Institutional Real Estate, Inc.

NAREIM Dialogues Fall 2017

The Institutional Real Estate Inc Sponsorship brochure, Connected-Investor Focused, We connect people, data and insights, sponsorship, events, IREI Products

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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

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