Download report: Net-metering winners and losers

As you head off to Thanksgiving, you can take stock of how your state has progressed on renewable energy (and based on what we’re showing here today, you can hopefully be thankful).

We follow renewable energy trends because one of the central challenges of district or regionally-focused green finance strategies involves having a base of renewable energy policy that the jurisdiction authority can build from.

Renewable energy policies which reward systems owners for electricity generation can go a long way to support sustainable finance funding mechanisms. These mechanisms, depending on their structure, can allow for a transparent flow-through of renewable energy benefits, and the creation of lower carbon districts as well as achieving regional greenhouse gas emissions.

Net metering update

Net-metering is a critical influence on the uptake of renewable energy, since it allows the solar power system owner to earn money by selling electricity back to the grid. So… is your state a pacesetter on net metering? What’s its grade?

Network for New Energy has put out some new figures, detailing how different states make the grade on renewable energy. You can download a copy of the slide deck on this page as well.

Winners

In terms of net metering policies, Network for New Energy names the following states as being top:

1. Colorado
2. Delaware
3. Maryland
4. New Jersey
5. California, Oregon and Pennsylvania (tied)

Losers

According to Network for New Energy, the following states have no policy on net-metering, which resulted in them receiving a failing grade:

1. Alabama
2. Alaska
3. Mississippi
4. South Carolina
5. South Dakota, Tennessee and Texas

LIIF green fund launches and Bond Co’s gets pulled

Two green funds have made the news recently, due to movements in opposite directions.

The Low Income Investment Fund announced a $50 million green community fund, to fund green buildings in underserved communities over the next three years. Per their press info, the funds will be used to invest in LEED certified building development, transit oriented development (TOD) projects and greener child care centers in underserved communities across California and the New York area.

The Bond Companies and Abraham Group, on the other hand, seemed to have pulled the plug on their planned $350 million fund, which would have targeted green real estate opportunities. This comes per Real Estate Alert (no link, subscription based only).

The fund originally focused on developing and redeveloping urban market properties, but switched gears to repositioning existing buildings when the market downturn worsened. With a return goal of 13.5%, it is fair to say that equity return expectations have shifted significantly upwards since the fund was announced. That, plus the overall investor pullback from real estate could make it tough to achieve the original fund-raising targets.

In our view, this shouldn’t be seen as any negative comment against green funds generally.  The shift in real estate valuation and the capital markets downturn have stalled any vehicle that is development and/or sub-20% targeted return.

Expect to see a similar fate hit other green funds announced over the past 24 months. It’s all part of the economy and current real estate cycle.

The upside (if you can call it that) can be seen in green funds, which are announced right about now: the market is widely expected to be at or near bottom by mid-2010, and so those vehicles will be in a better position to purchase real estate more cheaply and, other factors being acceptable, generate the kinds of returns investors expect. Having said that, it is our view that it will be quite a while before new development  returns to the forefront of anyone’s focus.

And that, of course, keeps things very interesting for the retrofitting of existing buildings.

Be a tenant and investment hero with these Empire State Building retrofit tips

Heard at ULI Fall 2009 session: “Green Retrofits: What is making this the wave of the future?”

I went in to this session thinking that I’d already heard all there was to know on the well-publicized Empire State Building (ESB) retrofit. I’m pleased to report that my assumption turned out to be wrong … this session was a thriller; a high-protein download with lots of how-to’s that practitioners can use to be a tenant hero and  improve value with a comprehensive energy efficiency retrofit strategy. A thorough reporting of all the great tips would be too long for this post, but I think you’ll be able to put these highlights to good use:

The Set-up: A Great Business Case

Anthony Malkin, of Malkin Holdings spoke on behalf of the ESB ownership. The other speakers were representatives of New York City, the Rocky Mountain Institute and Johnson Controls.

The Empire State Building was already going through a $550 million repositioning, managed by Jones Lang LaSalle, before the ownership began to consider an energy efficiency retrofit. Since capital was already available for retrofit, no outside financing was needed to pay for the retrofit investment.

The team reported that the retrofit added nearly $13 million in upfront costs, with calculated savings worth $4 million per annum, so, the overall retrofit metrics are great, with the team reporting strong economics:

• Building annual energy costs were $11 million p.a., or 88 kBtu/sf/yr.
• 38% annual reduction in energy usage is projected; almost double the industry average.
• 3.1 year payback vs average 10-20 years.

Top Energy Tip: Reduce Load and Use

The evaluation of an aging chiller showed that the retrofit team can’t only focus on ‘easy’ measures such as changing light bulbs to achieve energy savings. The better business case comes from investing opportunities to reduce the building’s energy load, in addition to use. In the case of the ESB,  $40mm was slated for new chillers in a cooling plant, but load reduction measures elsewhere eliminated need for new chillers (!)  Result: Existing chillers were retrofitted for $5mm.

Tenant Relations Hat-trick

Investment real estate is only as valuable as the bundle of leases that generate rental income. So, many owners are motivated to green and/or retrofit their buildings when they know that it will help them to keep existing and/or attract new tenants. The trick is to get tenants on board with doing their share to keep energy costs down. When discussing retrofit costs/benefits with tenants, the ESB team focuses on the three drivers of tenant occupancy costs: payroll, utilities and rent.

In the case of the ESB, tenant buy-in on retrofit measures was crucial, since analysis revealed that more than half of the energy conservation measures would take place in the tenant’s space.  The team discussed three interconnected programs they use to assist tenants with reducing energy within their suites. The bonus they discovered is that word of these programs has attracted the attention of brokers and prospective tenants that typically would not include the ESB within their search for new space, so now the building has become competitive with a larger universe of possible tenants than prior to the retrofit.

Here are the three key tenant-related programs:

1. Pre-built space: Vacant suites were pre-fitted to turn-key status for prospective tenants, containing many features which would aid tenants with maintaining energy reduction upon move-in.
2. Tenant design guidelines: For tenants that build out their own suites, the landlord’s design guidelines incorporate energy efficiency measures
3. Tenant energy management program:  The ESB team developed a special energy management guide to help tenants understand how they use energy; they also give the tenants reports about their energy usage within their space, telling them how their energy use compares with the building average.

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Let’s meet at the Sustainable Industries Economic Forum

I am thrilled to be participating in the upcoming Sustainable Industries Economic Forum here in San Francisco!

Are you coming?

I will be part of a premiere panel including Paul Hawken and Phillip Michael Williams. We will discuss triple-bottom line investing in these challenging economic times.

Special request –> send me your burning questions and perspectives on the state of green finance and sustainability, and I’ll cover them at the Forum.

The current situation is a perfect storm that feeds off economic worry and unprecedented opportunity within green building and energy efficiency. That leaves lots of folks wondering, “what’s it going to take?” to move sustainability forward.

Send me a note or write a comment on this post about your thoughts, and I’ll try to work your perspective into the mix.  I look forward to the dialogue.

Event Details

November 19, 2009

St. Regis Hotel, San Francisco

8am - 11:30am

You can sign up for the event here

Please join us for what is sure to be an enlightening and insightful event as we look to foster creative solutions for our evolving markets.

Related reading:

• SI article featuring Lisa Michelle Galley

Things you might want to know:

• Do you like this post? We’d love to hear your comments and suggestions.
• You can contact us to discuss or initiate a project here.
• You can get Our Green Journey by email or via RSS.
• Sometimes you can see what we’re doing on Twitter.
• Photo credit: Two Unions on istockphoto
  

Use these metrics to measure your portfolio’s triple bottom line performance

Get this new research on metrics that helps you measure property triple bottom line performance.

We are pleased to share a new report titled, Metrics for Responsible Property Investing: Developing and Maintaining a High-Performance Portfolio.

You can download the report here.

This research was co-authored by Jean Rogers of Arup, David Wood of the Responsible Property Investing Center and myself. This is a working draft for comment that was presented today (4 November 2009) to a joint session of ULI’s Responsible Property Investing and Sustainable Development Councils.

Why do we need metrics for triple bottom line investing?

Our survey of the industry indicated that the spread of triple bottom line investing was being hampered by the fact that most currently available real estate sustainability reporting came from investors who would green a couple of showcase buildings in their portfolios.  This lack of transparency leaves the broader real estate industry and capital markets with several pressing problems:

• They cannot determine if sustainability performance on the portfolio is improving over time.
• They do not know how the portfolio’s green performance compares with the portfolio’s of other investors.
• There is no way to judge sustainability risks hidden within any portfolio.

Drafting and road-testing proposed metrics with the Bay Area Council and TIAA-CREF

After developing a set of metrics that would represent the ten RPI principles in action, we worked with the Bay Area Council Family of Funds and TIAA-CREF to road test them, to obtain real world feedback from actual investor users.

Bay Area Council Family of Funds tested the metrics on recent acquisitions to see how the metrics might be useful during the property acquisition process.

TIAA-CREF tested the metrics on a portfolio of properties they own, to determine how the metrics could possibly assist them with asset management activities.

Both investors were also at today’s ULI session and provided in depth comments on the use of the metrics and their recommendations.

Key takeaways

Here are a few of our findings based upon investor feedback about their use of the metrics:

• RPI metrics do provide a tangible link to asset and portfolio value by pointing to possible decreases in operating expenses and/or increases in rental revenue.
• The use of RPI metrics can assist with opportunity finding: a key objective of due diligence during  acquisition.
• The use of RPI metrics can help drive social responsibility within the portfolio, instead of just monitoring it after the fact.

We need your help!

This report is currently a working draft for comment. It was submitted to members of the Sustainable Development and Responsible Property Investing Councils for their review and comment. We would also appreciate hearing the comments and questions of real estate investors and practitioners within the Green Journey community.

Let us know your thoughts about these proposed metrics. Also feel free to forward this report to anyone in your network whose practice might benefit from the information.

We look forward to hearing from you and will keep you updated on this effort as it evolves.

You can download the report here.

Related reading:

• We’ve covered the emergence of responsible property investing many times before.
• You can also view a short presentation on the basics of responsible property investing here.

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