Real estate veteran Jeffrey M. Miller, who recently joined Lee's New Jersey industrial division as a senior vice president, will spearhead the new group as executive vice president. Miller brings his experience as principal of Quadrillion RE, an energy consultancy he founded in 2008, to the new role.
According to Miller, "The building sector consumes more energy than any other--in fact, it exceeds transportation and consumes about 8.6 quadrillion BTUs per year--and we have a unique opportunity now to improve properties while lowering occupancy costs through energy upgrades."
He coins the relationship between real estate and the energy sector as a "joining at the hip." The bottom line is, well, to maximizing tenants' bottom line. "We can encourage tenants to stay longer at a building if their lease is coming due in a year or two," Miller tells GlobeSt.com. "With some joint investment between tenant and landlord, we can extend that lease out for another four or five years simply by trimming the expenses for the tenant."
Miller reveals that the company plans to develop building performance ratings for industrial assets, which, he adds, "have little to do with LEED." Instead, the focus is on energy efficiency and largely solar. "At the end of the day, landlords who do make an investment in their property and build up 'energy equity' can demonstrate and monetize the delta between other buildings and their own high performance model. And if there's a 50-cent spread, owners will either be able to lease up their properties quicker or achieve a higher yield."
While Miller notes that other real estate firms have energy efficiency groups, "it's usually back of shop. Our goal is to bring the energy conversation into the upfront transaction when owners and tenants are addressing their capital needs." This is especially important in the industrial market because there is almost never a facility management team, rather the properties that are managed on site. "
But how receptive is the industry to green growth? "More so than in the past," says Miller. "In a down economy, people are looking to cut costs at any turn." He tells GlobeSt.com that there are different costs and returns depending on the project, and it depends largely on location. With solar, for instance, the spread between solar energy costs in the region and existing rates is key. "Solar also has a different ROI than other efficiency programs."
Owning a solar facility is also an option for companies--aside from REITs whose tax structure removes them from the running. And it's a very tax-rich environment. "If you're looking for tax shelter, purchasing one of these solar facilities is a great opportunity and you can potentially have a 50% return in year one, with the entire capital investment paid off in the first five or six years."
Also worth noting is that the state has stimulus funds from the American Recovery & Reinvestment Act, $300 million of which are solely for energy projects.
In fact, the state has been a leader in the solar market for years. Living up to its moniker, New Jersey is the number one solar market in the country per capita and the seventh largest solar market in the world. "Especially with large-scale solar, the state has moved away from a rebate program," says Miller. "Instead it is doling out performance-based incentives."
New Jersey has a very aggressive Solar Renewable Energy Certificates program, which is basically the monetization of carbon reduction. "You can sell SRECs into long-term, three- and five-year contracts and then obtain bank financing," Millers tells GlobeSt.com. "All utilities in the state have a proactive obligation by law to buy a certain percentage of their yearly sales through SREC. The penalty for not making this purchase is $711, while SRECs are trading at $653. It's commodity pricing and that's going to change month-to-month depending on supply and demand, but that's helping to subsidize the installation of large-scale solar."
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