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After Pandemic, Property Management’s Biggest Challenge Lies Ahead

If you think property management is boring, you must’ve missed the past two years. With or without workers in the office, property staff has been diligently maintaining and even improving the buildings they work in. Meeting the challenges of operating commercial buildings amid a pandemic has taught the facility management industry valuable lessons it hopes to carry into the future. How buildings function is becoming as important as how they look, putting facility management staff in the spotlight. 

“The biggest challenge has been the constant change, the fact of all the different locations and rules changing at different times, as well as differing end-user sentiment,” Colliers President of U.S. real estate management services Karen Whitt said. Whitt has spent more than 20 years in real estate and property management, giving her experience to lead a team of 2,000 through unprecedented times. “Everyones has different opinions. Having to continuously pivot to address concerns that are really specific to a particular location is a challenge. Keeping all this real estate running, but with a lot of unknowns … the best way to describe it is having to ‘mother’ properties.”

The challenges are as endless as they are numerous. When the pandemic first began, property staff were unknowingly drafted into the fight as front-line workers. Unlike the occupants welcomed every day, facility management staff don’t have the option of working from home. Like other front-line workers, their work quickly proved essential. Along with the new designation came new responsibilities. Keeping what few people did come into the facility healthy and safe became paramount. Early on teams spent time building out mitigation and distancing measures, ramping up cleaning schedules. Residential property managers were put in the spotlight as residents were locked down at home. Property teams worked to meets needs virtually, transitioning workout classes and community events online to provide ’virtual amenities.’ On-site staff struggled to balance tenants’ concerns and rent collection. One of the biggest challenges was simply staying connected with tenants who aren’t physically in the building. All while becoming experts on health and safety. 

The trials tempered the property management industry. That’s a good thing because the challenges of the pandemic pale in comparison to what will be asked of the building sector over the next 10 years. Adapting to new regulations, standards, and ESG initiatives of some of the largest tenants that will demand more from buildings and facilities will fall to property managers, engineers, and on-site staff to implement. 

“ESG is a hot button, it’s become an increasingly large issue for property managers,” Whitt said. The basic value proposition of commercial space is changing. For the past 10 to 20 years, spaces have been largely defined by how they look. Nicer finishes and better aesthetics were key competitive differentiators. That created a flight to quality sweeping through practically every office market. With ESG initiatives, it’s not just about how a building or space looks, but about how it functions. “The flight to quality and flight to sustainability now go hand-in-hand.” 

Your building could soon have a letter grade. Depending on where you are, it might already. Building performance standards are propagating quickly. Already well established in the U.K. and E.U., recent moves from the Biden administration suggest similar regulations could be headed this way. At the U.S. Conference of Mayors, Biden announced the launch of the Building Performance Standards Coalition. The first-of-its-kind partnership brings together 33 states and local governments covering nearly 20 percent of the nation’s building footprint to design and implement building performance standards at the state and local levels. Optional certifications may soon give way to required grades for both commercial and residential buildings. Making the investments required will be an ownership decision, but making the grade will fall to on-site staff. 

“Advancing building energy efficiency and resilience presents one of the greatest opportunities for cities to realize significant energy bill savings, catalyze local job creation and economic development, and reduce harmful air pollutants and carbon emissions associated with the built environment,” Orlando Mayor Buddy Dyer said. 

New regulations and ESG-related pressure from tenants is a one-two punch the building sector won’t be able to avoid for long. To change the commercial real estate sector, tenants must demand change. That’s exactly what they’re doing. While there are doubts about the sincerity of some ESG initiatives, other companies could not be more deadly serious about corporate compliance. High-performance buildings directly impact ESG performance by lowering energy use, cutting carbon emissions, and boosting health and wellness. The nation’s largest employers and biggest occupiers of corporate real estate are transitioning towards ESG at a shocking pace. More than 90% of S&P 500 Index companies publish sustainability reports. 

The most recent HSBC sustainable financing and investing survey found nearly 60 percent of investors have a general ESG strategy. 

The problem with ESG ratings and green building certifications is they lack teeth. Ambition without follow-through has many decrying ESG efforts as ‘greenwashing.’ Combined with a general lack of objective sustainability standards or metrics, good intentions get lost along the way. That’s where state and local regulators come in. The Building Performance Standards Coalition’s chief goal will be to scale programs and policies that reduce emissions across the buildings sector. That includes developing policy roadmaps, convening place-based teams to co-create policy, and identifying and acting on pre-requisites for building performance standards. What those policies and standards will look like specifically hasn’t been decided but nothing is off the table. Whatever is decided will take an army of builders, contractors, vendors, and property staff to pull off. 

“Buildings are not just our largest source of pollution – they represent one of our greatest opportunities to create good-paying jobs and turn the tide on the climate crisis,” Los Angeles Mayor Eric Garcetti said. 

Looking at how the U.K. and E.U. have implemented building performance standards gives landlords and property managers a better idea of where all this big talk might be headed. Beginning in 2018, England and Wales started to enforce minimum energy efficiency standards (MEES) for all privately rented residential and non-domestic properties. To determine a property’s Energy Performance Certificate Rating, a qualified assessor conducts a non-invasive inspection, analyzing the buildings’ potential for heat or energy loss, accounting for the efficiency of heating and water systems, checking insulation, inspecting double-glazing, light bulbs, and other forms of energy use. The building is given a grade between A and F valid for 10 years. The law restricts owners and landlords from granting continued tenancy when the building has an EPC grade E or lower. Non-compliance could cost commercial properties as much as $150,000.

The E.U. has similar regulations known as Minimum Energy Performance Standards (MEPS). By 2030 every building in the E.U. must earn a rating of G or higher. Just like in the U.K., failure to meet minimum standards will put a building’s certificate of occupancy at risk and limit all commercialization opportunities until the asset is brought into compliance. Over time both minimum standards will increase to higher grades, requiring owners to make continual investments in their assets over the next three decades to stay compliant. 

Nationwide building standards like those in the U.K. or E.U. are still a pipe dream in the United States but the Building Performance Standards Coalition is the surest step in that direction that’s been taken to date. National building codes have hardly been touched in a decade, last updated in 2010 with the American Recovery and Reinvestment Act but were incentive-based. Implementing mandatory building performance standards may not find much support in federal politics, but locally, things are in motion. Cities like Reno, Boulder, New York City, St. Louis, and Washington D.C. are just beginning to roll out building performance policies. It’s still too early to draw any conclusions but early indications show simple benchmarking and grading can meaningfully reduce energy usage and carbon emissions even before making targeted retrofit upgrades. 

Meeting any new building performance standards presents a major opportunity for the commercial property management sector. It’s commercial property engineers and managers that will prepare and present detailed plans for building performance upgrades to asset owners. Like many property management firms, Colliers has made its commitment to ESG clear, laying out its own plan to elevate the built environment. Colliers recently announced a partnership with MIT’s Climate Initiative Program. Making sure buildings help tenants hit ESG goals by cutting emissions and meeting any potential building grade will be an added responsibility to the teams tasked with managing assets. Getting owners on board may be the hardest part. The financial priorities of owners hardly match up with the policy priorities of governments. 

“Everyone has changed out their lighting by now, it’s the major upgrades that remain,” Whitt said. “We don’t own any of our real estate, so it comes down to our understanding of what owners’ goals are. Then do capital planning in accordance with that.” 

To retrofit 80 percent of the existing U.S. building stock by 2050, we must increase this annual retrofit rate by about 15-fold for residences and about 2-fold for commercial buildings according to the American Council for an Energy-Efficient Economy (ACEEE). Exiting programs that promote whole-building retrofits rarely result in the upgrade of more than 1-2 percent of eligible buildings. More aggressive approaches are needed. The ACEEE estimates that if mandatory standards are applied to two-thirds of the pre-2020 building stock and end up reducing energy use and energy-related carbon dioxide emissions by an average of 30 percent (the average retrofit savings), the building sector will save 170 million metric tons of CO2. These are the type of numbers the Building Performance Standards Coalition will be looking at to guide future policy. 

The good news for owners is they will have plenty of time and plenty of financing options. Practically every existing building performance standard policy has a years-long lead-in and each offers owners funding options. New York City offers a variety of options, some buildings have received hundreds of thousands of dollars worth of upgrade incentives. Early adopters in Washington State got access to a $75 million incentive program. In the United States, the recently passed Bipartisan Infraftrucutre Law allocated $1.8 billion to support building sector policies, including $500 million for the Department of Energy’s State Energy Program.

The financing and decision-making behind efficiency upgrades may be an issue for regulators and owners, but ultimately the success of any strategic energy management programs comes down to building staff and facility managers to implement and maintain. To prepare for that property management teams should be training staff in energy management and building efficiency programs. Certified Energy Managers may soon become a staple of any property team. Vetting vendors and consultants for energy audits and retrofit designs will be a critical task for facility managers. The Building Owners and Managers Association (BOMA) already provides energy efficiency training through the Building Energy Efficiency Program. Benchmarking and tracking energy use is turning into a 24/7 gig in commercial buildings that falls to on-site staff. 

“Going forward, I think it’s really about having a focus on what’s required in each locality in terms of tracking data,” Whitt said. “It’s all about making better decisions on how to run the buildings based on data that leads to making better decisions to reduce carbon footprint.” 

The pandemic taught the property managements industry about flexibility. The past two years were a trial run compared to what will be asked of the building sector over the next ten years. Adapting and upgrading buildings to the new regulations, building standards, and technology need to mitigate the building sector’s impact on the climate will be a monumental effort but one on-site property staff, engineers, and managers are prepared for. The front may be changing, but the importance of property staff serving on the front line is only increasing. 

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