Energy Efficiency Boom to Halt Commercial Real Estate Swoon?

We've refrained herein from posturing about politics and energy policy. Why worry about what you can't control?, our (apathetic?) side contends. That said, at Octus we're acutely focused on existing incentives, tax credits and other catalysts that fortify our clients: commercial building owners and managers who invest in energy efficiency. And, a recent report, "The Imminent Commercial Real Estate Crisis and The CRE Solution," caught our eye. A few snippets:

• CRE transactions have dropped a staggering 90 percent since 2007. Between now and 2014, $1.4 trillion in CRE loans are coming due; more than half of these are currently underwater. Commercial property values have plummeted by more than 40 percent, and commercial vacancies rates continue to increase.
• Congress can simultaneously address the looming CRE crisis and crippling construction unemployment through The CRE Solution. This can be jumpstarted quickly by building upon the existing Energy Efficient Commercial Building Tax Deduction (26 U.S.C. 179(d)) from $1.80 per square foot to a range of $3 to $9 per square foot for new and existing commercial buildings meeting specific energy reduction targets.
• For each $6 billion of deferred CRE revenue, for example, The CRE Solution would generate $73.4 billion in new private spending, $15.9 billion in new federal tax revenue, and $5.25 billion in state and local government tax revenue, according to the report findings.
• The CRE Solution would decrease building sector energy consumption and greenhouse gas emissions, increase after-tax cash flow and property values, reduce loan defaults, and increase new CRE sales, desirability, and investment value.

The 14-page report can be viewed at architecture2030.org.

POTUS on Board with Energy Efficiency

In last week's State of the Union address, President Obama urged Americans to embrace a new energy future:

"Tonight, I challenge you to join me in setting a new goal: by 2035, 80% of America's electricity will come from clean energy sources. Some folks want wind and solar. Others want nuclear, clean coal and natural gas. To meet this goal we will need them all - and I urge Democrats and Republicans to work together to make it happen."

In support of this goal, the President's office today rolled out a vision for making American businesses more energy efficient through the "Better Buildings Initiative." The results? In part:

• 20% by 2020 - Under the President's plan, by 2020, we will make commercial building space in the United States 20% more energy efficient through cost-effective upgrades.
• Energy cost reductions of $40 billion - By making buildings more energy efficient, business owners will reduce energy bills by about $40 billion at today's prices.
  

The President has proffered a long list of initiatives to move us toward a more energy-independent future. Among them:

• New tax incentives for building efficiency, including an amendment to EPAct's section 179(d) to make it more attractive for building owners.
  
• More and better financing opportunities for commercial retrofits.
  
• "Race to Green" for state and municipal governments.
• Better Buildings Challenge for public and private institutions.

Obama's plan has been welcomed with open arms by leading real estate groups, including BOMA, the National Multi Housing Council, and the National Apartment Association. According to BOMA International Chair Ray H. Mackey, Jr.:

"We applaud President Obama's new energy policy to improve energy efficiency in commercial, multi-family and institutional buildings. The initiative includes the critical business incentives, such as the commercial building tax credit and loan guarantees, that are key to meeting the energy efficiency goals of the plan."

The task is monumental, but at Octus we're excited to be a part of the President's plan to improve the quality of life for American citizens and enhance the competitiveness of our economy.