Report shows mixed financing options for retrofits, energy efficient buildings

May 21, 2012

The rise in demand for energy efficient upgrades and retrofits for commercial and residential structures has led to an increase in the size of the green building market, but financing for new projects has been hard to come by in recent years, according to a study from Building Energy Performance Assessment News.

The CoStar Group reported that this research highlights the growing need for government help in the green building market, as federal financing could help companies make the necessary investments. These upfront expenditures would allow for a significant level of long-term savings and a reduction in operating costs, allowing for a more sustainable sector and less environmental damage.

According to the news outlet, the release of the report comes at a time when many commercial building owners are facing a catch-22 situation, as they often struggle to find financing for a retrofit project, but having a less efficient structure makes the property less desirable for potential tenants.

The report outlined how there needs to be a bridge between private investors and the potential retrofit projects, as many current efforts are internally funding. This type of internalized capital system is not one that will be sustainable for the real estate market.

"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," Anthony J. Buonicore, one of the authors of the report, noted about the potential in the market. "Ideally, such funding should come without any capital expense, without adding debt to the property, will cover the entire cost of the project, contain favorable tax deductions for the expense, and present favorable terms with low rates and extended repayment periods."

If the government is able to step in and incentivize certain projects, this could be the boost that commercial real estate companies need. A collaboration between the public and private sectors could generate a number of new retrofits and limit the capital necessary up front for organizations.

This type of collaboration has succeeded in certain efforts, as the Department of Energy-funded effort, the Energy Efficient Buildings Hub (EEB Hub), is working with both sectors and academia to try and influence the commercial market in the Greater Philadelphia region.