On-Demand: Financial Opportunities in Clean Energy

Sce Pike:Hi, everyone. Thank you. I'm very honored to be participating with this esteemed panel. So, my quick background and a little bit about IOTAS. I've been in technology for a very long time, way back starting 2000 with PalmPilots, so I've been in technology since those days. And fast forward, I launched IOTAS in 2014, really went full-out into the market in 2016 with a developer in Portland, Oregon.

And IOTAS is essentially a smart property technology. We install everything from manage access entry into the buildings, to the units, common areas, elevator control, et cetera, all the way to the in-unit experience, so for lighting, HVAC systems, and also mitigate risk by installing things like humidity sensors and leak sensors. So, we're a full-suite smart property solution. You can think of it as fleet management for IoT devices, but really we're there to hopefully reduce emissions, if you will, save energy as a byproduct, but really to increase operational efficiencies and also potentially increase rent premiums in residential environments.

Darren Griffith:Great. Thanks, Sce. Next, I'll pass it to Mike Richter. I think you might be muted, Mike.

Mike Richter:Purposely did that just to take pressure off the other panelists. I'm president of Brightcore Energy, and we are effectively an energy efficiency company. We love to define ourselves by being able to offer these technologies at no cost, often. Our goal, really, is to make commercial, industrial, institutional buildings perform better. And by that, we mean upgrading the efficiency in both new builds and existing buildings. And really, the goal for the client is to save money. We'll get into the definition of what clean energy is and what sustainability is, but our goal is to save money, operating expenses for the client.

Darren Griffith:Great. Thanks, Mike. Rob?

Rob Krugel:Great. Thanks, Darren and Alan, for having us today. In fact, everyone for dialing in. I'm Rob Krugel, one of the founders and co-CEO of Brightcore. So, just to expand a little bit on some of what Mike said, we talk about ourselves as a clean-energy-as-a-service company. As Mike mentioned, we work with large commercial and institutional building owners to deliver a variety of energy efficiency and renewable energy measures to ultimately make their buildings more efficient, consume less energy, generate savings, and provide a variety of non-financial benefits, including achieving sustainability objectives.

We're based outside of New York. We work primarily in the northeast and mid-Atlantic regions, and touch a number of a clean energy technologies ranging from LED lighting, to solar, to renewable heating and cooling, specifically geothermal ground-source heat pump technology, battery storage, electric vehicle charging, and the list goes on. We're at a very exciting time in the marketplace with the support for clean energy technologies, and the financial benefits to building owners and tenants are quite significant.

Darren Griffith:Great. Thanks, Rob. And last but not least, Anthony.

Anthony DiGiacinto:Thank you, Darren. It's great to be here with all of you. I'm a corporate tax director in EisnerAmper's corporate tax department. I'm also the tax lead of our green tech group, so I help clients analyze different clean energy deals that they may be considering. I got my start in this area working for Covanta Energy, which is an outfit that owns waste energy power plants across the U.S. And it's great to be here with all of you.

Darren Griffith:Great. Thanks, Anthony. Just to kick things off with the first question, it is a long question, but in your own words, how do you define clean energy? And with clean energy investments, can real estate owners both fiscally responsibly and financial responsibly to their partners? What are some of the most interesting new technologies in the clean energy space that you have seen recently? And for the first question, I will pass that to Sce.

Sce Pike:Sure. Of course, I'm going to say smart properties is probably the most interesting technology I've seen for clean energy. I think one of the things that's interesting for smart properties is that it's creating this beautiful resident experience that's engaging. And one of the things that we're setting up right now, and I'll get into a little bit later, is the time to stay in those properties, so essentially the renewal rates will be going up. And so, we're watching that right now, that data come out.

But the other aspect of what's interesting is that the residents don't think of it as clean tech, right? They don't think of it in any way as energy savings. They think of it as a total comfort and convenience. However, we're in both occupied and vacant units and controlling all the common areas for a fraction of the cost of what might have been there prior to some of the IoT devices that have been launched in the market. And so, it's a much cheaper way to get clean tech into the building, and the residents engage in it as well, but offset the cost of the actual installation of hardware and services, because we are also seeing premiums on the rent side go up, but also operational savings as well and ability to reduce loss.

So, all that kind of offsets the cost of the actual initial investment. An ROI that we've seen typically is anywhere from four to eight months or so on the investment side. So, from our perspective, I think some of the best clean tech is clean tech that's disguised as something else, as something that is more fun, comfort, convenience, operational savings. That's how we think about our solution.

Darren Griffith:No, that's great. That's fantastic. And Rob, how about yourself?

Rob Krugel:So, when we think about clean energy, it really encompasses both energy efficiency and renewable energy, and I talked about some of the examples of technologies that we focus on. For us, it's really about looking at the customer, looking at the building, and then bringing our knowledge of a variety of measures. And that knowledge cuts across technology, it cuts across finance, it cuts across installation implementation.

At the end of the day, everything we do, it all has a nexus to sustainability and reducing carbon footprint and greenhouse gas emissions. At the end of the day, though, everything we do has a financial benefit to customers. And what's interesting about it is every building we go into has lighting, they have heating and cooling, and what we're coming in to do is to identify ways to make those measures more efficient and ultimately either generate a reduction in energy cost, in income stream in the case of some applications of solar, for example. So, I think there are significant financial benefits, and that's really the lens that we look at all of these measures through for our customers.

Mike Richter:I just want to jump on top of that, Rob's answer. I think you're asking for a definition, and we have these vague terminologies, sustainability and environmental stewardship and clean energy. And really, for us at Brightcore, it comes down to performance, right? If you're more efficient, you're eliminating waste, and that yields financial savings as well, of course. But people live in buildings, people work in buildings. And like Sce had mentioned, the lighting is improved, the aesthetics are improved, your ability to focus and actually see can be greatly enhanced by the right LED solution.

When it comes to HVAC, the geothermal, you don't have these rises and falls in terms of heat and cool and the humidity. It's much more controllable, and particularly, when you put in a smart technology on top of it, as Sce mentioned, you have better performance, so the human experience is really enhanced. So, it's above and beyond just the financial; it actually makes the place perform better.

Darren Griffith:Great. Great. Great. And Anthony, given your background, what is your perspective of clean or green energy?

Anthony DiGiacinto:Well, I take a simplistic view of it. It's something that spews less carbon into the air, I guess, right? Anything that could do that, I guess, is going in the right direction. And following up what Rob said, obviously, it has to make financial sense also, and since tax incentives are such a big part of that, that's why I got involved with clean tech, to make sure that the clients that come to us, "Should I invest in this?" Make sure that it's right for them. There can be many complications in the tax law, and it's not just about, "What percentage of ITC am I going to get?" And does it work for you, considering your whole tax picture? So, that's what we hope to get our clients to understand.

Darren Griffith:Great.

Alan Wink:So, why don't we, Darren, why not go into question number two? And I think, Mike Richter used to phrase before, environmental stewardship, and I guess environmental stewardship, that certainly does possibly have an upfront cost to it. The question for maybe Mike and Rob, to start out, what are the financial impacts, both negative and positive, of implementing clean energy technology or clean energy solutions? Rob?

Rob Krugel: Sure. I'm happy to cover that. So, all of these measures have a cost, have an upfront cost. And in many cases, that's a perceived barrier to adoption. Building owners all have lights that are functioning, but what they may not realize is, although there's a cost to replacing fluorescent lamps with LED lamps or fixtures, what they may not realize is just how significant the savings are by making that investment, and therefore, how impactful the return on that investment is. And we've actually taken it a step further with our business, as we call ourselves, as I mentioned, a clean-energy-as-a-service company.

And part of the service, if you will, that we provide is we provide that upfront capital, such that our customers don't need to come out of pocket upfront to make these various improvements to their building. And ultimately, from their perspective, they're driving immediate savings, whether this is upgrading their lighting, upgrading their heating and cooling systems, adding solar to their rooftop or above their parking lots. So, we've made it about as easy as it can be, where customers are spending no money upfront, and driving immediate reduction in operating costs.

But in the absence of that, we do have many customers who nevertheless want to use their own capital. They perceive it as an attractive, which we do as well, attractive return on investment. So, that can range from as short as less than a year on lighting, with a product that has a 10- or 20-year useful life, so that return on investment is quite significant. To something that's a bit longer, geothermal may have a longer payback, but there, you're talking about something that has a 25-plus-year useful life. So, there's quite a bit of range, depending on what the measure is.

Alan Wink:And Rob, I know Sce mentioned earlier in her opening remarks that the ROI is somewhere between four and eight months for a lot of clean energy technology investments today. Do you agree with that?

Rob Krugel:I do. It's probably a bit longer with the measures that we focus on. I'd say it probably ranges from one to five or six years. Maybe solar is a bit longer. But, then again, something like solar has a 25-plus-year useful life. But I think what's probably the most important point to keep in mind is, with our business model, we're really delivering an immediate payback, if you will, or an infinite return on investment, because we're enabling our customers. And it's not just us. There are others in the market who do this, but this idea of bringing third-party capital to the table to make these investments and enabling customers to improve their facilities without coming out of pocket, we're delivering an infinite return on their investment.

Alan Wink:Mike, anything else to add to that?

Mike Richter:No. Just to underscore some of the numbers, a lot of times, it is a showstopper when someone says, "Well, it's 20% more expensive upfront for geothermal," whatever it may be. It is case-by-case, but generally speaking, you're looking at 30% to 50% improvement in terms of the operating costs. So, as Rob said, these geothermal loops can be 30 years in the ground and pretty much maintenance-free. So, year after year, you have a paycheck, in a sense, coming your way. So, you have to look at the full life cycles of these things. Whether it's a brand-new build or something that we're replacing, if you're at the end of the useful life of an oil furnace, for example, and you put geothermal in, it'll be more expensive upfront, but you'll be saving right away, very significantly, and the full life cycle absolutely go in favor to the more efficient technology.

Rob Krugel:And I think one thing, just to add to that, we're in a period of time now where there is significant support for clean energy technologies, particularly at the state and local level. So, we're seeing really unprecedented incentives, financial incentives. To take something like solar in New Jersey, for example, where the state has been incredibly supportive of solar and renewables broadly for the better part of 15 years, and New Jersey is probably in the top five, or certainly to 10, of most-installed solar.

But there recently is a program that was implemented earlier this year that has some of the most attractive incentives I've seen over the last 10-plus years, and it's enabling us to deliver energy savings to building owners upwards of 90%. So, if the average commercial or industrial building in New Jersey is paying 10 cents a kilowatt hour today for energy, for example, under this new incentive program in New Jersey for solar, we're reducing that 10 cents to one cent a kilowatt hour. So, it's pretty amazing, and I think this is not a temporary phenomenon. We're increasingly seeing states, cities, municipalities, implement very aggressive carbon and renewable energy goals, which is then translating into significant incentives and subsidies from state and local and utilities.

Darren Griffith:No, that's great. And having a 90% savings on those costs is very significant, and that is a good segue into the next question for Sce. What is some of the data behind the smart building efficiency, and how are owners able to raise rents in addition to saving on the real estate operating costs? Is there a way to give us some numbers around what that would look like for someone who invested in the IOTAS technology?

Sce Pike: Sure. And I just want to clarify one point with Alan and the audience, is that the four to eight months of ROI, that is for smart property technology, not necessarily, and that's all-encompass of smart property technology. So yes, there is definitely savings there, that we're seeing about 7% labor savings on a weekly basis. So, again, focusing on that kind of asset, where there's mixed use, commercial, residential, fairly large mixed-use projects, what we saw on average when building, first of all, that if it's a greenfield, we saw that there was tremendous amount of time spent in making that building look active, look alive, if you will, so property managers running around, turning on lights and leaving those lights on all night, or turning on heat or cool, so that it's ready to show, and they leave it on for a month at a time at full heat, full A/C.And so, those were some of the things that we saw immediately that we could turn off, right? We could automate during business hours, have these lights on at these particular units, versus this particular unit. And then during after hours, shut it off. If they're vacant, make it appear occupied, randomize the lights that are on in that building to make it appear occupied. And so, that's some of the labor savings. And then automatic maintenance calls as well, so if there's a leak detected or humidity detected or low battery alert detected, those automated maintenance, instead of having to go into every unit to change out a battery or check on every unit, you're getting on-demand notifications. So, there's a huge drop in operational overhead.

And also, the return on investment is not just on the rent premiums, but in a couple of our buildings just in the past two, three months, we've essentially had four sensors go off on the leak side in 382-unit building still under construction. But a pipe was cut somehow during construction. And that's a 40-story high-rise. So, if you have a leak going from the ninth floor, let's say, all the way down, that's millions of dollars in savings there. And then in the south, we will also prevent lots of humidity. So, there's lots of black mold, and so we can easily trigger that humidity alerts go off after, let's say, 70% humidity, whatever the property decides to set, but typically, they set it at 70%. If they see that level of humidity in any unit, they go in there immediately and check it out. So, those are the things that, from a prevention side, is a huge win.

But also, on attracting residents in, we have things available that allows for faster lease-up, because it's self-guided touring, what we call Prospect Touring. And that Prospect Tour essentially pays for itself, in that you get a much bigger pipeline of people, especially during COVID, who don't want to come in and interact with people. They can come in, schedule a time of the showing, do it all mobile so that they don't have to touch anything. One of the systems that we're working on right now is being able to the elevator with your mobile phone as well, and be able to go in, get into the building, get into the elevator, go to the right floor, go check out the unit. And so, we're creating a much bigger pipeline of potential tenants going through that building and getting them in and out and really qualifying the leads as well.

So, the system from the life cycle, and going to retrofit buildings as well, not just greenfield, from the start of the building, during construction, all the way to the maintenance of the building, is much more efficient. Right? And so, there's a great energy savings, because we do, again, control all the lights, all the HVAC systems, and so on. But at the end of it, what we're doing is creating an ecosystem for our building owners to really tap into the entirety of their building, especially when they can't be there at this moment, or they have to reduce staff, and so on. So, that's how we see the entirety of the ROI.

Alan Wink:Maybe to change gears a little bit, let's talk, one of the components of return of investment really are tax incentives available for implementing clean energy solutions. So, a question for Anthony. What are the tax incentives of implementing clean energy solutions, and what is the typical timeline of seeing a return from tax incentives, or from the investment? If possible, if you could discuss some real-life examples, and if you could touch briefly on production tax credits for wind and solar investor tax credits, and maybe others that might be worthy of mention. Anthony?

Anthony DiGiacinto:Sure, sure. Thank you, Alan. So, mainly, the idea with the investment tax credit, or I'll refer to it as the ITC, there's also a production tax credit, which is very different, and that we'll refer to as PTC. So, the investment tax credit is pretty simple. You get an upfront credit for an investment in a clean tech investment, generally solar, wind, geothermal that Mike was talking about. And historical percentage of credit used to be 30% of your investments. So, if you invested a million dollars in one of these systems, the IRS would give you a $300,000 credit upfront. As long as you had the tax appetite, you would get that credit back in one year, and there's 30% of your investment recouped in one year.

Those percentages are going down, and it depends upon when you begin construction on your system. So, if you began construction before 2020, you'll get the 30% credit. If you began construction this year, it goes down to 26%, and if you begin construction next year in 2021, you get only 22%. So, the quicker you get to it this year, the greater the benefit. If you start construction, you have to finish the construction by the end of 2023 in order to get that percentage that you qualify for. So, if you started a project last year, finish it by 2023, you'll get a 30% credit. If you don't finish that project until 2024, your percentage credit goes down to 10%, so you'll lose a lot of incentive if you're delayed.

The IRS came out with some minor relief due to COVID. They've extended that period for projects that began in 2016, because their time would've been up in 2020, so they gave them a little bit of an extension to finish their projects. And most projects don't take that long to complete, so it probably doesn't apply to too many people.

So, that's the investment tax credit. And generally, I see solar deals. Most of our clients are looking at solar deals. And typically, the models they present to us, we check it out and make sure that the model is correct, we make sure that the credits, they're going to be able to use them, they have the tax appetite, they have the right type of income to absorb these benefits. And generally, it takes four to five years to recoup your investment. You get the 30% upfront. There is currently bonus depreciation that you get upfront, so depending on what tax rate you're in, you'll get a benefit from, say, 22% to up to 35% first-year benefit. So, right away, you're above 50% recoupment just from tax incentives, and then the rest is going to have to be made up by energy savings and/or state incentives. So, generally four to five years, maybe with the rates coming down, maybe it's up to six for the typical project.

The PTC is a much different animal. And I don't think too many people that are interested in putting something up on their roof are going to look to the PTC. The PTC is a credit that you get for selling energy to somebody else. So, you put up a plant, you put up an energy-from-waste power plant, or an energy-from-biomass power plant, generally a much larger scale of investment. And you put this up, and again, you have to start it by the end of this year. You get a credit for 10 years going forward based upon the amount of energy that you sell to an unrelated party. So, the PTC is quite different.

One other thing to mention, if you are in a situation where you could put up a project that could use the PTC, currently, you can elect to have the ITC apply instead of the PTC, so you'd have to model out both incentives to see which gives a better incentive.

Alan Wink:Hey, Anthony, we got a question in from the audience. I think might be a good time to answer this, since we are in an election period. Can the election change the investment thesis for investing in clean energy? What do you think?

Anthony DiGiacinto:Well, I would say without a doubt. Without a doubt. I haven't seen too much chatter out of Washington about extending these credits. Obviously, we're coming to the end of their cycle. They've expired before, and they've come back even in greater numbers. So, just because they expire doesn't mean we won't see them again in the future. Obviously, if we get a Democratic victory in November, we're much more likely to see these things extended. And obviously, a Republican victory, they may surprise us, but I don't see much hope for these going forward in a meaningful way that they have been in the past.

Alan Wink:Thank you.

Rob Krugel:Yeah, I would just add to that. I mean, I totally agree with that at the federal level. I would say, as I mentioned a few minutes ago, though, at the state and local level, and I think, frankly, what we're seeing from businesses themselves, institutions, educational institutions, this support for clean energy, sustainability, greenhouse gas reduction, is quite significant. Yeah, having been in this space now for 10-plus years, I think probably over the last year, it's been stronger than at any time I've seen in the past, and I think that's quite encouraging, because it cuts across party lines. And I think, at the end of the day, as we're talking about on this call, while incentives are important, these measures themselves drive significant savings and significant attractive financial outcomes. So, I think we're down a path here that will likely continue for many years.

Anthony DiGiacinto:I agree.

Alan Wink:Melody, can we go to polling question number one?

Melody:Yes. Polling question one: How do investments in green energy and technology increase the valuation in CRE properties? A, 0%. B, 1% to 5%. C, 6% to 10%. And D, 10%-plus. Give you a few more seconds to respond before I close the poll.

All right, I am closing the poll and sharing the results.

Alan Wink:Wow. So, looks like over 90% of the people think it'll increase value by at least 6%. Pretty compelling data. Any comments from anyone on the panel relative to these facts?

Rob Krugel:I am not surprised. When you think about the impact on energy costs or income-generating potential, as we've talked about, I think these various clean energy measures have a significant impact on improving operating cash flow, and if you part some multiple on that, you're talking about increasing the value of the real estate pretty significantly. One area, as I mentioned earlier, where I think this is extremely palpable, again, is in New Jersey with solar. Oftentimes, we talk about energy savings, but when we're talking to real estate investors, we try to put it in the dollars-per-square-foot terms. And we're seeing an ability to deliver value to building owners upwards of $1 a square foot for industrial properties, where the industrial property owner would not make any investment, not come out of pocket at all, and essentially receive rent from us for allowing us to site our solar equipment on the roof or above a parking lot. And we're able to pay rent in an amount that, in some cases, can be as much as $1 a square foot. So, if you put some cap rate on that, it really has an impact on property values.

Alan Wink:Any comments from any other panelists? Okay, let's go on to our next question then. In understanding that buildings, like everything else, go through life cycles, is there a time that, in the life cycle of a business, where making investments in clean energy solutions, clean energy technology, makes more sense than others? Sce, maybe you could help on that question?

Sce Pike:I think one of the things that we found is that earlier in the design process. And in fact, one of our customers in Minnesota, way early on, they actually had this very interesting notion of investing in solar in different way than probably most everyone else does it. They essentially built a solar farm. They built a solar farm for the local municipal energy company, and with that, they essentially got free energy for, I want to say, 50 years. I don't quite remember the agreement on it. That's an exception, but that was a really well thought-through process, where they exchanged services of developing a solar farm for exchange of free energy for their buildings, for all of their buildings, for their entire portfolio.

But what we found is that we get engaged around the design process, very early on into any new construction. During retrofits, there's no timely time, I guess. It's just matter of budget, of when you want to do the retrofit, or when you want to upgrade your property. But from what we've seen in that process, at least for us, when we go through and renovate, it is a fairly quick turn for our system. It takes an hour, hour and a half per unit, per common area, to be able to retrofit that. So, it's actually a fairly standardized system, and so it's not a heavy lift. It's not like we're placing flooring, which may put people out for a week or whatnot at a time. So, just on that note, I would just add that there is no bad time to be introducing a potential clean energy project.                                         

Darren Griffith:Sce, where do you see more of the savings? Do you see more savings in someone who you're retrofitting in an older building? Or would you think that, overall, there would be more savings in someone who's doing a brand-new building, where you're coming in from the beginning and implementing it into the system? Because, when you think about it, the newer buildings are going to have better systems anyway, probably, more likely than the older buildings. So, which one typically is more of a benefit?

Sce Pike: So, I would say this. On average, we're at probably 3% increase in revenue. But in the older buildings, it's much higher. Right? We've seen up to 10%, 11%, because of that, because you're right. Both in savings as well as increase in rent premiums, we see it a lot higher, because they have just more room for that to grow. Right? The older buildings are not as well insulated. The older buildings have a lot more damage. I mean, some of the buildings that we go into, in South Dakota for example, the doors are a disaster. Right? We're retrofitting locks to those doors for ease of entry and ease of use.

And I know that has nothing to do with energy savings, but that's just an example of how some of these buildings are requiring and needing something that's a light, quick fix, for them to be able to minimize impact on the energy side. Because those type of buildings are typically buildings where the building owners are paying for their energy usage. Right? So, for them, they want in-out as quickly as possible, minimize reduction in loss, pipe bursting and whatnot. And for them, they're seeing, every time we go in, probably on a monthly basis, $11,000 worth of loss that we have completely mitigated. So, huge savings, especially in older buildings.

Mike Richter:Maybe I could just add one thing there. Just from our perspective, it is easier to do it when it's a new build, for a geothermal system, for example. But 80% of the building stock that you see, for instance, in a place like New York City, is going to be there in the next 20 years, 80% of that building stock. So, you have a real competitive disadvantage if you have one of those old buildings that you haven't retrofitted.

And the other thing, as far as timing is concerned, is end of useful life. So, if your boiler is running out of juice right now, and I mean it's dying, you have a decision to make. Go back with the conventional, or do something differently. And not every building can handle it. You have to have ventilation systems and everything else. But those that can, the timing is usually at the end of useful life, and that's something that's such great savings like lighting. But you're going to have to do some kind of construction work there anyway. It's a good time to do an entire rehab. But we can't look at the building stock and just decide that we're going to make everything a brand-new smart building, because we just won't get there. You have to retrofit the existing ones as much as possible, because there's just so much, and they're going to last so long.

Rob Krugel:Yeah, I think it's just that it really varies by measure. Something like LED lighting is so efficient in terms of energy reduction versus fluorescent lighting, for example, that even if a building has replaced their lighting in the last few years, and for whatever reason didn't do LEDs, even though there's still significant useful life on those fluorescent lamps, it's going to make economic sense to upgrade those to LEDs, which are going to use 50%, 60%, 70% less energy, particularly if you're in a high-energy price market like the northeast. That payback is going to make sense, even though you're replacing something that's not end-of-life. Definitely, as Mike said, for things that have longer paybacks like heating and cooling, it's probably not going to be purely from a financial perspective makes sense to necessarily replace a heating system that has 10 years left of useful life.

Solar is an interesting one, because again, it's really a financial play. Buildings don't need to have solar, but what we're seeing, again, I'll come back to the New Jersey opportunity because it is so compelling, we're seeing the ability to use the financial benefit of solar to deliver additional value to landlords, for example, where we can come in and replace a roof and pay for a new roof. So, they may be looking at their building and want to pursue solar, not because necessarily they're passionate about sustainability and climate change, but rather, it's a financial transaction where they could have a solar developer come in, lease the roof, put solar on the roof, and the consideration for allowing the developer to put solar on the roof is the developer will pay for and replace the roof. So, there's a lot of interesting things that can be done, aside from just simply driving energy savings.

Darren Griffith:That's great. And just speaking to that a little bit more, and like I said, I'll bring this back to you, Rob. I know there's a variety of things you just talked about as far as the savings, but as far as a building owner who wants to implement, say, this technology or some level of smart technology, what is a roundabout price-per-square-foot cost for lighting efficiency or solar? Can you give a roundabout number for what that might cost someone in different situations?

Rob Krugel:Yeah. We typically see lighting projects range from $100,000 to half a million dollars for a typical commercial or industrial or institutional building. It obviously depends on size, it depends on type of fixtures, are we replacing fixtures versus retrofitting fixtures. Solar is going to vary. The rule of thumb is for, let's say, a rooftop project, 100,000-square-foot roof is going to support a one-megawatt project, which ballpark number is going to be about a $2 million, maybe a little bit less, investment. Now, as we talked about that before, taking into account federal tax benefits, the ITC and accelerated depreciation, and that's before considering the other financial benefits.

But again, what we found, having been in this space for a number of years and having done hundreds and hundreds of projects across a variety of technologies, we think this idea of coming into customers with an as-a-service model and removing that capital investment is compelling and is driving a lot of folks to implement measures that they might not otherwise would've done. And that's certainly been a driver in the solar market, where this idea of third-party ownership and power purchase agreements have really been around for 10, 15 years now, and are a primary vehicle or financing tool that commercial buildings use to adopt solar.

Darren Griffith:Sounds good. And Mike, quick question for you, as well. Another part of that question is: What are some of the other funding options? Rob, you said those were the typical options. But Mike, what are some of the others funding options for investing in the clean energy products that you guys have?

Mike Richter:Well, I mean, in the end, Rob was speaking about something like lighting, the savings themselves can generate enough income, if you will, to offset the initial cost. And maybe Rob can go into that. I mean, he literally is putting together with our financial team different products out there for different incentive regimes and technologies that enable some form of no-money-upfront, cash flow-positive-from-day-one options.

I just wanted to make one point, though, on the timing issue that we didn't discuss, and something we have to talk about in this area. Local Law 97 has just come into New York City, for example. So, if you're talking about timing, when you need to get any of these things done or should think about it, that is before that law goes into effect. They have not settled on what the fines will be, but unless the baseline's met, basically greenhouse gas emissions per square foot on the type of building, you're going to be paying a fine. And so, if you will, you can look at it as an incentive to avoid a cost, so it's going to start defraying what you would otherwise be paying if you hadn't upgraded your building.

Pretty significant people are looking at this, and we see clients all over the map. Some are all set for 2024, the first tranche of accountability. Next one is 2030. But if you think about how much work needs to get done in all of the constructions and everything else, that's something you better get on very fast in terms of timing. Rob, maybe answer to a couple of our efforts on different products?

Rob Krugel:Yeah, yeah. So, obviously, I talked about power purchase agreements for solar. We have an analogous structure for lighting, called lighting-as-a-service, where we pay for the project, and customers pay us over time, essentially out of savings. We have a very interesting offer for geothermal, where we'll pay for the ground loop, which is the significant first cost that's been a bit of a barrier for that technology. And then customers pay us, just as they would be paying their utility for natural gas, they pay us to access to ground loop. And again, these transactions are all structured such that that monthly payment is less than the savings, resulting in a cash flow-positive transaction. And then in addition to those kinds of specialized financings, there's more traditional lease financing or bank-loan financing that's always available as well.

There's quite a bit of capital, both on the investment side as well as on the lending side, that has been increasingly pursuing clean energy investments. And you look at some of the largest asset managers, for example, folks like BlackRock, who have been very vocal about ESG investing and putting significant amounts of capital into the clean energy space broadly.

Darren Griffith:Great. And Sce, I know your product is slightly different, and I know, I think back in February when we were speaking at the conference, I was drawn back by how cost-effective your product was to implement per unit. Do people usually need some sort of outside financing? Do they typically pay for it upfront? How do they typically finance the IoT sensors that you implement?

Sce Pike:Sure. So, on average, we're probably looking at $500 per unit, or per area, if you want to call it that. That typically includes anything from door lock, thermostats, sensors throughout, open-close sensors. So, it is very economical. You can go up to about $1,000 per unit if desired. So, some of our customers do their nicer units, penthouse units, and maybe outfit it out a little bit more, while getting the rest of the units covered as well for about $500. So, it's pretty darn efficient and economical. And included with that is all the services of automating your building as well. And then slightly extra for anything like self-guided touring of the building, that's $200 a month.

We are also introducing very similar to having essentially a no-capital outlay and an opportunity to be able to pay it over a period of time as well. So, there's an immediate return on investment on day one without the capital outlay. So, very similar model. But a lot of our customers, because whether they had it in their budget or as part of their cost of construction, and they can easily depreciate it over time, they do tend prefer some of it up into capital cost, versus holdbacks.

Alan Wink:Melody, could we go to polling question number two please?

Melody:Yes. What area will be the area of greatest growth in clean energy within the next three years? A, IoT and building tech. B, solar. C, water efficiency. D, lighting. E, electric vehicle chargers. I'll give you a few more moments to put in your answers.

All right, I'll go ahead and close the poll and share the results.

Alan Wink:Very interesting. Electric cars seem to be the winner here. Looks like electric vehicle chargers at 46.2% and IoT and building tech at 30.8%. Sce, would you agree with these responses? Is this what you're seeing?

Sce Pike:Yeah, definitely. And we get a lot of requests for managing those electric vehicle chargers as well, and we're looking into it. Definitely seeing something very similar to those, especially in regards to energy savings.

Alan Wink:Thank you. So, we've been at this now for about 50 minutes, and we really haven't spent a whole lot of time talking about COVID-19. So, what do you think the impact of COVID-19 is going to be in terms of investing in clean energy solutions and clean energy technology? Rob, why don't you start us off?

Rob Krugel:Yeah, great question. I think certain parts of our business definitely experienced a bit of a pause early on in COVID. For example, the lighting component of our business requires us to go inside of buildings to do investment-grade audits, so for certain building types, skilled nursing, senior living, that was obviously a pretty challenge. But I think at the end of the day, what we're seeing is probably, if anything, COVID is having a positive impact on clean energy, because as we're talking about here for the last 50 minutes, clean energy really is about driving financial benefit to commercial and industrial and institutional buildings, either in terms of lower energy costs or income-generating potential.

So, as COVID is affecting businesses in all sorts of ways, and municipalities and public school districts and whatnot, in terms of budget, I think anything that can have a positive impact on operating cash flow is going to be strongly considered. Obviously, some sectors have been hit harder than others, and I think just getting folks' attention in the hospitality industry today, or the healthcare industry, is challenging, but I think medium- to long-term, it's having a positive impact on clean energy adoption.

Alan Wink:Hey, Rob, are some of these changes going to be permanent? I know former presidential candidate Andrew Yang had a great comment several months ago, where he said COVID has caused us to see 10 years of changes in 10 weeks. Are some of these changes relative to clean energy permanent changes that we're going to see going forward?

Rob Krugel:Yeah, I think so. We're spending time on the lighting side and the HVAC side around ways that technology can disinfect spaces, whether it's specific to COVID or more broadly to viruses and bacteria. I think it's definitely resulting in significant innovation that may have happened in due course, but I think it's been accelerated here in response to trying to find ways to mitigate the impact of COVID.

Mike Richter: And Alan, just to add to that, the climate change issue is more and more being considered through the lens of public health. And you saw this dip in greenhouse gas emissions and pollution in different cities. Even visually, you could see the pictures from India and whatnot. Because there was just less economic activity, and so there was cleaner air, and on and on. So, you see the response of countries and the world coming together, saying we have this health issue. Increasingly, I think a lot of the climate scientists and global warming, I guess, out there fighting it are saying this is a health issue, so it can be viewed through that lens.

So, I think people are starting to look at it a little bit more as the threat that it may be. But I think the other thing is, look, the economy has been devastated, right? And I made a note, I think it was an EE, I saw an article that was saying that the clean economy can produce 25 million jobs, right? There's a lot of people out of work, there's a lot of upgrades that need to be done to our infrastructure. And with people out of work like this, it's tough to outsource some of these things, physically having people going into buildings, putting solar panels in fields and on roofs. So, there is an economic way out of this thing, and we're leading in the technology in a lot of ways in this country. So, it would be probably pretty wise to deploy it. So, I think, from that point of view, it's going to be a necessity.

Sce Pike:Yeah. We've seen a tremendous increase. I think we're getting requests for what we could touchless buildings. Touchless buildings meaning that, going forward, and I think is something that's going to stick, is that you don't have to interact with anyone, get into the building, touch nothing. Right? Do your elbow into the building, touch nothing, get in and out. And so, we have been trying to test out, pilot out, these touchless moments. Except for the unit. The unit doors are really hard to get to be touchless from both in and out. But we have seen some real rapid changes.

And so, for us, launching that Prospect Tour product, it's a normal probably six months to launch any sort of new features; we launched that in four weeks because of the demand around it. And so, it was a very rapid turn for us, but we're also seeing similar innovations and just similar changes and just demand for how buildings are going to be run and operated. It's going to change night-and-day. I really do think that the way buildings are going to be operated, whether it's commercial, residential, is going to be very much night-and-day, and so many more things will be touchless and automated. And a lot of different sensors also hitting the market around density and air filter and air quality as well, so a lot more demand all of a sudden for those kind of sensors have been pressing us lately as well.

So, I do see a permanent change, and I think it's all for the positive. I do think that there is some things that we're probably, as an industry, from a real estate perspective, a little bit behind on, right? And other industries have been a little bit more fast-moving on this area, and I think we're playing catch-up.

Alan Wink:Thank you. Well, we're down to our last two minutes, so I want to give every panelist a chance for some closing comments. For each of our four panelists, first of all, thank you very much. Any final points of advice for a real estate owner considering making an investment in clean energy or clean energy technology? Rob or Mike, do you want to start us off?

Mike Richter:I would just start with the-

Rob Krugel:Go ahead, Mike. Go ahead.

Mike Richter:I'll just start out with this: It's a competitive issue. Right? If my building has the clean technology, if I'm putting Sce's technology in my building, into a smart building, it's either touchless or it's just more efficient and effective place in which I can do my work and have my company run, I'm picking that building. So, I think it's a competitive thing. That's never changed. I think it's just been maybe amplified under the circumstances of COVID, but more people will be looking at this, more people trying these things on, and you'll never go back once you have an electric car or a smart building or better lights. I would take the word sustainability out and just call it better.

Alan Wink:Rob?

Rob Krugel:Yeah. Along those lines, my comment would be: Fight inertia. It's very easy to ignore these different measures, because for the most part, it's easy to say, "All right, my lights work, my heating and cooling works, I don't need solar to run my building." But the reality is, as we've been talking about for the last hour, the financial benefits, not to mention all of the non-financial benefits around efficiency and comfort and safety and so on and so forth, but just purely from a financial perspective, the opportunities are unbelievable across a variety of technologies. And the reality is, while we want everyone to call us, there are other companies that do this as well, and I think there are many capable firms in the marketplace that can really make it very easy for building owners to generate significant value from deploying a range of energy efficiency. So, try to pay attention and fight inertia. I think a lot of good can come out of that.

Alan Wink:Anthony, any closing comments on the tax side?

Anthony DiGiacinto:Sure, sure. So, since COVID started, not many of our clients has come to us and asked us to analyze a solar deal for them, so I think everyone's in a wait-and-see mode before they make that kind of investment. So, I guess they're going to be hanging out until at least November and see how the election turns out, and from there, I guess, if you're really interested in doing something, the election may force your hand to do something sooner rather than later. But solar is not going away. Either way, it's going to be around, and it's becoming more and more viable every year. So, it's going to stay with us.

Alan Wink: And Sce, for your closing comments?

Sce Pike:Yeah. I mean, I learned a lot, I love this conversation. I think one of the things that I believe Mike said, which was there was a solar plot project that actually redid the roof, funded the redoing of the roof. I think those are the things that I think are really key, right? And I think one of the things that we have in this group of panelists sounds like are really the partners that can get you through it, through some of these conversations. Because it may seem really complicated from the onset if you're looking at it from the outside, but once you do it once, it's actually really not that hard. Right? There's a very systematic way of going about it, but you do want trusted partners, you do want people that you can talk to and really get you through all the, excuse my language, shit that might hit the fan, and get you through that process.

And so, one of the things that I would say as a closing statement is: We are not the first, nor will we be the last. But when you're looking at these projects, definitely look for trusted partners that can tackle it from the tax perspective, from the actual clean energy financing perspective, and then also maybe ancillary benefits that may have a huge impact to how that building is valued going forward, as well as the return on investment, and just overall the profits from that building. So, that's my two cents.

Alan Wink:Thank you very much. And on behalf of EisnerAmper, I want to thank everyone for participating this afternoon, and please stay safe. Have a great day, everyone.

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