Renewable Energy Opportunities for Real Estate Investment Trusts

By Better Buildings Beat Team on Feb 07, 2022

In a recent peer exchange, Better Buildings partners from the commercial real estate and healthcare sectors discussed challenges and solutions related to renewables integration, decarbonization strategies, and financing for Real Estate Investment Trusts (REITs). The event brought together Better Buildings partners and affiliates, including Empire State Realty Trust, Jamestown, JBG Smith, Kilroy Realty, Physicians Realty Trust, WashREIT, Ventas, Welltower, and Clean Energy Buyers Association (CEBA).

Partners shared opportunities and best practices for procurement of on-site and off-site renewables, energy efficiency and decarbonization project financing, and tenant engagement in energy efficiency projects.


On-site and Off-site Renewable Energy

The REIT financial model can create challenges for justifying costs for energy upgrades, as REITs are not eligible to receive tax credits for energy retrofits. Additionally, many REITs hold property types that may have insufficient land or roof space for on-site renewables. Several partners discussed using a combination of on-site and off-site renewables to reach their energy-efficiency goals. Options include on-site solar arrays, solar leases, off-site Power Purchase Agreements (PPAs), and purchasing RECs and carbon offsets. Through the discussion, many partners noted that it was important to look at renewable energy procurement from a triple bottom line perspective: How much do these projects cost? Do they add value to the business?

Energy Efficiency Project Financing and Payback

Property teams commonly collaborate across organizations to reconcile renewable energy and decarbonization project payback. Typically, this includes representatives from the sustainability team, finance, tax, legal, and executive leadership. Partners highlighted that energy projects can be difficult to bring to scale, depending on the complexity of the project. Partners shared that a key contributor to the success of energy retrofits and new projects is collaboration between vendors and sustainability teams, who can provide ROIs and tools for making the business case. The Better Buildings Financing Navigator is also available to assist companies in finding financing options for their decarbonization and retrofit projects.

Engaging Tenants

Multiple partners shared that utilizing green lease language has been integral in engaging tenants in energy and decarbonization projects. Through green leasing, landlords and tenants create pathways to high-performance buildings through energy-aligned clauses that create investments in energy efficiency and sustainability. Partners noted that it’s important to consider both tenant engagement and renewable energy procurement simultaneously so that energy efficiency and decarbonization targets can be met from a top-down and bottom-up approach.

Learn more about energy efficiency in the CRE and healthcare sectors and discover more than 3,000 proven efficiency solutions on the Better Buildings Solution Center.