According to a new report from Tony Liou of Partner Engineering and Science, attention to Environmental, Social, and Governance (ESG) has increased over the last several years among commercial real estate investors who are now using ESG factors as an asset risk management tool.

This makes good sense according to Liou, as adding energy efficiency and disaster mitigation elements can demonstrably increase property valuation. This is not voodoo economics; this is measurable and bankable. 

He uses the example of a building that currently generates a Gross Potential Income (GPI) of $1M and $700K Net Operating Income (NOI). At a 7% Cap Rate ($700K/7%) the value of the building will be $10M.

Now, say you invest $200K in a high performance HVAC System that results in $30K annual savings, boosting NOI to $730K. The value of the building has increased by $428,571 ($730K/7% = $10,428,571).

This NOI driven value increase is only part of the story. There is a slew of other impacts that are harder to measure, but no less real: Lower vacancy rates, higher potential rents, improved market perception, and compliance with local energy laws/codes.

Lastly, the Federal “Inflation Reduction Act” includes a full suite of tax credits, rebates and deductions that can put one-time or on-going cash in your pocket for implementing energy efficient retrofits or new energy efficient out-of-the ground construction. Your State may also offer cash incentives for pumping up the energy performance of your buildings.

You can read the full report here, and feel free to reach out to us if you’d like to learn how PolycreteUSA’s pre-cut ICF wall systems can contribute to Net Zero, Passive House, or other energy efficiency certifications.