By: Jason Schwartzberg, President, MD Energy Advisors
With rising interest rates, increasing foreign investment and decreasing cap rates, finding value adding opportunities for commercial real estate (CRE) is becoming increasingly more difficult. Value is traditionally added by filling vacancies, efficiently staffing buildings, and optimizing the capital stack. An often-overlooked opportunity to add value resides in the energy plan.
According to Energy Star, the voluntary program managed by the United States Environmental Protection Agency and the U.S. Department of Energy, “energy use is the single largest operating expense in commercial office buildings, representing approximately one-third of typical operating budgets.” There are typically two areas of focus when looking to increase asset value through energy:
Energy purchasing is the primary supply strategy. This strategic approach allows real estate owners to directly impact the bottom line while also meeting the needs of the business’s risk tolerance, budget management, and overall energy goals.
On the demand side, energy efficiency is the primary strategy that helps lower operating costs and adds value to property assets. Low-cost and cost-effective investments include:
MD Energy Advisors recently employed supply and demand strategies for a 40,000 square foot full-service office building in Columbia, Maryland. After collecting a month’s worth of utility bills, we built a load profile and conducted an energy audit. The proposal included an exterior and interior lighting retrofit and optimizing the HVAC. Following a competitive bid process for its electricity contract, the client saw a reduction in annual energy expenses by 25% or $36,866, which was almost $1 per square foot. At a cap rate of 8%, we delivered a potential asset value boost of $460,000.
Ideal candidates for this approach include full-service office buildings, student housing, and hospitality facilities.
For questions, contact Jason Schwartzberg, President of MD Energy Advisors, at 410-777-8144 or firstname.lastname@example.org.
Editor’s Note: For a discussion of the Maryland C-PACE program regarding special financing available for eligible energy projects, see Caroline Sweet’s article in the June 2018 Issue of Relating to Real Estate.