Green finance workshops to sharpen your competitive edge

A few days ago, we announced the kick-off of a series of workshops focusing on green finance and investment issues via our newsletter, Pacesetter (sign up here). We are posting it here, to update those blog readers who get their news via RSS feed and might not have signed up for our monthly newsletter, yet.

The US Green Building Council Northern California Chapter and law firm, Hanson Bridgett, have generously co-sponsored the seminar series, titled The Competitive Edge: Financial Tools for Green Building Investment.

Why the Competitive Edge?

We want to help you add more value to your marketplace. We’re convinced that there is a real need in the industry to understand how to approach analyzing the value-add of green strategies within real estate investments. So we worked with the US Green Building Council Northern California Chapter and Hanson Bridgett to organize courses that address the core of those issues:

• how to use the LEED rating system when analyzing project cash flows (and move beyond first costs)
• common investment analysis issues and tools for retrofits
• an approach for structuring the investment review of new and existing green buildings
• how A/E/C professionals can learn common investment analysis processes and terms to improve communication with property owners about design, construction, and budget issues.
• what to consider when assembling a portfolio or fund of green investment properties.

We believe that green finance and investment techniques represent the next level of skills that real estate professionals need to stay current with changes in the real estate market place. ‘

Since sustainable design can change the economics of a building, and there are many ways to go about creating a green building, finance and investment professionals need to know a good, and efficient, process for incorporating this information into their decision making.

Below are a complete list of courses as well as links to registration. Also, you can sign up and join our Pacesetter list, which will contain updates on these courses, too.

Competitive Edge Course Summary

• Course 1, “Investment Analysis of Green Buildings”, (March 3, 2010 - Register now) covers green investment underwriting skills that help professionals to quickly use the USGBC’s LEED-rating system in their decision-making. Full day seminar.
• Course 2, “Financial Considerations of Existing Building Retrofits”, (April 7, 2010) addresses the financial considerations related to energy efficiency retrofits, so that professionals can integrate the additional decision-making tools and analysis for making buildings more energy efficient. Full day seminar.
• Course 3, “Understanding and Communicating the Financial Case for A/E/C Professionals”, (April 28, 2010) gives architects, engineers and sustainability consultants an overview of the real estate investment analysis process, stressing how to use this information to ‘go beyond first costs’ in their conversations with owners about their green design and construction choices. Half day seminar.
• Course 4, “Raising the Bar: Green Investment Fund Strategies”, (May, 2010 - date to be announced) walks the real estate senior executive through the business and legal aspects of assembling a portfolio of green property investments so that they can create more strategic advantages for their firms via creating pools of green building investments for the real estate market.

Instructors: I’m pleased to be co-teaching these courses with David Longinotti, Partner at Hanson Bridgett.  Dave’s bio can be read here. You can check out my bio here.

To facilitate the best interaction, please note that seating is limited for all courses. Got any questions? Feel free to write us or call us at +1 (415) 655-6668. We’d love to see you there!

$20.5 million from DOE helps communities turn trash into cash

The Department of Energy has just announced funding $20.5 million for several community-scale renewable energy projects.

UC Davis & West Village

One of the recipients is West Village, next to UC Davis, which generated a bit of criticism among Green Journey readers the last time we covered them. In partnership with UC Davis, they’ve now received $2.5 million in funding for a waste-to-renewable energy (WTRE) system. The DOE provides an explanation of how the new system should work:

The system would generate power from a renewable biogas-fed fuel cell.  The organic waste will enter a digester to produce biogas from organic wastes. The biogas will power a 300-kW fuel cell, which will work in combination with an advanced battery system to provide power to the campus’

Montpelier, VT

A second community level energy system of interest is the funding of $8 million to the City of Montpelier, Vermont, for a combined heat and power district heating system that will burn sustainably-sourced wood chips and provide 1.8 million KWh to the grid.

The CHP system will be sized to provide heating to the Vermont Capitol Complex, city owned schools, the City Hall Complex, and up to 156 buildings in the community’s designated downtown district for a total of 176 buildings and 1.8 million square feet served.

We follow these announcements with lots of interest, since we work with partners to identify the best combination of financing streams for achieving community-level sustainability.

As we continue to study eco-districts and similar low-carbon neighborhoods in various stages of design and planning around the world, district-level renewable energy infrastructure  — particularly waste-to-renewable-energy comes up time and time again within the case studies of the more successful communities.

A more in depth discussion of the ’success factors’ within green communities will definitely make for an exciting post in the near future as we consolidate our findings.

Video explains value of district energy

Some of these technical terms might be outside of the typical real estate finance and investment discussion, so I found a 40 second video that explains how district energy saves buildings money. Email subscribers should click on this link to go to the video.

On-Bill vs Tax-lien Financing 2: Which is better for you?

In the last post, we put out a free resource, that walks you through an energy efficiency financing case study. Here we compare financing options more in depth, so you can see some of the critical questions when considering which form of financing would be best for your retrofit projects.

Prevalence of on-bill financing: Roughly 10 states offer on-bill financing programs. A number of  gas and electric utilities currently offer (or have conducted pilot testing of) on-bill financing programs, which are oftentimes referred to as meter loans or TIPs (”Tariff Improvement Programs”). When structured and funded correctly, and with the appropriate marketing, these programs have been successful. Take a look at San Diego Gas & Electric’s website detailing their program for an example of how this works.

Emerging tax-lien financing market: So far, only a handful of municipalities and counties have executed tax-lien programs (The City of Berkeley, Sonoma County, and City of Palm Desert have operational programs). Despite the model’s infancy, more than 15 states have amended state laws to allow for local improvement districts, paving the way for local government to enact tax-lien programs.

When thinking about which mechanism works best for your circumstances, its better to frame the analysis in terms of trade-offs involved. In other words, nothing’s perfect, but in the right circumstances, each option can be more than good enough. So let’s focus on the comparative advantages of each.

Tax-Lien Advantages

• Longer loan terms: The typical loan payback period for tax-lien loans is 20 years, minimizing the annual principal costs. This helps to keep these programs competitive with on-bill financing, which can feature an interest rate as low as 0%, but typically require loan repayment in 2-5 years.

• Wide range of acceptable investment: Tax-lien programs can focus on both renewable energy and energy efficiency, giving property owners greater flexibility in how they deploy capital. Current on-bill programs largely limit the use of capital to energy efficiency measures, and typically for measures that are covered under incentive programs offered by the utility provider.

• Broader financial network: There is strong interest from the private market to provide capital (via the purchase of municipal bonds, which are used to fund these loan programs) and program administration support for municipalities and counties looking to implement tax lien programs. This lowers the implementation cost for local government, increasing the likelihood of widespread adoption. On-bill programs may require expensive upgrades to the utility’s billing system, precluding utility providers from offering on-bill programs (and opting to contribute dollars to other energy efficiency programs).

On-Bill Advantages

• Available to both property owners and tenants in leased space. On-bill programs typically fund on a per-meter basis, which means that each tenant with an individual meter is eligible for on-bill. Low-to-no cost financing is attractive to tenants, who can execute energy efficiency improvements and benefit from a lower utility bill while they are in the space; if structured correctly, the monthly loan payment is less than the energy savings.  If the on-bill financing is structured under a tariff agreement, the improvements are based “on the meter”, and the financial obligation stays with the meter. Therefore, repayment obligation transfers to the new beneficiary of the upgrades. On-bill financing is a work-around to the principal-agent issues in the tenant-landlord relationship; those that pay the utility bill are now incentivized to improve their energy-efficiency.

• Program coupling. On-bill financing is combined with other energy efficiency programs offered by the utility provider, such as upgrade incentives, which reduce the cost of equipment upgrades/system improvements. Additionally, many utility providers offer no-cost design and engineering assistance to help their customers maximize the performance of their energy efficiency measures. These services both reduce the improvement costs, make the whole process much easier and ensure maximum energy savings for customers.

• Reduces barriers to high impact improvements. On-bill is designed to reduce implementation costs for the borrower. No-cost financing means that capital constrained building owners and tenants can execute upgrades that have maximum impact upon energy performance. This is especially relevant for low-income households, who can now undertake energy efficiency measures in their homes which reduce their utility costs.

While the widespread availability of these programs is still limited, portfolio owners should track their development and consider them as a financing option for sustainable retrofits.

Coordinating Your Approach to Energy Efficiency Financing

As you consider how the newer options can work for you, keep the following tips in mind for y our overall program initiatives:

• Determine your portfolio retrofit strategy. Are you undertaking a wholesale repositioning of your assets, or simply ensuring long-term competitiveness via gradual improvement, or a little bit of both? In making this determination, it helps to consider both the market and regulatory risks of your assets within the areas they are located. Separate your portfolio properties into “buckets” by these criteria.

• Evaluate local financing options. Even if your portfolio covers a national or regional geographic area, it pays to evaluate the state, local, and utility provider incentives for sustainable retrofits. The availability of certain incentive and financing programs may impact which properties, and which specific upgrades, get prioritized.

• Examine your existing leases, and adapt all future leases. Do you know what retrofit costs, if any, you can pass on to your tenants? Make sure you understand how both your and your tenant’s bottom line will be impacted by performance improvements. Structure all future leases to allow for appropriate cost pass-throughs for measures that will significantly and positively impact your tenants total cost of occupancy.

On the Mandatory Greening of Existing Buildings + EcoTuesday Reminder

Did  you catch that hint about possible mandatory measures to require the greening of existing buildings?

In case you missed it, the Examiner put out the word that Mayor Gavin Newsom and San Francisco Supervisor Eric Mar will introduce legislation this week which, when passed, would authorize San Francisco’s own version of an energy efficiency financing district.

Called a “green loan” plan in the article, the loan fund would allow homeowners to receive loans to make environmental improvements to their properties and then pay back the money through extra property taxes.

But you have to read that overwhelmingly positive article a little slower, to absorb the hint buried in a couple of innocent sentences several paragraphs in.

The article focuses on how the upcoming energy efficiency and renewable energy financing plan builds on momentum created by San Francisco’s mandatory green building codes, and also hints at the City’s future actions on greening existing buildings:

Newsom has already pledged to tighten those rules to apply to existing buildings. This latest green idea may provide a way to finance improvements that could soon become mandatory.

Are mandatory energy efficiency requirements really a good idea?

Professionals throughout green building construction, retrofits and public policy have been wringing their hands on the topic of mandatory energy efficiency standards for existing buildings. Many green building colleagues and supporters want mandatory measures to address the problem of owners with “energy hog” buildings, who simply ignore the impact of their wasteful operations on the community.

There are also concerns about mandatory energy efficiency measures unfairly impacting smaller or much older projects, since the owners in both cases might only accomplish the most limited actions to address energy efficiency problems. Essentially, retrofitting these buildings might be too cost prohibitive for those owners.

Finally, the real estate trade associations and other professional bodies have been trying to send tough signals against any form of mandatory anything when it comes to building operations. Fighting any type of cost or administrative burden  on owners at any opportunity.

Then there’s the flip side.

We also speak regularly with owners who introduce energy efficiency and green O&M to their existing buildings — only to have tenants blatantly ignore them. They express hope that, in a market with mandatory energy efficiency measures, they can more easily obtain tenant cooperation on O&M, plus they think they will look like heroes to their equity capital partners — who now struggle over how to assess and transmit some form of energy efficiency standards across behemoth national property portfolios run by thousands of local managers and JV operating partners.

The Green Journey Take?

While the retrofit cost concerns of small and very old properties are real, legislation can be crafted which addresses the potential energy efficiency limitations within their projects. They can, and should, get a fair deal.

As for the rest of the industry — we think that mandatory energy efficiency standards — with an appropriate, accessible, cost-effective financing mechanism — can provide real opportunity for competitive owners who “get it”, and need not be as problematic as some groups fear.

What do you think?

*   *   *

Reminder

Let’s meet next week re: Green Finance for Communities, Campuses & Power

I noticed that several Green Journey readers are already signed up for my upcoming talk at EcoTuesday, next Tuesday, 28 July.

Exciting! You’ll all finally get to meet each other!

I’m talking green finance and how it’s changing our communities, flowing through our science and innovation parks and accelerating the growth of clean energy. And most importantly, how green finance trends can help our businesses and help us to help others.

Are you coming out?

I look forward to connecting with old friends and meeting a few new ones.

Most importantly –> We never accomplish anything alone. A summer cocktail hour is a great time to thank friends and colleagues who inspire us and to encourage them to continue the excellent work they do in transforming our communities and country.

Meeting Details

Date: 28 July 2009

Time: 6:30pm

Location: The W Hotel, 181 Third Street, San Francisco

Sign up here!

5 Proven Policies to Bail Out Mother Nature and Boost Green Building

Even as the Federal government invests in energy efficiency and conservation, by announcing the award of $3.2 billion in block grants (including $1.9 billion to cities and counties) last Friday, environmental leaders are looking ahead and pushing for more sweeping action — calling on a “climate bailout” in today’s NYTimes Op-Ed.

You heard it — a climate bailout.

Friedman’s op-ed shares the perspective of Hal Harvey, head of ClimateWorks, about his five top policy picks that would help the US to decisively address the energy-climate challenge that we’re only just starting to collectively understand.

The main point about all of these suggestions is that they already are in place somewhere, so they’re proven. No need to reinvent the wheel.

We like thinking about how commercial real estate capital markets would view real estate risk and returns of green buildings if these policy recommendations actually became national laws.

But first, here they are:

1. Building codes: California’s Title 24 saves Californians $6 billion per year via higher standards for building energy efficiency.
2. Vehicle fuel efficiency: The European Union’s fuel efficiency standard averages 41  miles per gallon.
3. Nationwide renewable portfolio standard: He favors a mandate that utilities be required to buy 15 to 20 percent of their energy from renewables by 2020.
4. Decoupling: Already working in California, power utilities make money by helping people to save energy rather than by encouraging them to consume it.
5. Charge for carbon: People should not be allowed to pollute for free.

Of course, the article enjoys the luxury of an op-ed; it does not map out how anyone will pay for any of these policies’ upfront costs. Or how long it would really take for any of these ideas to be adopted nationally.

Nonetheless, for the commercial real estate community, the fact that most of these policies are already being implemented in some form already, should mean that they can spread a bit easier than many might think.

And if a real estate investor has not prepared by adjusting their overall strategy and retrofitting their existing buildings to as good a standard as possible, more forces are very hard at work to eventually make their existing property business obsolete.

Photo credit: Flickr/Lolliepop

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