Why Real Estate Investors Prioritize Energy Efficiency
Every day, governments around the world release new energy efficiency requirements for buildings. These new regulations are good for the environment, but they present a big risk to real estate investors who put money in buildings that are not energy-efficient.
Why Investors Need to Stay a Step Ahead of Regulations
Many countries and U.S. cities like New York have passed laws requiring that buildings meet minimum energy efficiency standards in order to be occupied or rented. Nashville doesn’t have these standards yet, but it does have some ambitious goals that may lead the city toward regulation.
For one of these climate goals, Nashville committed to reducing building resource use to 75 percent by 2050. To achieve this, the city will eventually need to force building owners to meet certain efficiency requirements. This will force building owners to either retrofit or allow their building to become obsolete.
Real estate investors are less likely to put their money into something that will need a costly retrofit. Staying a step ahead of the regulations by improving energy efficiency makes real estate investments more resilient in the long run.
Even without the looming specter of regulations, more people are prioritizing energy efficiency in their daily lives. Residents like to live in energy-efficient buildings, and investors are starting to catch on.
The Risks of a Costly Retrofit
While soldiering on with an inefficient building is risky, undergoing a massive retrofit also presents a risk to investors. These improvements can be extremely costly, and using financing or an energy-savings performance contract puts real estate investors on the hook for repayments for decades.
At the rate efficiency technology is improving, major energy projects can become outdated even before they are fully installed. This locks building owners into a complicated efficiency system that won’t be top-of-the-line for very long. The risks of retrofitting now are foregoing something better and cheaper in the very near future.
The Middle Ground
These problems present a catch-22 for real estate investors. If they don’t improve efficiency, their building will become obsolete. If they do, their technology will become obsolete and they will be stuck with the sunk cost.
The best solution is for real estate investors to make less more moderate changes to the building. Things like replacing old water heaters or using LED lighting won’t break the bank, but they will still improve efficiency. Start small and save the major changes for when technological developments peak.
One of the best off-balance sheet methods to improve energy efficiency is to install phase change material through a monthly utilization program like D.I. Pathways. Phase change material (PCM) is easily placed and removed from existing buildings, and it can reduce energy use by up to 40 percent.
With the monthly utilization model, building owners don’t need to buy their own PCM, because they can subscribe to it.