Picking up the PACE of energy retrofits

Do you remember the three R’s growing up? Reduce, Reuse, and Recycle? Well those R’s have an important role to play in the quest to corral our resource usage. In this blog post, I focus on the first R: Reduce.

While many new buildings coming on line are built to be energy efficient, their older counterparts more often than not waste large amounts of energy. EnergyStar.gov states, “Energy use is the single largest operating expense in commercial office buildings, representing approximately one-third of typical operating budgets and accounting for almost 20 percent of the nation’s annual greenhouse gas emissions.” Twenty percent of our country’s greenhouse gaas emissions. Not only can building owner’s reduce their operating expenses (and hence increase NOI), but they can help curb emissions as well. Sounds like a plan?

Well not so fast. Typical payback times for energy retrofits of existing buildings run on the order of ten years. Owners of multi-tenanted buildings often times lack proper incentives to encourage capital investment for energy retrofits, especially if they share operating expenses with tenants. And financing for such projects is tough to come by. Lenders want to see faster payback in a tight market. Fortunately, there’s a program to help pick up the PACE of energy retrofits. PACE is an acronym which stands for Property-Assessed Clean-Energy financing. This type of financing allows a building owner to borrow from governments or investors and those creditors take a liens on the property’s tax assessment. Because the lien is tied to the tax assessment, creditors receive assurance that the loan will be paid off because the lien passes with title to the property through any transaction: sale, foreclosure, bankruptcy, etc.

The hope is by reducing lending risk, the financing available for energy retrofits will become widely available. Building owners then would have greater flexibility to create new value in their buildings by decreasing operating expenses, which increases NOI. And private investors take note: There may soon be a large market to invest in funds which loan out money for energy retrofits. Sir Richard Branson, the eccentric British billionaire, has created the PACE Commercial Consortium, a $650 million investment consortium to fund energy retrofits in Miami, FL and Sacramento, CA. The future for energy retrofits certainly looks bright.

http://urbanland.uli.org/Articles/2011/September/BertonRetrofitting

http://www.costar.com/News/Article/Fund-Invests-$650M-In-Emerging-Market-for-Green-Retrofits-of-Aging-Buildings/132198?ref=100&iid=249&cid=B7F4045CB6A5E2804C06EE45B09F536C

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