$1 billion in retrofit financing from Community Preservation Corporation

People always ask ‘where’s the beef’? when it comes to green finance.

Of course, they’re asking who’s making money available to develop or retrofit buildings to sustainable standards.

You should pay attention to the recent announcement from the Community Preservation Corporation (CPC), to bring $1 billion in energy efficiency retrofit financing to multifamily property owners in New York. This should provide a great energy efficiency financing model for others to duplicate.

The newly formed CPC Green Initiative aims to be an industry pacesetter by proving that seemingly disparate public and private entities can foster new and creative green finance solutions. According to Michael Lappin, CPC President:

“We anticipate financing retrofits for up to 15,000 apartments over the next few years. But to change the urban landscape we will also need to adjust the financing landscape.”

This program is notable because it includes participation by the great range of potential sustainable finance partners — an affordable housing lender, a GSE, pension funds, private lenders and utility companies.

Key financing components:

• $150MM in construction funds will be provided by the New York Building Revolving Fund for properties needing extensive renovation. That fund is backed by proceeds from Deutsche Bank, HSBC and other lenders.
• $300MM will come from New York pension funds.
• Freddie Mac will fund permanent loans for buildings not requiring the above construction loans.
• Freddie Mac has also committed to buy $500 million of loans from this program.

By directly incorporating efficiency retrofits into the loan process as well as requiring ongoing monitoring regimes through the loan life-cycle, we feel the CPC and its funding partners are taking the long-term holistic perspective that we believe is essential.

With a sizable partners including Freddie Mac, Deutsche Bank and the NY State Pension Fund, the CPC will need to fill a role that we find essential – being a strategic hub were investors and key stakeholders can find expertise and guidance.

This kind of pooled investment and lending commitment that relies on multiple layers of funding solutions is one that we are seeing on current projects. We think these kinds of well-designed and sufficiently capitalized partnerships will compliment local government funding.

We’re sure that we’ll see more structures like the CPC Green Initiative emerging on the market. Let us know if you are aware of any similar programs for commercial properties in your area.

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Continued challenges for neighborhood stabilization efforts

Several weeks ago we noted that our recent experience with the Neighborhood Stabilization Program (NSP) revealed significant hurdles facing the program, and highlighted the struggle to realize on-the-ground benefits for target communities.

Unfortunately, the latest news on this front confirms our assessment.

Much of the nearly $4 billion put forward under the NSP to help the country’s most blighted communities is showing limited and inconsistent benefits.

While some cities are finding success, the combination of robust private sector purchases of foreclosed properties along with banks’ unwillingness to systematically support the NSP efforts has fostered frustration.

In what might be viewed as a last ditch effort to see the NSP succeed and overcome the significant operational challenges inherent in the acquisition, rehab and funding of foreclosed homes, a new coordinating entity has emerged as a potential solution: The National Community Stabilization Trust.

A nonprofit organization, The Stabilization Trust will aim to ‘right the ship’ by providing local agencies with services that should counteract the NSP’s underperformance, specifically:

• Streamlined, coordinated access to foreclosed properties, and
• Flexible and timely financing to renovate the properties.

To execute effectively, The Stabilization Trust has established direct partnerships with leading financial institutions, such as Bank of America, Chase, Citi, Fannie Mae, Freddie Mac, GMAC and Wells Fargo, which in theory should for allow municipalities to acquire targeted properties in bulk across specific neighborhood locations.

Bigger picture considerations…

While the success of The Stabilization Trust is still uncertain, the facts on the ground to date feed the skepticism of those who opposed the NSP from its inception. As the next steps play out, current market activity raises some important questions to consider:

• Does the success of private investors (to the detriment of contained and focused city-run rehabs) signal that markets are indeed functioning quite well, thus suggesting the need for government to move aside?

• Are banks’ fiduciary responsibilities to their shareholders the driving force that trumps larger questions of long-term community welfare? If so (and many would argue yes), where is the proper balance between commitment to shareholder wealth, and service to the communities in which a bank operates?

Have an opinion on the effectiveness of the NSP, or the broader policy implications of the program? Leave us a comment, and let us know what you think.

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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: JoLin on istockphoto.com

Part 2: Unlock Hidden Cash Flow and Value with Energy Efficiency Retrofits

Face it, today’s tough capital markets force every real estate investor to drill deeper into existing building performance to eliminate waste, sustain and/or increase net operating income.

In Part 2 of our Special Series on the Green Building Finance & Investment Forum – New York, industry pacesetters detailed the positive investment benefits from building energy efficiency retrofits.

Research data and practical experiences of the World Business Council for Sustainable Development (WBCSD), Citi Realty Services, Jones Lang LaSalle (JLL), the United States Environmental Protection Agency (EPA) and Real Win Win, Inc all pointed to a mountain of evidence that greening existing buildings reduces wasted capital that is hidden within portfolio performance inefficiencies.

WBCSD: Do not underestimate the size and significance of energy efficiency retrofit opportunities within your portfolios

Many facility owners and managers think of green retrofit measures as not amounting to much savings – i.e. presenting a weak business case. But the actual data being developed by experts shows that these investors/operators are misjudging the opportunity.

Bill Sisson, director of sustainability at the WBCSD and the United Technologies Corporation, put out some tough stats that underscore the degree of financial, resource and operational inefficiency currently buried within the global property industry:

The International Energy Agency (IEA) calculates that the potential energy savings for existing building energy retrofit is 25% of global energy usage, which is equivalent to the energy that is used globally for transport (26%). The retrofit of existing structures can eliminate ¼ of the current global final energy use, equivalent to the production capacity of 3,200 700MW power plants.

The WBCSD is studying the business case for property owners via it’s “Energy Efficiency in Building” project, with the objective of creating “the first quantitative look ever at what may be accomplished economically by reducing energy demand and CO2″.  This project, based on 1 trillion square feet of data (wow!), focuses on the cost effective reduction in property energy use through new technologies, financial structures, and shared knowledge. The WBCSD has published a summary and trends report (PDF) based on their study of this data, ahead of the full report, due out in 2009.

EPA & JLL: You can earn back up to 10% of operating expenses plus lease or sell a more competitive asset

Here in the US, commercial buildings generate 45% of our national greenhouse gas emissions and cost landlords and tenants more money than necessary.  Alyssa Quarforth, the Energy Star program manager for the US Environmental Protection Agency (EPA), laid out the sizable savings and financial opportunity to property owners implementing energy retrofit projects:

• On average, energy costs represent 28% of total operating expenses for commercial office buildings.
• 30% of energy consumed in commercial buildings is used unnecessarily or inefficiently.
• Based upon these figures, almost 10% of operating expenses are inefficiently spent. These inefficiencies provide an opportunity for building owners to improve property fundamentals and increase their ROI via the green retrofit process.

Peter Belisle, president of project and development services at Jones Lang Lasalle (JLL), spoke about the competitive advantages that they see in certified green buildings over conventionally built and non-certified structures. JLL has a project volume of $13 billion as of last year. He reported that in the same submarket, and even for nearly identical structures, green buildings lease up faster, enjoy lower vacancy, and present the better potential for higher lease rates than their conventionally built peers.

Citi Realty Services: Leasing space in buildings with energy efficiency retrofits improves our bottom line and helps fulfill our corporate sustainability charter

Many of us have heard that the social responsibility charters enacted by corporate tenants are driving their demand for certified green space. Tenants are aware that green space boosts their bottom line, too.

Susan Chapman, director of global real estate operations for Citi Realty Services, which operates real estate for Citigroup, pointed out how some of the real estate strategies that Citigroup is implementing to reduce the group’s greenhouse gas emissions, also provide the immediately positive financial benefit of cutting their overhead costs.

For example, by utilizing alternative workspace strategies, Citigroup can eliminate the need for roughly 48,000 workspaces over the next 4 years. This will reduce their global real estate demand by roughly 10 million square feet of space. Chapman estimates that eliminating these workspaces will reduce the carbon footprint of Citigroup’s real estate by 29%, and reduce real estate-related operating expenses by 22%.

In addition to this demand reduction, Citigroup will concentrate their employees in energy efficient, green-certified facilities that maximize daylight and indoor air quality.

Many tenants are implementing real estate strategies that will reduce their commercial real estate footprint. This puts the pressure on existing landlords to retrofit space to stay competitive, or risk losing tenants when their leases are up for renewal.

Real Win Win: Your ability to ask the right questions drives the success of your energy efficiency retrofit program

One of the biggest challenges to green retrofits is to determine which particular upgrades and strategies will maximize return on investment. One of the key workshop takeaways is that integrated design is not only applicable to new construction, but is also vitally important to the retrofit process.  If you set a program for renovation, green strategies have to be planned from day one.

Mark Jewell, president of Real Win Win, Inc, presented strategies for working with existing landlords to approve these renovations, and to ensure that new operating efficiencies accrue to those who pay for them. Framed in a “myths versus math” outline, he laid out a question set that owners and facility managers can apply when selecting retrofit strategies that yield the best return on investment.  Here are a few of those questions:

• How would our existing (and future) leases allocate the costs and savings of a building wide energy retrofit?
• Has anyone examined each lease & calculated who would benefit from lower energy costs?
• Do your payback analyses consider who gets the savings?
• Do your upgrade recommendations communicate the true costs/benefits to the cap ex decision-makers?
• Would lower Op Ex (and improved comfort) help with tenant retention and attraction?

As more owners/operator become wise to the financial advantages of green retrofits, and the risks to owners that do not improve their structures continues to grow, we expect to see more activity in the retrofit sector.

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If you liked this post and would like to receive more, please subscribe. Don’t forget to read the other installments of our Special Series on the Green Building Finance and Investment Forum - New York. As always, we welcome your comments.