Commercial real estate owners are keenly aware of how rising interest rates and eroding net operating income (NOI) are impacting their bottom lines. It's caused some to look to an uncommon capital and financing partner: their solar partner.
"In the current environment, where lending rates are going up and occupancy, at least in certain asset classes, is down, owners are trying to protect NOI, says Blair Herbert, CEO at Coast Energy. "They're also looking for creative strategies to cover necessary capital expenditures."
With the additional income stream, Herbert notes, solar benefits can be accelerated to serve as a source of capital that can be adapted based on property specifics and to meet individual sites in an owner's portfolio.
Capital infusion and flexibility
Leveraging solar allows owners to generate income from existing assets, such as a rooftop lease. The contract is structured similarly to a traditional landlord-tenant relationship, but instead of the solar company being a standard tenant in the building, they're leasing the roof. Owners may also be able to speed up benefits to generate capital.
"We can accelerate the real estate owner's benefit," says Herbert. "So, instead of providing a year roof lease that generates income, we provide upfront payment for expenses, such as capital improvements."
Herbert adds that solar also has indirect benefits, such as generating covered parking, which can create additional revenue or provide an added perk for tenants or guests.
Accessing portfolios and properties
Herbert explains that since every situation is different, an upfront assessment is a critical part of the process. His team sits down and has a conversation to understand why an owner is considering solar energy. That reason might be ESG mandates, improving NOI, or some other reason, but uncovering the business goal is critical.
He adds that since every property is unique, the outcome for a 20-story office building with modest solar panel space differs from that of a one-story industrial building with a vast rooftop.
"We provide a quick assessment for every property in the portfolio, considering localized factors," says Herbert. "A property located in a state with favorable policy and high electricity rates, in California or New York for example, would play an important role in the business outcome."
Herbert also explains there is still a decent amount of confusion around solar in the CRE space. "In the beginning, we view ourselves as a consultant and work to help CRE owners navigate the various possibilities that may be available, for instance what programs are offered in the different states and where solar is economically viable and where it isn't,'" says Herbert.
He adds, "I explain that we're a long-term and dedicated business partner focused on helping them make the best decision and aligning with their business goals – whether that is improving NOI, raising capital, or other goals."
For more stories in the Coast Energy thought leadership series, click here.
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Nicki Howell
