Building decarbonization: What is the Impact to the Colorado CRE market?

The term “decarbonization” refers to the process of upgrading existing commercial real estate buildings to use less energy, emit fewer greenhouse gasses, and create healthier and more enjoyable buildings where people work, live, and play. Possibly a better term is ‘zero-emissions’ which acknowledges that to stop further emissions of green-house gases is the core goal of the regulatory mandates and the market-driven push for better buildings. Hence, the Energize Denver legislation™ was passed and is now in effect in Denver, and most of the State of Colorado. Let me briefly explain:

ENERGIZE DENVER has four (4) requirements for EXISTING commercial and multi-family buildings > 25,000 SF (and in some cases, commercial buildings > 50,000 SF). The four parts are listed below:

1. Benchmarking which requires reporting energy use annually to Denver and the State of Colorado agencies.

2. CRE building performance standards

3. Electrification which means changing out gas-fired equipment for electrical at the end of the HVAC’s service life.

4. Green roofs which is a continuation of the use of Green Roof Initiative in the City of Denver.

Further, building decarbonization has two (2) main components.

• Operational carbon emissions from energy used for building operations (heating, cooling, hot water) -

• Embodied carbon of emissions released during the production, transportation, and installation of the products and materials used in buildings, especially during construction

This is complicated topic and would require much more time to provide all of the pertinent information for you today.

Therefore, from my recent corporate real estate class that I taught at the University of Denver, I asked my colleague who is a frequent speaker on this topic, Kye Holton Brown, to make a presentation on the topic of Decarbonization to my class. Then, I asked my students to summarize what they thought were the major impacts of this legislation on the CRE industry.

Below are excerpts from my wise and insightful graduate students:

• “Ms. Brown's presentation on the required law for De-Carbonization was a very informative topic which has a direct affect on the future of commercial real estate. She brought a different perspective on CRE and what the future holds in regards to efforts of becoming net zero. One of my main takeaways was learning how building owners either have to make the necessary upgrades in order to comply with the De-Carbonization laws, or else they will be fined. These fines range from hundreds of thousands of dollars, all the way up to over a million dollars in fines each year. From a building owners’ perspective, this is a very large cost to operate their CRE property and it will continue to go up if they do not meet yearly goals of reducing their carbon output.” Student C. Brady

• “Personally, I believe that the push to make commercial real estate across the country more green and energy efficient is a necessity. Given the current climate crisis, real estate owners, especially major corporations, need to be help accountable for their actions. The push to require properties to become de-carbonized and LEED certified is important work. However, it is not necessarily black and white. Some buildings may require lots of money poured into the property to ensure the building is meeting its output goals. I think Kye's discussion on this matter is important; there is definitely a steep learning curve to this new push for CRE owners and professionals alike.” Student Tucker H.

• “Under this law, a concerning incentive structure that will begin to take place is the push towards renewable energy that inevitably comes from commercial real estate. As more buildings are pushed towards renewables, the demand for electricity is likely going to increase, as it has a much smaller carbon footprint than natural gas. Ideally, Colorado's grid would be 100% green to accommodate this demand. However, Denver's electric grid isn't 100% renewable, and increased electricity demand raises prices for current users.

• Also, if demand shifts from large commercial projects towards electricity, it will simply incentivize smaller, unregulated individuals to save on energy by switching to the less commercially sought after natural gas.  And the worst possible result of this legislation for the State of Colorado would be to discourage outside investment and development into the state from outside investors, or the flight Out of the State of current businesses.” Student Anthony P.

• A key takeaway from the presentation is the importance of understanding and complying with the evolving regulatory landscape of Decarbonization. These regulations often include mandatory energy standards, emission reporting requirements, and incentives for adopting renewable energy sources. Staying informed about these regulations and proactively complying with them is crucial for real estate owners and managers to avoid penalties and enhance assets marketability. 

  Another key point that I took away was this note: although the initial investment in sustainable technology will be large, the long-term benefits far outweigh the costs. These benefits include reduced energy costs, increased property values, and tenant satisfaction. It will be necessary for property owners and managers to stay ahead of regulatory changes, adopt innovative decarbonization strategies, and understand the broader financial implications.” Student Thomas M. 

Note: To read the Energize Denver and Green Bldg. Ordinances, see the below link.

Source: Buildings 25,000 sq. ft. or Larger - City and County of Denver (denvergov.org)

OR, contact me for assistance with your company’s required Benchmarking plan at corporateREadvisoryservices@gmail.com