On the final day of ULI’s 2010 Fall Meeting in Washington D.C., the panel discussion of the session entitled, “Green Retrofit Financial Strategies,” proved to be among the most popular topics of this year’s conference— how to finance the retrofitting of existing commercial properties.
The discussion kicked-off with Cavarly Garrett, vice president of real estate for J.P. Morgan Asset Management and Charles Leitner, chief executive officer of the Greenprint Foundation debating the tenant demand for energy efficient space in the current commercial marketplace. While each agreed that tenant demand is present and increasing, they quickly identified that a common constraint is getting engineers and building operators to buy into proactive property management. “Internal communications among facilities managers, human resources professionals, and tenants is a major barrier to advancing the financial opportunities that retrofitting can bring,” said Garret, who agreed with Leitner that leadership on the part of these players is essential for keeping their buildings competitive.
Bill Lashbrook, senior vice president of PNC Real Estate Finance shifted the conversation to other existing market constraints after offering, “Alternative energy isn’t going to move the needle much and we have the ability today to work with what we have to link the necessary parts together to make significant change.” By again addressing the owner/tenant mix (or the “split incentive issue”) as a significant barrier, the panel honed in on the value of retrofitting being linked to competitive leasing. There was consensus among panelists that as large companies continue to deal with the owner tenant mix in their spaces, they will undoubtedly adapt to new “green” leasing strategies as current leasing structures are proving prohibitive.
The theme unanimously agreed upon by the panel as imperative for the full-scale arrival of the green retrofit market is the return of time series performance data for large retrofitted commercial projects. Until this becomes widely available for periods of 5 years and beyond, the often erratic 1 to 2 year reporting currently being returned by a small group of building owners, will not be enough to articulate the value proposition necessary—both operational and as a total investment—to finance such projects. “The energy efficiency market has a long way to go yet to be able to demonstrate value and it is measurement and monitoring that are critical to incentivize,” according to Charles Leitner. Russ Landon, Managing Director of Utilities, Power and Alternative Energy for KeyBanc Capital Markets agreed and offered that, “You can’t monitor what you can’t measure and what you can’t measure you can’t manage to create investible value.”
Moderator of the session, Peter Belisle, president of energy and sustainability services at Jones Lang LaSalle concluded the session by asking each of the panelists to cite primary issues or opportunities most pressing to the retrofit market. Chuck Leitner offered that measurement for the sake of management and benchmarking is foundational for success. Bill Lashbrook shared that because there is no construction activity at this point, it represents a huge opportunity for all players in the retrofit finance area to get smart about the market potential. Cavarly Garrett expressed that getting brokers educated and supportive of energy finance is essential as they are the party that brings many people together in the project realm and can therefore affect great change. Russ Landon’s opinion was that hammering away on the “split incentive” issue would help spur the progress necessary to solve the problem and move the market.
