Strategies for selling solar to commercial building owners

After the passage of the Inflation Reduction Act (IRA), the bevy of tax credits and incentive programs centered on solar projects has made solar energy more accessible to commercial and residential real estate owners than ever before. With these benefits, property owners and developers are now installing eco-friendly additions to retail spaces, warehouses, hotels, apartment complexes and other commercial assets to reduce a building’s carbon footprint, lower the cost of energy bills and minimize wasted resources.

This creates a huge advantage for solar contractors and developers looking to expand their businesses. This article will explore ways to maximize success when pitching solar solutions to commercial real estate (CRE) investors seeking appealing investment opportunities for their spaces.

Understanding the CRE Investor Mindset – it’s all about NOI

Net Operating Income (NOI) is the heartbeat of commercial real estate. The value of a commercial property is heavily influenced by its NOI, as applying the capitalization rate to the NOI determines the estimated property value. When presenting a financially appealing investment opportunity for building owners, it’s essential for solar contractors and installers to leverage boosting NOI in their discussions.

There are two primary ways to increase NOI: raise gross income (typically through rent increases) or reduce expenses. Installing solar panels presents a unique opportunity for commercial building owners. By making a capital expenditure to adopt solar energy, property owners can significantly reduce or eliminate electricity expenses. This reduction in operational costs directly boosts the property’s NOI, subsequently increasing its overall value based on the income approach to valuation. It also provides an attractive selling point for prospective tenants who are passionate about the environment.

In essence, solar power not only contributes to sustainability goals but also enhances the financial performance of the property.

Sway the investor – leverage tax advantages

In addition to positively impacting NOI, solar investments offer lucrative tax benefits for CRE investors that they may not even be aware of. Accelerated depreciation and the federal solar tax credit are two key incentives that can make solar installations financially attractive.

Accelerated depreciation allows investors to depreciate the solar asset on a faster schedule than typical depreciation, leading to a more rapid reduction in taxable income. This can significantly lower the tax liability for commercial building owners, especially in the initial years following the installation of solar panels. Additionally, the investment tax credit renewed by the IRA provides a tax credit of 30% of the solar project’s cost. In certain cases, like when using domestically produced components, project owners are able to leverage additional 10% adders, which can increase the potential tax benefits of solar to credits of 60% or more.

It’s essential for solar providers to educate CRE investors about these incentives and guide them through the process of leveraging these tax advantages.

Closing the deal – best practices

In addition to leveraging NOI and tax incentives in a pitch, closing deals with commercial building owners requires a strategic and informed approach. Here are some best practices to ensure success:

Go into the meeting prepared: Thoroughly research their property and business before making a pitch. Understand their energy needs, current expenses, any potential obstacles to adopting solar energy, and the attractive financial incentives they may qualify for.

Understand financing options: Unlike residential solar, commercial solar projects are often highly customized, and the underwriting process is more complex. The good news is that CRE investors are accustomed to the commercial underwriting process so they will not be surprised when the lender asks them for a few years of financial information to get started on underwriting. Still, solar providers should be well-versed in financing options available to help guide building owners through the process.

Partner with a specialized lender: Commercial solar projects benefit from working with lenders who have specialized programs for such ventures. Banks and financial institutions with dedicated programs for commercial solar ensure a smoother lending process, from understanding the intricacies of underwriting to providing clear and transparent quotes upfront. Time is crucial in closing deals, and a specialized lender can expedite the process and smooth over any financial obstacles prior to the intensive underwriting process, ensuring a beneficial deal for both CRE investor and solar installer gets done.

In all, the key to maximizing success in selling solar to commercial building owners lies in aligning with the financial goals of CRE investors, educating them on financing options and working with specialized lenders whose expertise can guide and close deals efficiently. These methods can help solar providers not only contribute to a greener future but also succeed in expanding their businesses by presenting a compelling investment opportunity for potential CRE partners.