The ideal tenant pays rent on time, signs a long lease term, requires no tenant improvements (TI), never complains, and improves the property’s brand in such a way that both retention and demand are high just by virtue of them being a tenant.
A solar energy system on your roof or parking lot is just that—literally a tenant above all others.
Property owners and managers are monetizing idle rooftops, adjacent land and space above parking lots to create stable, ancillary revenue streams without costly renovations or TIs. Thanks to new energy programs and policies, the most desirable tenants in the state are now solar panels.
How does this work?
Virtual net energy metering (VNEM) policies allow for solar installations to be built in one location and have the resulting energy credits applied to an electric meter at another location within the same utility load zone.
How is this unique?
In most other markets solar needs to be credited to the meter where the installation is connected to the electrical grid. In those markets, a solar project is only viable for locations that are large enough to not only host it, but that also have on-site operations large enough to consume all of the energy produced. Owner-occupied properties typically fit this scenario, but there are additional site characteristics such as space and shading that can impact the feasibility of a site for solar.
Why is VNEM better?
There are three parties involved in all VNEM arrangements: HOST, OWNER and OFF-TAKER. The HOST leases their property (rooftop, parking lot, land) to the OWNER who finances, designs, constructs, maintains and owns the solar installation. The OFF-TAKER is the entity committed to buying the energy credits produced by the solar project from the OWNER over the length of the lease agreement. Hosts get a lease payment, off-takers see a reduction in their energy costs, and owners are able to sell the energy produced by their solar project. Everybody wins!
By decoupling the benefactor of the energy credits from the location of the solar array, VNEM introduces a variety of ways for property owners and managers to benefit from solar projects without being tied to the production and consumption of the energy itself.
What are the benefits?
Predictable Revenue: Similar to a traditional lease agreement with a tenant inside the building, property owners and managers can sign leases with tenants outside too. Typical lease terms are 20 years and the payments are unrelated to the energy production of the solar project. Whether the solar panels perform or not, lease payments are made to the lessor.
Attraction & Retention: Commercial tenants are looking for eco-friendly environments for their staff. Though the power might be virtually going to another energy user, sustainable energy projects like solar are visible investments that can be used to acquire new tenants looking for properties at the cutting edge of technology, while retaining tenants who want to see their landlords are not asleep at the wheel and continuously improving their place of work.
Common Loads: Depending on the arrangement, some amount of the solar energy credits produced by the solar project on site can be used to off-set common area loads. These energy savings can be pocketed by the landlord or passed through to the tenants in the form of lower common area maintenance (CAM) charges or gross lease rates making the building more cost competitive in the market. The rest of the power will go to the remote energy user.
Value & Transferability: The value of a property includes an assessment of its revenue potential. Leasing square footage for solar increases the value of a property just like a lucrative master tenant would. Once the ownership of the property changes, the lease agreement will transfer to the new owners just like a traditional tenant lease.
Who does this work for?
Properties with at least 50,000 square feet of usable space are ideal. Design best practices and building codes require a certain amount of set-back space from the edge of properties and around skylights, vents, HVAC equipment and modes of egress.
Contact a member of our project development team to discuss your site and whether or not it will work for a solar lease agreement.