Solar Cracks the Twin Cities’ Apartment Market

Admittedly solar isn’t the first thing you’d associate with apartment buildings, in fact it’s probably not in the top 20. Counter-tops, flooring, fitness centers, and community rooms probably sit atop the list of common interests for both apartment-seekers as well as owners. But as the market becomes more and more competitive savvy owners are turning to unconventional investment opportunities like solar power.

Commercial real estate folks are starting to view their roofs and parking areas as untapped assets. It makes a ton of sense, owners are used to looking at an investment in terms of internal rate of return and net present value. Solar is much like adding units to a building – there’s an upfront cost that yields revenue over time. The difference with solar is that the sun is your tenant, and you don’t have to do much marketing for it to shine each day. There are tax incentives that reward those with an appetite and most of the time an incentive from the utility to produce clean power. All of this adds up to a new and very attractive opportunity.

Solar has made strides over the past several years. Costs have declined nearly 50%, utilities and banks have become more comfortable with the technology, and product advances are making it easier than ever to install. Yes, sunshine is variable but our climate is very predictable on an annual basis. We know from weather data that there’s little difference from year to year in the amount of sunshine that hits the earth’s surface in any given location (~+/- 5%). That kind of reliability is important and desirable when making any investment decision.

St. Paul-based At Home Apartments decided to jump in feet first with a set of over a dozen rooftop solar projects earlier this year, including the largest multi-family installation in Minnesota (Eagan’s CityVue Apartments). They are not alone, it’s estimated the state’s solar market will grow an astronomical 1200% in 2016. Most of that momentum can be attributed to utility-scale and Community Solar Garden projects but rooftop installations will continue to increase their share of that pie.

Where do commercial real estate companies start when it comes to evaluating whether or not solar is right for them? It comes down to a few relatively easy questions:

1.) Is my roof suitable? Have you re-roofed within the last 5-10 years or are you looking at a new roof? Now would be the time to consider. Similarly, do you have at least 3,000 square-feet of unobstructed roof area?

2.) Who is my utility and how much am I spending per month on electricity? Some utilities, like Xcel Energy and Dakota Electric, have more favorable policies relating to solar and the interconnection process.

3.) What type of lease structure do I have? Most solar projects provide benefits to common-area meters for hallway / parking lot lighting, elevators, which impact the owner’s bottom-line. However, new structures have emerged (including Community Solar Gardens) that are allowing owners to lease space much like they would for billboards or cell towers but without the visual downsides.

For real estate groups the question is not if solar is the right decision, the question is “when do I move forward?”. In 2015 the tax benefits afforded to solar were extended (Investment Tax Credit [ITC]) for 5 years but some incentives are changing at the end of 2016. It makes sense to lock-in rates by submitting applications in 2016 if possible. Start by contacting a local solar expert with a proven commercial solar track record. They will be able to analyze, propose, and even finance your first (or next) rooftop cashflowing system.

-Eric Pasi is Business Development Director at Innovative Power Systems – a Minnesota-based solar company specializing in commercial and community solar garden projects.

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