It’s time for the Triple PPP Lease
Historically commercial real estate investors have overlooked one of the most valuable assets embedded within their properties. They have intentionally transferred the utilities to the tenant thinking it was a cost/liability they did not want to be burdened with. But things have changed, and what was once a cost, power-energy, is now a potential profit center. And what’s more, that profit center can be intrinsically sustainable, driving not only benefit to the single economic bottom line but to the triple bottom line - People Planet and Prosperity.
Just like at the turn of the 20th century, property owners who realized they had untapped oil reserves worth millions beneath their feet, which they could extract and sell, literally exploding their investment overnight, Mynt can show CRE investors in the 21st century that there’s a similar opportunity in their buildings to unlock multiple revenue streams that will similarly boost their returns to previously unforeseen levels. In what may be the most ironic twist of the last century, by investing in technology that reverses the damaging impact of fossil fuel driven energy economics, CRE investors can turbocharge their portfolios return metrics and create an entirely new asset class of sustainable, Zero Net Energy, resilient buildings.
Might there not be anything more attractive to a CRE investor than a "Renewable Lease"? The new paradigm in commercial real estate - what is currently a utility cost for the tenant can be transformed into new income for the property. Landlords and asset managers have traditionally wanted nothing to do with being a "middle man" who supplies their tenants with power, only to go through the headache of collecting the payment, and with no upside. This idea has now become outmoded with the new ability to supply power to their tenants, not as a middle man, but as the site generated "utility company", capturing all of the delta between the cost of the renewable energy (project cost over time) and what the tenant would usually pay the power company. Some landlords and investment firms are taking this a step further and sharing some of that delta with their tenant, providing them with a discount to what they would have paid the power company. This creates a happier, sticker, and healthier tenant while still maintaining incredibly strong returns on their investment in the Solar and Battery system, called a site-generated-renewable-asset (SGRA).
Historically, tenants don’t want to invest in someone else's building and vice versa, owners don’t want to buy things that mostly benefit their tenants. So very rarely would a tenant invest in a 25 year solar asset on their landlord’s property and landlords didn’t understand how to get their return on investment from a rooftop solar system when the tenant was paying the power bills. New technology and sophisticated lease addendums called “green leases” have made this new paradigm possible. Now a landlord or Asset Manager would happily invest in a new energy asset, generating 15-20% returns while providing cheaper, clean power to their tenant.
New energy metering and billing software has the ability to track and monitor not only the tenants energy consumption but also the production of the solar system and the deployment of stored energy in the battery to create another layer of utility cost arbitrage. Some of these new software packages will even auto generate a bill that gets sent directly to the tenant showing them what they would have paid the utility company and what they’re paying the landlord instead, with a preset discount. The tenant billing and investment recouping process has been automated, creating transparency for the tenants and convenience for the owner/manager.
All of this has led fund managers, real estate investment firms, regional landlords, and asset managers to reconsider their current strategy for renewable energy and lease structures. Certainly, a modified gross lease (or Renewable Lease) will be taking the place of triple net leases, but even in a NNN lease situation, well vetted lease addendum language exists that allows owners to create a net benefit for People, Planet and Profit.
The increased property value that comes with these types of projects can be staggering and at the very least it paves a new path for commercial real estate owners to drive sustainability while doing what they do best, invest in the buildings which house the businesses and services that spur our economy.