Speaks with Manatt Partner on Financing Sustainable Retrofits Speaks with Manatt Partner on Financing Sustainable Retrofits

"Financing Options Exist for Sustainable Retrofits"

July 24, 2012 - spoke to Manatt's Michael Polentz, co-chair of the firm's Real Estate & Land Use Practice, about how existing commercial buildings can go greener without going bankrupt. reports that many of today's commercial buildings are being constructed with energy efficiency in mind, but retrofitting properties constructed more than several decades ago can be very costly. Owners of older buildings do have options, including taking advantage of existing financing programs or reexamining operating procedures.

"There's an increased interest in sustainable retrofits because there's a lot of older product out there," said Polentz. "The people tracking the numbers are suggesting that about one-third of all retrofitting will be for energy or conservation efforts. There are some large national contractors who say that equates to north of $18 billion over the next three years. The challenge: how to finance the projects. A lot of people are struggling with this."

It's estimated that energy-efficiency retrofits will expand globally from $80.3 billion in 2011 to $151.8 billion by 2020.

Polentz said that in order to finance these retrofits, owners may take on a traditional real estate financing situation with debts on their balance sheet or secure the debt against the real estate, "but that only works if there's enough equity in the existing real estate. How do they underwrite these types of projects? There hasn't been a good solution in the private market yet."

One possibility is to look toward energy-service companies that have figured out how to monetize these types of improvements by maximizing pay growth rates and ROIs, Polentz said. "They will purchase the equipment or retrofit construction activities and set up programs and get a return on their investment, so to speak, as it relates to these programs. It's similar to solar lease programs where you have a 20- to 25-year solar lease and a buyout right on the back end."

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