Green Leasing Program Design for PSU

Green Leasing Program Design for Portland State University

Introduction

Portland State University serves as a Landlord to over sixty third-party tenants, including retail, food service, office, food cart, and other tenant types. To encourage and standardize the adoption and practice of sustainability behaviors among these tenants, PSU hired a Green Leasing Intern during the summer of twenty seventeen. The intern, graduate student Emily Quinton, managed by members of the PSU Planning, Construction and Real Estate team, was tasked with researching best practices, drafting green leasing language, and developing tenant engagement and incentive-based approaches to implementation. This report serves as the culminating deliverable for that internship. Additional internship documentation can be viewed in a shared Google folder.

A note about resources: information gathered during this internship came from online resources and meetings with internal and external stakeholders. Online resources are cited throughout the report. Information from stakeholders was used heavily in the Background and Context Setting section and elsewhere, but individuals are not specifically cited. More details on resources and stakeholders is included in the Methodology section.

Background and Context Setting

Green Leasing and Commercial Real Estate

In an effort to reduce the climate impact of buildings, commercial tenants and landlords have begun adopting and implementing resource efficient and sustainability-related standards through leasing agreements. Often described under the umbrella of Corporate Social Responsibility, green leasing has grown over the past decade in the United States and internationally as a tool to communicate, negotiate, and define shared sustainability goals and responsibilities. Parties involved in developing and signing a green lease are typically committing to more than the offer of or existence within a green building - "A green lease does not simply equate to leasing space in an ENERGY STAR-labeled or LEED-certified building. Rather a green lease expands on existing clauses to codify the sustainable operation goals for the building and identify how each side will meet them."

The inspiration for green leases vary; they are sometimes driven by the tenant, the landlord, or collaboratively by both parties. In some cases, a government agency or municipality may drive green leasing for their properties, which may be owned or rented by the agency or city, such as the U.S. General Services Agency, the Australian Government, and New York City. A review of existing resources, case studies, and best practices reveals a focus on addressing energy use through green leasing, sometimes referring to leases as "energy-aligned". For instance, in their guide for landlords and tenants, the Rocky Mountain Institute and the Building Owners and Managers Association note the "split incentive" challenge commonly experienced by landlords, where the cost to perform building upgrades (paid by the landlord) benefit only the tenant, in the form of lowered operating expenses. To remove the split incentive and encourage energy efficiency and conservation, a green leasing agreement may include several components, such as utility data sharing, tenant engagement through a building-wide committee or green team, and prioritization of energy efficiency in building improvements. Additionally, a green lease may spell out how the financial costs and benefits of these actions are shared, through pass-through clauses or other arrangements, such as requiring the tenant to transfer the resulting utility savings to the landlord in order to pay back a portion of the original project cost.

Despite the historic focus on energy, green leasing has and can also address other areas of environmental sustainability, such as waste minimization, water use, and alternative commuting, as well as social and economic sustainability, including hiring practices, employee benefits, and more. Specific practices may be laid out and/or may drive the landlord or tenant to adopt the existing sustainability policies of the other party. For example, as a tenant, New York University, seeks to require compliance with University procurement and other policies by their landlords. In the case of existing leases, it may be easier to address these expectations separately from the lease, in a memorandum of understanding or some other informal agreement.

Green leasing has been practiced more in the office sector than retail or foodservice, as can be seen by the existence of many office-specific resources from organizations such as the Institute for Market Transformation, Boston Bar Association, and California Sustainability Alliance. These resources cite several reasons why offices are a good fit for green leasing, including the intensity (hours per week) of tenant occupancy, alignment with existing Corporate Social Responsibility initiatives, relatively low-impact and predictable equipment and building systems needs, and more. Retail and foodservice tenants may find green leasing more of a challenge, due to aspects like high staff and managerial turnover, slim operating margins, lack of awareness, and other realities. Remaining cognizant of these potential challenges will allow PSU to develop successful engagement strategies for these types of tenants.