Report shows energy efficiency retrofit financing available for commercial real estate

February 21, 2012

Energy efficiency financing is on track to become a mainstream financial asset class, as it may develop a high degree of standardization, scale and predictability, according to a report from Building Energy Performance Assessment (BEPA) News.

"For several years, it has become increasingly evident to stakeholders in commercial real estate (CRE) that building energy performance can impact property value," the authors said in the report. "As a result, less energy efficient buildings are now viewed as having a competitive disadvantage in the market and may be in danger of accelerated obsolescence."

This type of shift in the market has promoted the idea of energy efficient buildings, as companies have started retrofitting projects in order to replace older technology in their structures. Green Buildings reported that these installations may not only lower operating costs, but could qualify for a tax deduction.

The lowered costs that exist for companies who retrofit their buildings was outlined in the BEPA News report, as even without government tax breaks or incentives, energy savings projects that result in lower energy use can have an excellent return on investment.

Though the benefits of energy efficient building technologies have long been touted, according to the report, the nature of the CRE market has prevented many building owners from making significant investments.

This was due to the high turnover that existed for many businesses in a structure, the lack of owner-occupation of these buildings and a shorter period for ROI than in other real estate markets.

To help overcome these obstacles, according to the report, commercially-attractive financing needs to become more readily available.

"To really move this market there is a clear need to make energy efficiency financing a mainstream financial asset class with a high degree of standardization, predictability and scale," the authors noted.

This type of effort to make improving structures more commercially viable for businesses is part of the motivation behind the Greater Philadelphia Innovation Cluster for Energy Efficient Buildings (GPIC), a Department of Energy designated innovation HUB for the sector.

The GPIC is looking to motivate building owners in Philadelphia to make the shift to more efficient structures through presenting them with attractive investment ideas instead of forcing them to make the switch.

"You're not trying to penalize," Mark Alan Hughes, a member of the GPIC team, told Environment and Energy Publishing. "It's to incentivize the owners of those lousy buildings to improve — because we believe the improvements pay for themselves."