware- house employees. Because of these differ- ences, a “one-size-fits-all” approach to making indus- trial buildings more energy efficient is not only ineffec- tive, but also detrimental to owners and the industrial businesses that occupy their buildings. As municipalities roll out energy-efficiency requirements and energy tracking programs, the first step ownership groups should take is to identify their tenant spaces and tenant uses accu- rately. For example, the ener- gy tracking program currently in place in the city and county of Denver allows building owners to use the software to input individual industrial units differently, within the same building, to account for functional differences from one space to another as well as different uses that might exist within a single building. The energy targets Denver has established differ based on how these spaces are used (nature of use, number of employees, equipment use, space improvements, etc.). For this reason, property owners should look to first identify and input their properties cor- rectly so as to take full advan- tage of these differences in how their buildings’ energy usage is collated with regard to the energy targets being set before implementing more costly energy saving improve- ments to their properties. Fur- ther, ownership groups may want to look at the cost ben- efit of engaging consultants who are trained in the sys- tems the municipalities are using to track energy usage in buildings and can help own- ers input their properties as effectively as possible. Next, because industrial owners generally have little control over their tenants’ utilities, and those utility bills are paid directly by the tenants, it’s often a case of “out of sight, out of mind” with regard to their tenants’ energy usage. Now, with the implementation of energy- efficiency requirements and large fines for noncompli- ance, owners are being forced to take a more active role in monitoring their tenants’ utilities and energy usage. As mentioned above, for own- ers new to these require- ments, a good option may be to hire a trained consultant. Before investing in property upgrades, an energy consul- tant can help owners identify what is the primary source of energy being used at their property. It doesn’t make sense to outlay a massive amount of capital for solar panels if almost all of your building’s energy usage is coming from gas in the form of heating. Or vice versa, if all of your building’s energy is from electrical consump- tion, spending your capital on heat pumps would not be the most effective strategy. Once a direction for your course of action is established, own- ers can start to look not only at what improvements are most cost-efficient to bring down utility usage (example: solar panels), but also what improvements can give own- ers more control over the energy usage in their build- ings (example: smart thermo- stats). Also, owners may not want to look solely at “add- ing” new energy-efficient systems to their buildings, but also to look at outstand- ing deferred maintenance repairs that can be made to keep energy from going out the door, literally, in the first place. For example, properly caulking and insulating building joints as well as seals around doors, particularly dock and grade-level loading doors, might do as much in the way of energy conservation as upgrading mechanical units. Regulating energy efficiency is a unique challenge Increase NOI with Solar Generate Signi cant Tax Bene ts Steve Fletcher, CCIM Industrial specialist, Gruber Commercial Real Estate Inc. Please see Fletcher, Page 33