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Financing Green Part III: Real World Sustainable Funding for the Tenant or End-User

An In-Depth Look at Financing Options and Obstacles for Green Improvements in the CRE Industry
May 23, 2012
In Part II of Financing Green, available here, Dr. Kontokosta, PE, discussed the role of data in a lender’s decision-making process for funding green improvements. In this final installment of the series, CoStar News takes a look at real world issues that tenants, owner/occupants and end-users face in funding their own green improvements.

Funding Green Improvements for the Tenant or End-User

Those that physically occupy commercial space have a vested interest in the benefits of green building improvements. Lower energy bills, increased productivity, higher employee satisfaction levels as well as enhanced corporate responsibility in the community top the 'want' lists of many corporate end-users. However, tenants often don’t have or don’t wish to spend a lot of money for their office build-out.

This can be short-sighted, according to Marisa Manley, president of Commercial Tenant Real Estate Representation (CTTR) in New York. "Going green can provide big-time savings - big enough to pay back all of the up-front costs of going green," Manley said. She adds some words of caution though, "Not all that is done or proposed in the name of green pays for itself, so a careful analysis of each segment of each project should be made before doing any work."

Manley’s firm has handled more than $5 billion in assignments for leading facilities around the country, including CBL Path, Labcorp, Quest, Ameripath, Aurora Diagnotistic and Settlement Health. She identifies several benefits to green improvements, including saving energy, saving the environment, saving water and enhanced well-being and health of occupants.

Real-World Examples of Green Funding That Works

Meanwhile, stakeholders continue to pursue innovative alternatives for financing green improvements. Recently the San Francisco Department of the Environment, along with San Francisco’s Mayor Edwin Lee, launched the GreenFinanceSF-Commercial program to help local businesses ‘green’ their buildings, reduce carbon emissions, save energy and create jobs.

Structured as a PACE (property assessed clean energy) program, like the ones discussed in Part I of this series, GreenFinanceSF is giving owners and users access to new forms of financing for installing energy efficient renewable energy and water conservation programs.

In another example, a small building owner was able to use QECB (Qualified Energy Conservation Bonds) structured financing to receive a direct subsidy payment from the U.S. Treasury Dept. for a green retrofit project, including several improvements to energy and water consumption at his building. Through a separate tax credit from the federal government to a local investor, the project owner received upfront green improvement funding, making principal and interest payments in return over a short period and at a reduced rate compared with traditional, non-secured funding options available to this owner.

One owner of a large multifamily complex was able to work with an independent capital group to secure funding for the installation of a large-scale photovoltaic solar array, along with numerous microinverters to collect and relay data about the system in real time to a monitoring service. The capital group arranged part of the financing through its Utility Rebate Funding Program, making available capital secured by an assignment of the utility rebate. The second part of the project was secured with a U.S. Department of Treasury Grant 1603.

Still another owner of an affordable housing property enlisted the help of the local housing authority to create an EEBUA (Energy Efficiency-Based Utility Allowance) and build green alternatives into the existing capital needs assessment. The owner then worked with existing partnerships to identify specific resources for implementing its green multifamily retrofit strategies after producing the necessary documentation of improved energy savings, resource consumption, and overall health of the tenants.

The first ever loan under the Green Refinance Plus Program, a partnership between Fannie Mae and the U.S. Department of Housing and Urban Development (HUD), has closed this month with the owner taking a $19.4 million refi with $1.5 million allotted for improvements to replace old and inefficient fixtures with new Energy Star-rated appliances. The program was introduced last year to incentivize owners to make energy and resource efficiency improvements when refinancing existing mortgages.

Manley notes that the main challenge owners and users encounter in justifying a decision to fund green improvements to their workspace is calculating the payback. Identifying which green elements make sense, and providing the data to the lender that shows how the improvement will benefit the bottom line, remain the critical components for such a decision. To make a valid comparison, such an analysis should include the costs associated with the setup and construction costs against any of the potential benefits.

Even with all the decisions and funding issues, "Chances are a green program will prove well worthwhile for many facilities based on cost-benefit analysis," said Manley.

Financing Green is a three-part series taking a look at energy efficient retrofit financing options, the role of data in overcoming the uncertainty of financing green improvements, and real-world examples of funding green improvements for the tenant or end-user.

Revisit the first two installments of Financing Green:
Part I - Funding Energy Efficient Retrofits and Overcoming Uncertainty.
Part II - The Role of Data in Financing Green Improvements.

Follow @JSumner2 on Twitter for the latest green building news and updates, and @TheCoStarGroup for trends in the CRE industry.

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