How Triple Net Owners Are Handling Carbon Accounting

Over $62 trillion worth of assets under management have subscribed to the Net Zero Asset Managers Initiative.

The SEC is finalizing carbon disclosure rules that will likely require auditable reporting on tenant-controlled emissions.

The trend is clear: industrial owners need to gain access to utility data that is currently paid for (and thus controlled) by tenants.

Pitfalls to Avoid

Given the need for tenant utility data, first attempts have naturally gravitated to:

1. The tenants
2. The utilities

Landlords have approached tenants with requests for their utility data in a number of ways.

Some have pursued more informal requests. A common challenge here is that the landlord’s contact is often not the same person at the tenant company that deals with utility data.

Another unfortunate challenge is that tenants can be initially cooperative, only to change their mind later. This obviously results in data gaps, both geographically and over time.

Other landlords have pursued legal authorization through the use of Green Leases - essentially adding clauses that require tenants to share their utility data.

This can be effective, but also comes with known obstacles:

1. Often, it requires waiting until there’s turnover in a space, which is simply too slow for urgent reporting requirements
2. It can cause tension with tenants, and some large tenants will flatly refuse
3. Even with a Green Lease in place, some utilities have required monthly authorization to release the data

The alternative approach, to go straight to the utilities, has often been a nonstarter. The labyrinth of bureaucracy and approvals needed makes it nearly impossible.

A Better Solution

The concept of shadow metering is not new; however, the falling costs of hardware, the application of AI to derive more value from the data, and streamlined installation processes have brought it back to the forefront.

The approach is simple: while tenants pay for the utility bills, the landlord does own the infrastructure.

Shadow metering takes advantage of this by deploying redundant meters with the current utility metering infrastructure.

The data is captured, in real time, and available to landlords.

This raw data can then be translated into carbon emissions equivalencies and synced to reporting frameworks. Energy Star Portfolio Manager is the most obvious, as it serves as the foundation for the “E” of many ESG reporting frameworks, including GRESB.

Benefits

The first and most obvious benefit is that the data needed to fulfill investor and regulatory requirements is available, where it wasn’t previously.

Again, as capital markets tighten, competition for dollars will increase. An increasing share of dollars are only available to those who can report on their carbon footprint.

Beyond simply reporting, this data also helps identify and prioritize retrofits for decarbonization, such as LED lighting and HVAC upgrades.

Enertiv Case Study: Rapid Shadow Metering in Multi-Tenant Industrial

Context

As a global real estate investment firm with assets under management of over $115 billion, the portfolio spans multiple asset classes, geographies and positions in the capital stack.

Since 2020, Enertiv has been an integral partner in the office product, helping to replace over 53 unique software vendors into one consolidated platform across 50 assets and delivering over $1.2M in operating expense savings (translating to over $23M in asset value).

Recently the firm asked Enertiv whether they could help in their industrial portfolio as well.

That was on August 3rd, 2022.

Problem

Due to pressure from the capital markets, as well as upcoming regulatory changes, the firm needed to report on carbon emissions.

The challenge is that the industrial portfolio is triple net leased. Tenants pay for their own utility bills and therefore own the data. Attempts to ask for data sharing had been slow and spotty.

Enertiv put together a proposal for shadow metering. Compared to the deployments in the office portfolio, which included BMS integration, equipment-level monitoring, air quality and occupancy tracking and replacing multiple workflows, the scope of work for industrial was straightforward.

Strategy

In partnership, it was decided to focus on a strategically important group of assets in the Salt Lake City submarket.

Pricing was established and the contract was signed. This kicked off Enertiv’s digitization and installation process.

Results

By October 2nd, only 60 days after the initial conversation, Enertiv had created a digital repository for all metering information, completed installation of the shadow meters, and deployed networking to flow data into the cloud in real time.

At the same time, Energy Star Portfolio Manager accounts were set up and synced with the data in Enertiv.

Following landlord setup, each tenant was provided with a dedicated tenant portal to view their real-time consumption.

What’s Next

Given the speed of deployment, and the practicality of the solution to an acute challenge, the firm is looking to roll out shadow metering across their US and European industrial portfolio.

In addition, now that tenant data has been baselined, Enertiv’s analytics are providing tenants with real-time alerts and insights when normal schedules are violated or optimization are identified.