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PACE CT: Dramatic increase in asset value seen for commercial buildings

In an increasingly competitive real estate market, commercial buildings with high energy performance outpace their neighbors on operating expenses, rent premiums, occupancy and asset value. By significantly reducing utility costs, upgrades like high-efficiency lighting, HVAC systems and solar energy systems result in dramatically increased NOI and drive new cash flows that are capitalized into asset value.

In Connecticut, the advent of affordable financing programs for energy upgrades such as

C-PACE (Commercial Property Assessed Clean Energy), specialized revenue streams for renewable energy (ZRECs), and high energy costs are driving smart commercial building owners to invest in energy improvements. Still, the commercial and industrial real estate appraisal industry is falling behind on properly capturing the value owners are adding to Connecticut’s building stock.

“Appraisers need to understand energy-efficient building features and appropriate methodologies to measure reduction in energy-related operating expenses,” said

John Brenan, director of appraisal issues at The Appraisal Foundation. “They should be¬†familiar with the market dynamics shaping the economics of energy upgrades for commercial building owners, including financing tools like C-PACE and renewable energy commodity markets like ZRECS, where building owners can capture additional value for their properties. These factors are critical for appraisers to measure market reaction and, as a result, incremental value.”

Depending on the nature of the improvements and the depth of cost savings, energy upgrades can markedly increase value from the baseline “as is” valuation, with some properties even seeing increases as high as $2.5 million. For example, Columbia Elevator recently expanded its operations with a new facility in Bridgeport, Connecticut.

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