CRE Navigates California’s Ambitious Green Building Standards
The California Energy Code keeps getting more stringent, aimed at reducing greenhouse gas emissions linked to climate change. This is in step with dozens of cities in the state that have passed legislation limiting the use of natural gas, also called methane, in buildings.
The state's Title 24, which requires more sustainable energy consumption in buildings and is updated every three years, began mandating in 2020 that solar energy technology be used in new residential construction with three or more stories.
Sustainable building features can result in energy cost savings, make buildings more resilient to climate change and potentially attract environmentally conscious residents. However, features such as building electrification often require significant investment and are dependent on technological innovation for efficacy.
“Solar is really one of the only code requirements that will actually pay for itself many many times over throughout its lifetime,” said SunPower Multifamily Account Manager Patrick Sterns, one of several panelists who presented on the 2021 outlook for multifamily in Northern California during a Jan. 12 Bisnow webinar. SunPower has installed solar power in California’s homes for 35 years and is a beneficiary of the renewable energy standards.
“Obviously, we are biased, but we don’t see it as a burden. We see it as an opportunity for builders to set yourself up for better [net operating incomes], better rent collections, higher sale prices, all of the suite of financial benefits.”
The average price for solar systems is $630K and goes up to about $3M depending on the building's size, Sterns said. Given the updated code requirements, he encouraged developers to start planning early in the development process to achieve the most efficient solar design. SunPower Senior Director of Sales Matt Brost said during the webinar that projects with affordable housing components could qualify for incentive programs that fund solar installation in California. Sterns also said that incorporating battery storage into new multifamily construction could lower the threshold for solar requirements and make projects eligible for rebates.
Rising environmental sustainability standards aren’t just limited to emissions reduction. Climate change puts buildings at greater risk, as has been demonstrated in recent years with devastating wildfires, drought and sea-level rise, Greystar Director of Global Sustainability Lexie Goldberg said. Goldberg advocated for companies to advance building design standards to address these risks so that when lawmakers upgrade code requirements, builders will be prepared.
“One the biggest things we’re going to see is around climate risk and resilience,” Goldberg said. “I think that this is a topic that has been discussed for several years, but obviously in light of what’s been happening over the last couple of years, it’s been really front and center, and it’s really our responsibility to figure out what can we do to not only measure the risk in our buildings but to really mitigate that both in our developments as well as in existing buildings.”
As California steps toward achieving its climate goal of being carbon neutral by 2045, U.S. Green Building Council Los Angeles Executive Director Ben Stapleton expects that all new development will be fully electric by 2030. He recommended that anyone building right now “future-proof” their asset by looking at efficiency long-term.
Not all developers welcome recent stricter energy code changes for buildings. Patrick Kennedy, owner of Panoramic Interests, said he had just installed a natural gas-powered hot water system in a San Francisco high-rise that featured computer-controlled water heaters that resulted in hot water costs of only $2 per person per month when the city passed a ban on natural gas in new construction. While the ban doesn’t take effect until June 1, grandfathering in his project, Kennedy called the move “reactionary” and “counterproductive.”
Boston Properties Vice President Danny Murtagh expects that full electrification is an eventual reality and that sustainability overall will continue to increase exponentially. However, he had mixed sentiments about California cities enacting natural gas bans given alternative energy technologies' current progress. He expressed concern about the state’s high demand for electricity during the summer months, which often causes blackouts. Natural gas bans are expected to increase that demand.
Yet sustainable homes are becoming increasingly popular, especially among the Bay Area’s younger inhabitants. According to Turner Impact Capital Associate Director Rachel Mavrothalasitis, 86% of renters of the company’s properties want to live in greener homes.
“The way we’ve responded to that is by expanding and diversifying the types of sustainability programs we offer,” Mavrothalasitis said. The company offers 240 green events for residents to encourage sustainable habits like reducing energy and water usage.
Beyond increased expectations for sustainable homes, Northern California multifamily real estate has experienced contrasting scenarios of wildfires pushing some away from rural areas while the coronavirus pandemic has driven others from cities. Multiple panelists agreed that with coronavirus vaccines deployed, the sector has a brighter outlook.
“The demise of the city is greatly exaggerated,” Kennedy said, adding that people will begin moving back to urban areas as soon as the pandemic’s end is in sight.