Managing Downside Risks and Upside Gains of Building Performance Standards – Webinar Summary & Key Takeaways

Earlier this month, EVORA had the opportunity to speak with Tishman Speyer’s Jonathan Flaherty and The Institute for Market Transformation’s (IMT) Cliff Majersik on how Building Performance Standards (BPS) are reshaping the regulatory and investment landscape for real estate. BPS policies, now adopted in multiple U.S. states and cities, require existing buildings to meet specific energy or carbon performance thresholds by set compliance dates, often with escalating targets and financial penalties for non-compliance. These policies are increasingly influencing capital planning, asset valuation, underwriting, and long-term portfolio strategy across the real estate sector.

1. BPS Frameworks are Expanding but Remain Fragmented

There are currently 16 adopted BPS policies across U.S. jurisdictions, with dozens more cities considering adoption. These frameworks vary significantly in how they define performance through energy use intensity (EUI), greenhouse gas emissions, or hybrid approaches.

While differing details have generated useful policy innovation, lack of standardization creates compliance complexity for owners with multi-jurisdictional portfolios. Greater alignment—particularly around metrics, reporting platforms, and compliance pathways—would reduce administrative burden and allow owners to focus on operational improvements rather than policy navigation.

Key Takeaways: Develop a clear understanding of all compliance requirements across your portfolio, then define what is needed to meet them. Early action and proactive management of varying requirements are critical to success.

2. Long-Term Certainty is Critical

Across all perspectives, the most consistent message was that policy clarity over longer time horizons is critical.

Real estate capital planning decisions, such as equipment replacement, electrification, or façade upgrades, etc., often involve lifespans of 20–30+ years. However, most BPS frameworks currently provide clear requirements only for the next 5–10 years, creating challenges and uncertainty for long-term investments.

Without predictable targets or carbon conversion factors (particularly for electricity), owners must conduct complex scenario modeling to determine which investments will remain compliant over time. Greater long-term certainty would significantly improve strategic planning.

Key Takeaways: Investors, owners, and managers strongly favor certainty and clarity to support long-term decision-making. Understanding the full trajectory of policy requirements, beyond near-term compliance windows, is essential to making informed capital allocation decisions.

3. Compliance Strategies Vary

Owners are taking varied approaches to BPS based on asset-specific factors such as hold period, capital availability, and distance to compliance. Strategies range from proactive, long-term decarbonization to minimum compliance or delayed action.

However, regardless of approach, BPS is increasingly being treated as a financial issue rather than a purely sustainability-driven initiative, with direct implications for NOI, asset value, and exit pricing. Over time, this is expected to drive market fragmentation, where higher-performing, future-proofed assets command a premium while underinvested assets face increasing risk.

Key Takeaways: There is no one-size-fits-all approach to compliance. Owners should evaluate decisions through a value-driven lens (NOI, IRR, exit value), not just compliance, while accounting for portfolio-specific factors – asset type, hold strategy, capital availability, and investor expectations.

4. Putting a Price on Risk

BPS risk is increasingly being recognized as a real financial liability. Lenders, for example, may ultimately inherit non-compliant assets. In scenarios where a lender takes title, they become directly exposed to penalties and required capital improvements, elevating BPS from a theoretical risk to a tangible one.

As a result, lenders are beginning to grapple with how to price this risk into underwriting, factoring in potential penalties, capex requirements, and future compliance costs. However, adoption remains uneven. While many acknowledge the importance of incorporating BPS risk, there is hesitation to move first, as doing so could impact deal competitiveness relative to peers who are slower to adjust.

Key Takeaways: Investors and lenders are beginning to price this risk. Early movers will be better positioned as underwriting practices evolve.

Conclusion

Building Performance Standards are no longer a future consideration, they are a present and growing force shaping real estate strategy, risk, and value. While policy design, timelines, and enforcement may continue to evolve, the direction of travel is clear: performance, carbon, and compliance are becoming embedded in asset-level decision-making and investment underwriting.

Navigating this landscape requires more than a compliance mindset, it demands a strategic, forward-looking approach that integrates policy insight, financial analysis, and asset-level execution. Those who act early and thoughtfully will be better positioned to mitigate risk, unlock value, and remain competitive in an increasingly performance-driven market.

At EVORA, we help investors, owners, and managers translate complexity into action, providing the insight, tools, and strategies needed to navigate BPS and drive long-term value across portfolios. We take a three-staged approach towards managing compliance:

1. Conduct initial screening and analysis to identify properties at risks and assess applicability and potential exemptions
2. Perform scenario modeling using validated data to determine existing and future penalty exposure, including the impact of planned improvement measures
3. Manage the execution of compliance requirements