Private Lenders Begin Giving Developers "Green" to go Green in HVAC

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There are many government or quasi-government options for companies that need some "green" to go green.

But if you head over to your local private lender and say something like, "Hey, I'd like about $700,000 to put in a new energy-efficient HVAC system," Green Choice Bank chief lending officer Jon Levey says you'll hear what's become a frequent refrain. "They say, ‘There's this guy named Jon down at Green Choice Bank,' " he jokes. But he's only half kidding. "A good portion of our referrals come from other lenders in town."

Most private lenders, finance groups, equity companies and banks simply don't loan out or invest in green projects. Ohio-based Bellwether Enterprise Real Estate Capital LLC has more than $10 billion in assets under management, but CEO Lamar Seats says the only green projects they fund come through Fannie Mae.

Meridian Capital Group is New York City's largest commercial mortgage brokerage firm, but managing director Jonathan Stern says the company doesn't do that type of lending because "the market just isn't quite there yet." Nonetheless, some smaller banks, lenders and equity companies are tapping into this burgeoning marketplace. Chicago-based Green Choice has less than $100 million and its loans come in at $1 million and under. That's by design.

"This is a market that has been completely overlooked by major financial institutions, but it's also an area that has the biggest impact on the community," says Levey.

For example, Green Choice might loan 65 to 75 percent of the cost of a sustainable project, with an interest rate between 6 and 7 percent, a payback period of 15 to 25 years and a term on the loan of three to five years.

Douglas Lawrence, managing principal of 5 Stone Green Capital LLC, calls his firm "the only game in town." Launched in January, the New York- and Washington, D.C.-based equity firm is raising capital and has seven deals in the works. One is a mixed-use new construction development in Baltimore.

"We've put in $2 million with the option for more capital," says Lawrence. "We expect to get very strong returns, in the high mid-teens."

Lawrence believes it's all about lowering the bottom line. "Real estate is a 40-year asset class and most of the cost is from year two through year 40," Lawrence explains. "If we can materially reduce operating expenses, we are going to have a great impact on the bottom line. I'd rather take 39 years of reducing operating expenses by using green technology to enhance my annual cash flow than worry about a 1 percent premium in the cost of building green."

Another option is the public-private partnership PACE, or Property Assessed Clean Energy. Property owners evaluate measures that achieve energy savings and receive 100 percent financing, which is repaid as a property tax assessment for up to 20 years. The money comes from a variety of sources, including government reserves, municipal bonds, local banks and private investment groups, and insurance companies, says David Gabrielson, executive director of PACENow, which works to promote PACE deals and enact PACE structures in other jurisdictions.

PACE-enabling legislation has been passed in 30 states and the District of Columbia. To date, 25 programs are operating in 10 states and D.C, and 15 of those programs have funded 168 building upgrades that total more than $33 million.

Simon Property Group, the mall giant, used PACE funding in California and Ohio to fund the installation of energy-efficient roofs and HVAC equipment. "Many energy- efficiency and energy-related capital improvement projects have a payback period which is too long to successfully vie for allocation of traditional corporate capital," says George Caraghiaur, senior vice president of sustainability for Simon.

"The payback on a new energy-efficient HVAC system, for instance, can be seven years or greater," says Caraghiaur. "Because PACE is such as secure form of financing, the capital provided to property owners can be repaid through special tax assessments over a period as long as 20 years. This makes PACE financing a great way to finance longer-payback energy-efficiency projects on a positive cash-flow basis."

Story provided by:  nreionline.com