Congratulations are in order if you’ve recently invested in commercial real estate in California! Your savvy purchase positions you to enjoy an excellent ROI, particularly if you’re considering using a loan to implement Energy Efficiency Upgrades. This improvement revolves around modern solar panels, LED lighting, and high-efficiency HVAC systems. Their deployment significantly reduces ongoing energy costs while boosting your property’s market value and appeal. While the upfront costs for these technologies vary, the long-term savings and potential for increased revenue make them an enticing prospect. Plus, with financial incentives from the California state government, these upgrades could start paying for themselves in as little as 5-7 years. Intrigued? Read on to discover how to supercharge your investment.
Key Reasons to Consider Upgrading
Investing in Energy Efficiency Upgrades can bring many benefits that contribute directly to the profitability and marketability of your commercial property. Here are a few key reasons to seriously consider this route:
- Significant Cost Savings: By implementing energy-efficient technologies, you can dramatically decrease your property’s energy costs. For example, solar panels, once installed, can significantly reduce your dependence on the grid, saving thousands of dollars every year in electricity bills. Similarly, LED lighting consumes up to 75% less energy than traditional incandescent lighting, which can also result in substantial savings.
- Attractive Tax Incentives: The state of California, along with the Federal government, offers several tax incentives for property owners who implement energy-efficient improvements. These incentives can significantly offset the initial cost of the upgrades, making the investment even more appealing.
- Enhanced Sustainability: As society becomes more conscious of environmental sustainability, businesses committed to green practices are increasingly favored. By implementing energy-efficient upgrades, you can significantly reduce your property’s carbon footprint, which could make it more attractive to environmentally conscious tenants and clients.
- Increased Market Value: Energy-efficient properties are often seen as more modern and desirable, translating to higher rental rates and lower vacancies. This increased revenue can significantly boost the overall ROI of your commercial property.
- Amazon, San Bernardino – Amazon has installed solar panels on the roof of its 2.6 million-square-foot San Bernardino warehouse, saving the company an estimated $1 million per year on energy costs. The solar panels generate an estimated 1.2 megawatts of electricity. The warehouse also features LED lighting and high-efficiency HVAC systems to reduce energy consumption.
- Gap Inc., Fresno – Gap has taken strides to reduce its carbon footprint with a two million-square-foot warehouse in Fresno, California. Solar panels cover approximately 50% of the warehouse roof. These panels help save an estimated 2.5 million kilowatts of electricity annually. Additionally, the warehouse utilizes high-efficiency HVAC systems and LED lighting.
- Tesla’s Fremont factory – Located on a 500-acre site, Tesla has installed solar panels on the roof of its Fremont factory, which generates enough electricity to power 20% of the factory’s operations. The factory also features LED lighting and high-efficiency HVAC systems, which have helped Tesla to reduce its energy consumption by 35%.
These are just a few examples of how California warehouses use energy efficiency upgrades to reduce energy costs and improve environmental sustainability. As energy costs continue to rise, these upgrades are becoming increasingly cost-effective.
California is known for its aggressive goals towards energy efficiency and renewable energy, offering commercial property owners various incentives to encourage energy-efficient upgrades:
- Energy Efficiency Rebates: Utility companies in California, such as Pacific Gas & Electric and Southern California Edison, offer rebates for various energy-efficient technologies and improvements. These can significantly offset the initial costs of your upgrade project.
- Federal Tax Incentives: The Federal government offers an Investment Tax Credit (ITC) for solar installations, which can provide a tax credit of up to 26% of the cost of the system, substantially reducing your overall project cost, making solar an even more attractive investment.
- California State Incentives: On a state level, California has numerous programs that offer tax credits, deductions, and exemptions for properties that meet specific energy efficiency criteria. For example, the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) offers a sales tax exclusion for eligible energy projects. Consult a tax professional to take full advantage of these offerings.
The investment payback period calculates the time it takes to recoup the initial invested capital through annual cash flows. The payback period can be determined using the formula: Investment Payback Period = (Initial Invested Capital / Annual Energy Cost Savings) for energy efficiency upgrades. In most cases, these upgrades can deliver a reasonable payback period of 5-7 years.
Energy Efficiency Upgrades present an excellent opportunity to enhance the ROI of your commercial real estate property. The benefits of these improvements are apparent with the combination of cost savings, tax incentives, and increasing market value. For tailored advice and loan assistance for these upgrades, reach out to Evoque Lending’s Commercial Team, your trusted partner in navigating commercial real estate investments.