Maximizing the profitability of commercial real estate (CRE) requires a well thought-out strategy combining a reduction of expenses along with offering amenities that appeal to tenants and support increased lease rates.
Amenities that reduce the use of energy and its cost, while improving tenant comfort, have proven to be a winning strategy for maximizing CRE profitability. According to a study done at the University of Guelph:
“Environmentally friendly office buildings have higher rents and occupancy rates as well as more satisfied tenants” Dr. Avis Devine, Professor University of Guelph.
The least amount of energy at the lowest possible cost
Environmentally-friendly means using the least amount of energy. When achieved at the lowest possible cost, it is a quick way to reduce commercial real estate expenses. Typically when building owners begin researching environmentally-friendly options, the first question is how to affordably finance them so cash flow is not reduced.
To answer that question more property owners are taking a close look at the unique benefits of the Property Assessed Clean Energy (PACE) program. PACE is a national program administered at the local level. In a PACE-approved district, a property owner uses the property tax mechanism for repayment of environmentally-friendly upgrades. The property owner voluntarily takes on a special assessment which is then paid off as a portion of their property tax bill.
The PACE program helps property owners pay for energy upgrades with a repayment mechanism that lowers the risk to lenders. Low risk means more money available for upgrades. This unique combination has opened up large opportunities for environmentally-friendly CRE upgrade projects. The PACE program eliminates the obstacle of financing which often prevents many environmentally friendly upgrades from going forward.
Here’s how PACE compares to traditional financing options:
PACE is a no-money-down, positive cash flow option
“PACE makes it possible for owners of commercial, industrial, multifamily, and nonprofit properties to obtain low-cost, long-term financing for energy efficiency, water conservation, renewable energy projects, and more.” PACENation
PACE is a cost-effective way for industrial and commercial property owners to pay for environmentally-friendly upgrades because it covers 100% of the costs! One of the most appealing aspects of the program is that for many projects, the resultant energy savings, in relation to the project costs, are positive from day one. Depending on the particular PACE statute, this may be a condition for project approval.
In addition to reducing operating expenses, most PACE upgrades include heating, ventilation and air conditioning (HVAC), as well as facility lighting – major contributors to building occupant comfort.
For leased spaces a more comfortable environment helps tenant acquisition and increases retention resulting in higher occupancy and lease rates.
Because of the gain in net savings resulting from a PACE funded upgrade (see graphic below), it becomes more costly for the building owner to delay a project or do nothing.
“It is costing you money when you delay energy upgrade projects.”
What upgrades qualify for a PACE program? Typically it’s for upgrades or construction that reduces energy or water use or generates renewable energy. A New York Times article illustrates one example of how the PACE program was used to cut electric bills through the installation of solar panels.
If you’re a building owner and would like to know if PACE is right for you just click HERE for the free guide entitled PACE for Driving CRE Financial Performance.
E3 Prime Environments helps owners of small to medium size businesses achieve the same benefits of energy-saving facility upgrades available to their larger corporate counterparts. Our focus is on upgrades that are profitable, financing-friendly and enable good environmental stewardship