Why Green Leases and Utility Direct Often Fall Short

For owners of triple net (NNN) leased portfolios, getting complete and accurate utility data is a constant struggle.

With increasing pressure to keep up with the competition in GRESB scores, as well as a genuine desire to set a baseline against which to track decarbonization efforts, this data is becoming mission critical.

The problem? Tenants control the data. They pay the utility bills and decide whether or not to share that information with landlords. While some tenants are cooperative, many ignore requests, and others flat-out refuse.

To work around this, landlords often try two common strategies:

1. Green leases, which include clauses requiring tenants to share utility data.
2. Utility direct connections, where tenants sign a letter of authorization (LOA) allowing landlords to pull data directly from utility providers.

Both sound great on paper. In practice, many landlords have hit a ceiling on their effectiveness.

When data coverage stagnates, or becomes increasingly difficult to make progress against, GRESB scores are affected.

Like it or not, investors often only look at the star ratings, meaning small variances in tenants' willingness to cooperate can mean missing star ratings by fractions of a point.

In a "higher for longer" interest environment, this can mean hundreds of thousands or millions of dollars higher borrowing costs by limiting access to all sources of capital.

Green Leases: Great for Cost Sharing, Not for Data Collection

Green leases were originally designed to solve for the split incentive problem.

Green Lease Leaders has found that utility consumption is up to 22% lower in buildings with cost recovery in place.

That’s because it aligns incentives for landlords to invest in energy efficiency improvements by giving them an avenue to recoup their investment.

While they are great for cost-sharing sustainability improvements, when it comes to forcing tenants to share utility data, they have serious flaws:

• Tenants still ignore requests – Just because a lease says they must provide data doesn’t mean they will—and enforcing compliance is only leads to strained relationships.
• Rolling them out takes years – You can’t convert an entire portfolio overnight. You have to wait for lease expirations, meaning full adoption necessarily takes many years.
• No value for tenants – With cost sharing for upgrades, at least they get lower utility costs. Sharing bills adds no value to them

Even if a tenant is willing to comply, they have to find the data, download it, send it over, and repeat the process every month or quarter.

Those bills are often getting manually processed by expensive sustainability consultants, whose time and expertise could be much better spent elsewhere.

Why Utility Direct Connections Don’t Always Work Well

Some utility jurisdictions offer whole building aggregate data for benchmarking purposes.

Most have rules that if there are fewer than a certain number (usually 3-5) tenants, the tenants must sign a Letter of Authorization (LOA) for the utility to release the data.

Once this is achieved (not always an easy feat), the actual process of receiving the data rarely goes smoothly:

• Utilities don’t aggregate data well – Utilities are not data companies and are not set up to provide bulk data by location or across multiple meters.
• Data is often inaccurate or incomplete – Even when utilities do provide data, it’s common to receive reports with missing meters, incorrect locations, or are clearly flat out wrong.
• Utilities have no incentive to do this well – Utilities don’t profit from supplying usage data, so they treat it as a low-priority task.

Often, sustainability teams are still forced to estimate data because they don't trust what they're receiving from the utility.

For the landlords holding out until all utilities offer the service, and can do so consistently, it will be a while.

Meanwhile, since GRESB ratings are relative to the scores of peers, any years where scores don't increase risks losing a star.

What Alternatives Exist?

If green leases and utility direct access are not working for your portfolio, there are two other options worth exploring:

1. Manual Meter Reads – Sending someone to physically check meters circumvents tenant inaction, but it requires manpower, which can be tough in industrial portfolios that only have regional property management.
2. Shadow Metering – Installing supplemental meters or sensors to track energy use in real time. Historically, this was seen as expensive and disruptive, but costs have dropped, and technology has improved.

The big advantage of shadow metering? It flips the script. Instead of chasing tenants for bills, landlords get their own data—and can use it to help tenants rather than just demanding information from them.

GRESB continues to tweak it’s scoring, and for the first time is going to start rewarding operational efficiency.

Unlike monthly utility bills, real-time interval data can be used to bring value-add insights and services to tenants.

These could be insights around scheduling, peak demand, or base load consumption.

Or they could be services like demand response or better energy procurement.

The point is, you’ve taken something that was previously a burden and turned it into an advantage.

In a triple net leased portfolio, getting utility data is never as straightforward as it is for gross lease. Many have hit a ceiling on data coverage through green leases and LOAs.