NAREIM DIALOGUES FALL 2017
15
2030, respectively. The first net-zero buildings were owner-
occupied, often by companies and organizations looking to
demonstrate sustainability excellence. Now, net-zero energy
buildings are entering the mainstream commercial real estate
development marketplace. Adding solar to existing properties
is one way to catch up with these fast-moving trends.
Preparing for a solar investment
Despite the attractive improvements to property
fundamentals and other value, many real estate owners
do not consider going solar because of the upfront cost.
It is challenging to earmark the millions of dollars required
for solar due to internal competition for capital and the
potentially negative impact on financial performance metrics
(because the solar asset would count as a liability and it it is
not yet common for bank/reporting appraisers to take the
value of solar into account).
Fortunately there are several options for owners to consider
to fund the solar project up to 100 percent. A direct purchase
can be justified when owners are able to make their case to
bank/reporting appraisers that solar boosts property value,
effectively offsetting the upfront capital expenditure. A solar
power purchase agreement is a good option for owners with
long-term holds (greater than 10 years) and excellent credit.
A solar operating lease generally works well for owners
with medium-term holds, especially if the project payback
is expected to occur a few years before the property is
expected to be sold. Commercial PACE (property assessed
clean energy) financing works more broadly because the
payments are affixed to the property tax and automatically
transfer to the new owners.
Across the country, real estate owners have the opportunity
to increase property incomes at minimal cost and risk. Real
estate fund managers who are able to proactively identify
these opportunities across their portfolios (incuding potential
acquisitions) and use effective procurment processes are in a
position to create substantial value that would not be created
by other fund managers.
Lawrence Berkeley National Laboratory (2016), Tracking
the Sun IX: The Installed Price of Residential and Non-
Residential Photovoltaic Systems in the United States
Link: https://emp.lbl.gov/publications/tracking-sun-ix-
installed-price