In Canada, buildings account for about a third of all greenhouse gas emissions and energy use. Existing buildings make up about 98% of Canada’s commercial building stock, so retrofitting is a key to saving energy and reducing our environmental footprint.
“Everyone likes to point to cars on the road as the big polluters, but really, it’s buildings that are the big polluters,” says Anthony Esposti, Senior Manager, Corporate Financing at the Business Development Bank of Canada in Ottawa.
However, when it comes to financing retrofits, going green isn’t always easy.
First of all, many landlords don’t understand the financial advantages of installing green improvements such as LED lighting, high-efficiency HVAC equipment and rainwater management systems.
“The landlord is going to end up paying for the capital retrofit but the tenant is going to get the benefit (through reduced utility bills). So there’s an economic disconnect there,” says Esposti, who is a board member of the Canada Green Building Council.
He advises landlords to take a long-term view. A study of U.S. office buildings carried out by Maastricht University in the Netherlands found that owners of green buildings could charge a 3.5% rental premium, and that occupancy rates for such buildings were 6% higher than those for non-green buildings.
“When a tenant is signing a lease for a building like that, they know their operating costs are going to be lower,” says Esposti, who is also a member of BDC’s Corporate Social Responsibility Advisory Council. “They also know that the air quality is going to be better, so they’re going to have a more productive workforce. They’re prepared to pay the premium.”
As a result, the value of green buildings rises. The same Maastricht University study found that such buildings command a premium of 16 to 17% on sales price per square foot.
If a landlord is convinced that a green retrofit makes long-term financial sense, the next step is to gather the facts. Esposti says energy-saving fixtures usually pay for themselves within two to six years. But landlords need four things to ensure retrofits actually deliver those savings:
- baseline data on the building’s energy and water use before the retrofit;
- recommendations on equipment to reduce that use;
- an engineer’s estimate of the projected energy reductions and cost savings; and
- a monitoring program to collect data on the building’s energy and water use after the retrofit.
Many consulting companies can provide this information, but paying for those services and for the recommended equipment can be tricky.
“Existing buildings tend to be fully leveraged to begin with,” Esposti notes. “So something outside of conventional mortgage financing is required.”
He advises landlords to approach their current lenders to discuss their financing options. He suggests using information from the Canada Green Building Council and Natural Resources Canada on the benefits of green buildings to support their loan request. Bankers may be willing to provide financing similar to a loan for the purchase of new office equipment.
Esposti also urges landlords to contact BDC regarding financing. “We do have money available for doing things aside from mortgage financing.” BDC is currently looking at ways it can specifically help entrepreneurs reduce their companies’ greenhouse gas emissions and increase their energy efficiency.
Alternatively, if the project involves retrofitting a municipally owned building, such as an arena or museum, it may be eligible for a grant or loan from the Green Municipal Fund, a federal government program run by the Federation of Canadian Municipalities.
Until a national green loans program is available, landlords will need to be creative in finding financing for their retrofit projects. But the prospect of increased rents, occupancy rates and sale prices may be just the incentive they need to go that extra mile.
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