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Financing Green Part III: Funding for the Tenant or End-User

By Justin Sumner for the CoStar Group

Those that physically occupy commercial space have a vested interest in the benefits of green building improvements. Lower energy bills, increased productivity, higher employee satisfaction levels as well as enhanced corporate responsibility in the community top the ‘want’ lists of many corporate end-users. However, tenants often don’t have or don’t wish to spend a lot of money for their office build-out.

This can be short-sighted, according to Marisa Manley, president of Commercial Tenant Real Estate Representation (CTTR) in New York. “Going green can provide big-time savings – big enough to pay back all of the up-front costs of going green,” Manley said. She adds some words of caution though, “Not all that is done or proposed in the name of green pays for itself, so a careful analysis of each segment of each project should be made before doing any work.”

Meanwhile, stakeholders continue to pursue innovative alternatives for financing green improvements. Recently the San Francisco Department of the Environment, along with San Francisco’s Mayor Edwin Lee, launched the GreenFinanceSF-Commercial program to help local businesses ‘green’ their buildings, reduce carbon emissions, save energy and create jobs.

[An] owner of an affordable housing property enlisted the help of the local housing authority to create an EEBUA (Energy Efficiency-Based Utility Allowance) and build green alternatives into the existing capital needs assessment. The owner then worked with existing partnerships to identify specific resources for implementing its green multifamily retrofit strategies after producing the necessary documentation of improved energy savings, resource consumption, and overall health of the tenants.

The first ever loan under the Green Refinance Plus Program, a partnership between Fannie Mae and the U.S. Department of Housing and Urban Development (HUD), has closed this month with the owner taking a $19.4 million re-fi with $1.5 million allotted for improvements to replace old and inefficient fixtures with new Energy Star-rated appliances. The program was introduced last year to incentivize owners to make energy and resource efficiency improvements when refinancing existing mortgages.

Manley notes that the main challenge owners and users encounter in justifying a decision to fund green improvements to their workspace is calculating the payback. Identifying which green elements make sense, and providing the data to the lender that shows how the improvement will benefit the bottom line, remain the critical components for such a decision. To make a valid comparison, such an analysis should include the costs associated with the setup and construction costs against any of the potential benefits.

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