It seems a lifetime ago when the $700 billion Emergency Economic Stabilization Act of 2008 passed, but in fact it was only earlier this month. Given all that has happened leading up to, and then resulting from, the Act, it’s been easy to overlook the renewal of several energy tax credits that were also folded into the legislation. Worth between $15 billion to $30 billion, they support investments in wind, solar, geothermal and other renewable forms of energy. Solar energy alone received an eight-year extension of an investment tax credit. “Congress has been fighting over these provisions for a year-and-a-half, Todd B. Reinstein, a partner with Pepper Hamilton LLP, tells Bisnow. “Then they were suddenly included at the last minute.”
With the extension in place, some building owners may find their roof space suddenly of interest to some prospective tenants – namely third party energy providers that would like to lease the space for solar panels and wind turbines, generating energy that could be used in the building and resold to other businesses as well.
"Under current law, the federal tax code provides for a 30% investment tax credit and 5-year accelerated depreciation recovery period for eligible solar energy property,” Reinstein explains. “Many commercial real estate owners do not, however, take advantage directly in the credit with qualified equipment that is purchased and placed in service on their respective property. Instead, they typically enter into leveraged leasing structures that are used with a third party that utilizes the tax benefits of the credit – which was just extended to include property placed in service before January 1, 2017.”
The tax equity from the credit is critical to making these transactions work financially, which is why the extension was crucial. In fact, Reinstein reports, “we are already seeing the extension heat up a number of these transactions as lenders are now willing to provide the non-recourse financing for the equipment."
“Most of the deals I have seen have occurred in New Jersey and Pennsylvania. But I think we will see firms try it out here too as well.” Office REITs are a particularly attractive target, he adds, as they don't need the tax credit -- the third party provider gets it, of course, since it made the investment -- but it can always use additional rental income.
Another piece of legislation recently passed, this one in the District, will not only impact energy use but also, indirectly, how energy-efficient buildings are valued in the investment sales market.
As of October 1, Washington DC became the first US city to require annual energy benchmarking in all buildings. The DC Council unanimously passed this bill -- The Clean and Affordable Energy Act of 2008 -- in August. Emergency provisions – attached mainly to make it easier for book keeping purposes – allowed it to go into effect immediately.
Essentially the law requires commercial property owners to generate an Energy Star efficiency score for their buildings. That score will be made available online – making it easier to compare and contrast the different buildings – by the District’s Department of the Environment.
Starting next year, all buildings over 250,000 SF must participate. By 2013 most buildings in the District will have been phased into the program, according to size.
The program is already attracting attention in other cities, Cliff Majersik, the program director for the Institute for Market Transformation, a local green building advocacy group that helped craft the legislation, tells Bisnow. New York City already has a bill pending before its city council, he says.
Many building owners already comply with Energy Star, Majersik acknowledges. “What is different is that now it’s required – and the score will be disclosed.” A lot of buildings merely advertise they participate in the program, he explains. There are reasons for that as sometimes a score can be misleading. For instance, a building that houses law firms where people tend to work late into the night and have five computers in every office will have a lower score than a government building where workers shut off their single computer at 5 pm.
Energy Star’s database accounts for these differences, as well as provides some guidance for what is an appropriate score in a particular building. Another variable would be a building that is only partially occupied, which could distort the meaning of the score if not accounted for. It also shows tenants potential savings if a building’s score were to improve.
With such standardization in place, Majersik predicts, companies will begin seeing more of an energy-efficiency premium in investment sale prices. “Right now appraisers don't have comparable data to appropriately value buildings-- or estimate their future net operating costs -- that have this technology.”
Fore Property will begin construction next month on a 226-unit, class-A green multifamily project in Owings Mills. It will be the submarket’s first LEED-certified residential apartment building, the developer says.
USGBC and Island Press have launched GreenWorks, a book club on green building. GreenWorks will offer a selection of featured reads each month. Also at USGBC…the public comment period is still open for LEED v 3.
The Building Owners and Managers Association International (BOMA) will be holding its Sustainable Operations Series, 90-minute Webinars that teach practical strategies and best practices for implementing green commercial building operations, on the following dates:
11/12/2008. Strategies for Reducing and Reusing Building Resources
12/3/2008. Rethinking Recycling—Beyond Paper and Cans
1/14/2009. How Green Is My Building? Tools for Measuring the Total ROI of Sustainability.