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How to Create Green Commercial Property Leases

According to Nareit, the leading producer and sponsor of research on REIT investment, commercial real estate was worth an estimated total of $15 billion in 2017, with the majority of properties involving some kind of lease rather than an owner-operator arrangement. Greening these commercial leases has tremendous potential to generate higher rates of profit for owners or investors and long-term savings for tenants. The Department of Energy’s Better Buildings Summit announced that green leases have the potential to save $3 billion per year in energy savings for the office-leasing sector alone. Creating green commercial property leases is a complex process with many considerations, but it’s well worth the extra effort.

Understand the Green Lease

Green leases include all the usual stipulations about property use and payment arrangements, but they also incorporate concrete agreements about the energy efficiency of the leased property. The tenant may agree to operate a facility in a certain way to meet efficiency guidelines, or the landlord may include certain terms on future renovations to keep the structure as green as possible as new technology comes on the market. Each green lease is different, but they all share a common and specific focus on energy efficiency that makes them “green.”

Work Together with Tenants

The best commercial green renovations take place based on the needs of a current or future tenant. Unless the space has a single specific and fixed use, such as a manufacturing facility or open-floor plan office, it’s hard to predict what kind of green improvements are the most effective. If you’re funding the construction of a brand new structure, secure tenants during the design phase to take their needs into consideration from the beginning. These kinds of landlord-tenant collaborations are so important that they’re specifically recognized by the Department of Energy’s Better Building Alliance as Green Lease Leaders.

Choose a Rating System

There’s no single standard or common requirements for a green commercial building, and even less guidance is available for leases in particular. Starting with a shared rating system, such as the popular LEED certification program or International Green Construction Code, establishes a clear set of standards on which to focus for a commercial structure. Both the tenant and landlord need to agree on the standards used since these can vary greatly in terms of cost of implementation and actual improvements in efficiency that result.

Work with Agency Loans through Freddie Mac and Fannie Mae

Choosing green building and renovation methods no longer limits you to securing private financing for your project. Commercial agency loans are now widely available for certain types of green commercial construction, including multifamily units covered by the green lease program at Freddie Mac and Fannie Mae. Fannie Mae Green Financing offers low-interest rates and higher proceeds on loans for energy- and water-efficient construction or renovation, making it easier to attract higher-paying tenants by providing them with long-term savings.

Each green leasing program requires a different approach depending on the commercial sector. Offices may have different requirements than manufacturing spaces and retail facilities, but they all can benefit from green leases that are designed through cooperation between the landlord and tenant or tenants.

Have Nova Assist with Components of the Green Lease

Nova can work with property owners on important parts of the green lease. By having an energy audit of the property completed, opportunities for energy efficiency will be identified, and together owners and tenants can select which energy and water savings measures should be implemented as part of the green lease. Nova also can assist with LEED and other rating systems. 

Contact

Contact Keely Felton today for a consultation.

References:

http://www.reit.com/data-research/research/nareit-research/estimating-size-commercial-real-estate-market-us

http://www.nreionline.com/office/greening-leasing

http://betterbuildingsinitiative.energy.gov/green-lease-leaders

http://www.epa.gov/smartgrowth/green-building-standards

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