Green Buildings: Not a Myth, But a Reality Developers Can Bank On

The momentum behind decarbonization has never been more encouraging. As climate impacts intensify, the real estate industry faces pressure to adopt sustainable building practices for resiliency as well as efficiency.

Local and state initiatives are leading the charge to improve the building stock and protect real estate investments while they address climate change concerns.

For decades, building owners and developers have been deciding between being eco-friendly and cost-friendly. The cost of high-performance systems and sustainable materials was a deterrent to building more efficient buildings. But today, there are options for implementing building improvements for energy efficiency, water conservation, renewable energy generation, and resiliency enhancements that provide financial and environmental benefits and result in improvements in both financing costs and long-term operating costs. 

The price of green building materials and high-performance building technologies continues to decline as they move along the product maturity lifecycle. As materials and technologies improve, more are being implemented into existing and new buildings which leads to reduced operating costs. Solutions for reduced financing costs that motivate building owners with strong returns on initial investment are available through programs like C-PACE financing which provide a pathway for building owners to access low-interest loans that have 20-30 year terms with fixed rates. They have the added benefit of being non-recourse and flexible; they work with a variety of funding sources (like TIF, HTC, NMTC, etc.) and can fund up to 30% of a new construction project and 100% of a renovation project.

Sustainable Building: From Concepts to Concrete Changes

Green building has evolved quickly from the work of a passionate few to an industry-wide movement being driven by climate change and the adaptations of state and local governments to improve building codes and demand more from building owners. The new requirements deliver to the expectations of increasingly sustainability-oriented tenants and investors. Office building owners use beautiful and sustainable spaces to entice tenants, for example (who in turn use the spaces to recruit strong talent). Apartment building owners promote energy efficiency to appeal to tenants searching for better indoor air quality and lower utility costs. The sustainability shift isn’t just good for positively affecting climate change; it’s also good for business, with greener buildings consistently achieving higher occupancy rates and increased long-term market appeal.

Buildings with energy-efficient upgrades create a stronger potential to achieve higher net operating income (NOI) compared to those that do not, highlighting the financial advantages of green building practices. Additionally, properties prioritizing sustainability often see higher property values and rental premiums, making green building a sound investment, similar to how ESG-focused funds have been growing in popularity.

C-PACE Financing: High Impact on Sustainability and Financial Well-Being

One of the most effective tools to make green building more accessible is Commercial Property Assessed Clean Energy (C-PACE) financing. This type of program offers low-cost loans specifically for property upgrades that increase energy efficiency and resiliency. C-PACE is available for renovations and new construction and is generally used in the capital stack to replace more expensive funding options such as mezzanine loans.

The advantage of C-PACE financing is its low-cost and fixed-rate structure — the loan is long-term (typically between 20 and 30-year terms) and is repaid through an assessment on a property tax bill. C-PACE provides unique advantages for developers that traditional lending paths aren’t able to achieve, such as its low-costs and transferability between owners. The impact of green buildings financed through C-PACE is also substantial. Beyond energy savings, the program has led to improved Energy Use Intensity (EUI) – the metric used to share the overall efficiency of a building by sharing its energy consumption per square foot – and significant carbon reductions from more efficient buildings. The overall effect is benefiting the environment and contributing to what many municipalities demand from urban spaces. 

PACE Equity, for example, has measured its C-PACE projects and determined that their portfolio of buildings have lower EUI compared to average commercial buildings in the U.S. by asset class. In addition, their portfolio has removed well over one million metric tons of carbon.

How Developers Can Start Making Green Building a Reality

For developers interested in developing more efficient buildings, the journey must include a well-structured financing plan and a well-equipped design team that can help suggest design improvements that can enhance efficiency and, thus, funding options.

C-PACE financing provides a straightforward solution for property owners and developers looking to implement energy-efficient upgrades. One unique C-PACE program, called CIRRUS Low Carbon, is the industry’s only program that offers lower rates when renovations or construction meets a lower carbon design specification. The lower financing rate paired with the long-term benefits of a CIRRUS-certified low-carbon building combine for an unprecedented 13:1 ratio of financial benefits compared to incremental costs to meet required efficiency. 

The Investment in the Future

As the market for green building grows, C-PACE financing is a key component and strategic advantage to meeting sustainability goals while also building long-term value of a property. Green building is not only a viable reality but also a powerful approach to making a lasting impact on the environment and your bottom line, while delivering what tenants demand.

By embracing eco-friendly upgrades and utilizing a low-carbon financing option, developers can drive meaningful change in the built environment, proving that sustainability and profitability can go hand in hand.