Why New York REITs are incorporating renewables

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Property owners and managers in New York are increasingly incorporating renewables and other energy efficiency measures to reduce their costs and emissions.

Several real estate investment trusts (REITs) have announced green energy initiatives in recent years; the first REIT in the US to exclusively invest in properties used for renewables generation and transmission – CleanTech REIT – was founded in Manhattan in 2011. The use of renewable energy is also becoming an important prerequisite for more investors, as sustainability considerations increasingly dictate investor activity.

Speaking on market trends, Matt Singleton, Senior Vice-President of Global Energy at Prologis explains that “more property owners and building occupiers are realizing the benefits of renewable energy, both in terms of the cost savings it can deliver to customers and the enhanced value for investors.”

One REIT in New York City looking into renewables is Empire State Realty Trust (ESRT), which has finished a 10 year, $550 million retrofit of its flagship property, the Empire State Building. This historical landmark is now benefiting from a 40% reduction in energy use and emissions, and is now entirely powered by wind energy as part of a three-year deal between ESRT and Green Mountain Energy (its clean energy supplier since 2011).

ESRT plans to expand renewable energy purchases to all of its properties in New York State. ESRT has 300 million kWh worth of renewable energy in its portfolio, with emission savings equivalent to taking all of New York City’s cabs off the road for a year.

REITs need to be innovative and seek out partnership solutions

Similarly, Kimco Realty signed a deal in 2018 to develop solar installations on three of its New York metro area properties which doubled its solar capacity. An interesting aside to this is the fact that Kimco Realty leased its roof space to a third party to operate the solar operations, which allows Kimco’s partner to reap the benefits of federal green energy tax credits. “We are still participating in the economic benefit of the power and the system being there and producing power, but the structure of ownership is different,” explains Will Teichman, Senior Director of Strategic Operations at Kimco.

This highlights an issue that REITs looking to boost their green credentials face; namely, property managers may not reap the benefits since customers commonly hold the power bills, but customer lease terms are often insufficient to support the economics of renewable energy projects. This means that REITs need to be innovative and seek out partnership solutions. Another important aspect to consider is the impact of New York City’s Local Law 97 (issued in 2019) and relates to renewable energy use in large properties.

Specifically, Local Law 97 places carbon caps on most buildings larger than 25,000 square feet, of which there are some 50,000 commercial and residential properties in NYC. The caps come into effect in 2024 and become more stringent each following year, with the ultimate goal being to reduce emissions by 80% by 2050.

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