Commercial real estate expenses sometimes pile up, and are referred to as “deferred maintenance”. Other major investments in assets for your building are called “CapEx”. These capital expenditures could be for building systems, a new roof, boiler, chiller, windows, heating, ventilation and air conditioning systems.
As a real estate investor, you’ll be intimately familiar with the cost of building repairs, maintenance and capital expenditures… You may not know, though, that “green banks” in 20 states (and counting) offer a program called Commercial Property Assessed Clean Energy (CPACE) that could allow you to get that new roof, or other capital expenditures, for free.
CPACE financing could be considered “free” because of how the financing is underwritten by the green bank.
1) Your capital expenditures must be tied to energy savings. 2) The investment or investments you want to make for your building, such as a new roof, LED lighting, switching from oil to gas, adding solar panels, etc… must add up to more in energy savings than it costs you to pay the CPACE financing. A “savings to investment” or “SIR” ratio of greater than 1 means that your savings from energy will be larger than the cost of financing.
CPACE example: Let’s say that currently you spend $15,000 per month on electricity and oil heating for your building. You contact your local green bank to find a contractor who will help you calculate the energy savings from replacing your roof with a white roof, adding solar panels, upgrading your T12 fluorescent tube lighting with LEDs, switching from oil to natural gas heating, and insulating your building. The total cost of these improvements is estimated to be $200,000… But each of these improvements saves you money each month…
For instance, certain roofs are more energy efficient than others. An energy efficient roof, such as a solar roof, white roof or vegetated “green” roof, can save energy. White roofs save on heating and cooling costs by reflecting the suns rays instead of absorbing them. Green roofs offer better insulation and are more aesthetically pleasing than a traditional asphalt, modified bitumen roof. And solar roofs can convert the suns rays into usable electricity for your building. The green bank will offer you 100% of the money up front to make the improvements, and you pay it back over 20 years with a monthly principal and interest payment of $10,000.
Based on this offer from the green bank, you would have paid off your loan in 20 years, meanwhile saving $5,000 per month in electricity and energy costs. After 20 years, you will have saved $100,000 and gotten a new roof for free in the deal.
How to get your free roof:
- Contact your local green bank to get information on the CPACE process.
- Choose a contractor from the list of approved contractors in your area.
- Ask the contractors to provide free bids for all the work you want done.
- Take the best bids to your green bank and tell them you want to get CPACE financing.
- If your estimates have an SIR greater than 1, you should be in the money on day 1.
Get the following benefits…
- Updated building
- Greater Net Operating Income (NOI)
- Higher building value
- Lower cap rate
- Tax benefits (deduct mortgage interest, 30% federal tax credit, accelerated depreciation, etc.)
- Lower carbon production – help reduce greenhouse gas emissions
- Great PR and happier tenants