One of the difficulties for commercial property owners in adopting green retrofit programs can be the slow pace that initial investments in energy efficiency achieve their payback. With the current state of the commercial lending market, it has been difficult for property owners to identify lending institutions that will embrace this long-term value proposition. This is particularly true for owners of small to mid-size property holdings for which even systems performance contracting is difficult to negotiate based on the size of their property and the return on potential energy bill savings.
Back in February, the Obama administration announced the Better Buildings Initiative. The program, which seeks to make all non-residential buildings 20% more energy efficient by 2020, includes a wide range of tools to spur participation from the commercial real estate market. The toolkit integrates local government challenges, a race to the green initiative and potential workforce development training with the following new set of incentives for commercial property owners:
New tax incentives for building efficiency: The President is calling on Congress to redesign the current tax deduction for commercial building upgrades, transforming the current deduction to a credit that is more generous and that will encourage building owners and real estate investment trusts (REITs) to retrofit their properties.
More financing opportunities for commercial retrofits: To address financing gaps, the Small Business Administration (SBA) is working to encourage existing lenders to take advantage of recently increased loan size limits to promote new energy efficiency retrofit loans for small businesses. The President’s Budget will also propose a new pilot program through the Department of Energy to guarantee loans for energy efficiency upgrades at hospitals, schools and other commercial buildings.
The initiative is a component of Obama's 2012 budget and is currently under committee review in Congress. Industry groups such as Architecture 2030, the Rocky Mountain Institute and the USGBC have all responded with support. What is interesting is the response from commercial real estate industry groups. A cursory review of media yielded endorsements of the plan by real estate groups such as BOMA (Building Office & Management Association), NAOIP (National Association of Office and Industrial Properties) and the National Multi Housing Council. Industry observers are seeing BBI as filling the gap for PACE financing that has been tabled for the foreseeable future. See Paul Rosata's article in Commercial Property Executive, "Power Plays: Public, Private Sectors Target New Ways to Finance Energy Upgrades" for additional information on the commercial real estate perspective.