Column: Putting a value on clean energy
BY GENEVIEVE SHERMAN
Commercial and industrial property owners who invest in green energy improvements have a distinct competitive advantage, according to the Connecticut Green Bank.
The Rocky Hill-based Connecticut Green Bank, with an office in Stamford, administers the C-PACE program, which provides Connecticut”™s commercial property owners with the ability to finance energy-efficiency and clean-energy improvements.
C-PACE enables commercial, industrial and multifamily property owners and nonprofits to access long-term, low-interest financing for energy upgrades with no money down, making for immediate cash flow from energy savings.
Using money saved on energy bills, building owners repay C-PACE financing through a benefit assessment charge ”” spanning up to 20 years ”” on their tax bill.
When building owners leverage green improvements properly, their properties typically outperform others in terms of operating expenses, rent and occupancy.
C-PACE customer case histories demonstrate that by significantly reducing utility costs, companies drive up net operating income and create new cash flows that are capitalized into asset value. These upgrades include high-efficiency lighting, heating, HVAC systems and solar systems.
It is critical, however, to capture this value in appraisals, which are an essential piece of information used by capital providers to underwrite clean-energy investments. With C-PACE, for example, the underlying property is the security for the financing, so the cost of the energy improvements must be weighed against the property”™s value.
As energy upgrades become a part of the property, it is important to evaluate what additional value they provide. To meet this need, the Connecticut Green Bank is educating commercial and industrial property owners, lenders and the appraisal industry about the importance of green building appraisals and how to conduct them.
Last month, the bank hosted workshop titled “Appraising Commercial Buildings for Renewable Energy & Energy Efficiency.” The event provided practical information on how buildings are valued once renewable energy and energy-efficient upgrades have been made. Building owners learned about tactics to enhance the value of their properties. The bank will host additional workshops in 2015.
“Appraisers need to understand energy-efficient building features and appropriate methodologies to measure reduction in energy-related operating expenses,” said John Brenan, director of appraisal issues for the Appraisal Foundation, workshop keynote speaker. “They should be familiar with the market dynamics shaping the economics of energy upgrades for commercial building owners, including financing tools like C-PACE. These are critical for appraisers to measure market reaction and, as a result, incremental value.”
The growing success of Connecticut Green Bank”™s C-PACE program over the past two years is encouraging building owners to invest in energy improvements that increase asset value. The key is for commercial and industrial real estate appraisers to optimally reflect the value owners are adding to Connecticut”™s building inventory.
Depending on the nature of the improvements and the depth of cost savings, energy upgrades can markedly raise value from the baseline “as is” valuation.
Bridgeport-based MDL Realty recently used C-PACE financing to retrofit its new facility, including the installation of LED lights, solar panels and a biodiesel generator. “In Bridgeport, we”™re making bullish investments in clean energy production, to help our kids and families breathe cleaner air and create the green jobs of the future,” said Mayor Bill Finch. “That is why Bridgeport was the first municipality in Connecticut to pass a resolution to offer C-PACE to give organizations, business owners and job creators a tool to lower their energy costs and help the environment.”
Being able to offer C-PACE means properties ranging from houses of worship, like Bridgeport”™s Calvary Temple Church, to buildings like those at MDL Realty, can fund valuable and much-needed energy improvements. Across the state, C-PACE projects have significantly improved customer comfort and have resulted in savings over time, while creating a more competitive environment for attracting and retaining businesses.
Last summer, to meet its increasing appraisal needs, the bank issued a Request for Qualifications aimed at creating a qualified group of professional commercial and industrial appraisers. Today, the Connecticut Green Bank has ready access to a small group of qualified appraisers. However, it seeks to qualify additional appraisers as the number of projects requiring such expertise is increasing, with significant growth anticipated.
Genevieve Sherman is director of commercial and industrial programs at Connecticut Green Bank. Email her at c-pace@ctgreenbank.com or visit c-pace.com.