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The Commercial Real Estate (CRE) industry has an interesting opportunity to consider. The best way to understand the opportunity is to consider two quotes I came across recently. When these quotes are read individually they probably won’t attract much attention. When viewed collectively they signify a significant opportunity for forward thinking owners or investors of Commercial Real Estate.
The first quote is from a document created by The Deloitte Center for Financial Services entitled 2015 Commercial Real Estate Outlook. Here’s the quote from page 22:
“Sustainability initiatives have a significant bearing on CRE (commercial real estate) operations, which manifest themselves in various forms—environment, portfolio performance, top and bottom line, asset values, stakeholder engagement and brand perception. Among other things, buildings with relatively better sustainability credentials tend to enjoy increased market-ability to both tenants and investors.”
Sustainability initiatives are also called green renovations, energy efficiency upgrades, environmental efficiency, etc. The main point of the article is this; when energy efficiency initiatives are a component of a commercial building it becomes more marketable, the value increases, it’s easier to acquire tenants, tenants stay longer and investors achieve better results! So what’s the downside?
The article went on to discuss the greatest barrier to sustainability initiatives has typically been the upfront cost associated with the upgrades. It went on to detail the need for “alternate financing sources”.
Here’s where the second quote merges perfectly with the Deloitte information to make the opportunity become evident. The quote is from an article entitled Michigan’s Second Privately-Financed PACE Project Makes History:
“PACE financing makes many projects involving expensive items like efficient windows, boilers, chillers, solar panels and geothermal wells possible on a broad scale for the first time. Property owners pay nothing up front and save more in reduced energy costs than they pay on their PACE assessments, gaining cash they can plow back into their operations.”
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PACE stands for Property Assessed Clean energy and it’s an “alternate financing source” for clean energy projects! It specifically funds the sustainability renovations that make commercial property more marketable and a better investment as predicted in the Deloitte article (see video). I believe it will be a game changer for Commercial Portfolio Managers or property owners wherever PACE is approved.
Unfortunately PACE is not available in all locations. The program must be approved by the taxing authority – usually the county, but in some cases the city – before it can be used to fund any clean energy projects. The good news is PACE is becoming better understood and more counties are opening up every day.
Considering an Energy Efficiency Upgrade?
If you would like to know if energy savings are possible for your building or business The Energy Alliance Group of Michigan has compiled a free report entitled Ten Questions to Ask Before an Energy Efficiency Upgrade! The report details the most important questions that need to be addressed before the launch of any energy efficiency project. To get the report simply click HERE.
You are correct that financing is a huge road block. But even with adequate financing the ROI has to be reasonable. Recently I teamed with a local energy company, Building Controls and Systems (BCS) for a substantial upgrade to my systems here at the Garvey Center. Why the owners brought in on the deal was that BCS guaranteed the ROI. The rate of rate was the what the company now makes on their investments so it became a no brainer to move forward with the upgrade. HOWEVER having PACE here in Kansas would have made it even more attractive. In a time period when states are limiting the incentives they offer I am not sure how we get Kansas or any of the other states to add legislation allowing PACE but I am open to hearing how.