Financial Solutions for Energy Efficiency Projects

Transcend Equity Announces Commitment to the Better Buildings Challenge

2011-06-30T16:00:00.002-05:00

FOR IMMEDIATE RELEASE

CHICAGO, IL (June 30, 2011) Transcend Equity, a leader in developing energy efficiency projects in commercial real estate, private higher education, and healthcare, commits to partnering with industry and investors to accelerate the usage of its Managed Energy Services Agreement (“MESA”) structure to facilitate energy efficiency in privately owned buildings.

Transcend expects to invest a minimum of $75 million in energy efficiency improvements over the next 18 months nationwide, projects which will save 25% or more in energy usage.

“We are delighted that the Better Buildings Challenge has focused the nation’s attention on the inefficiency of its aging building stock and challenged the private sector to provide a solution,” said Transcend’s President Steve Gossett Sr. “We are pleased to respond to that challenge.”

Transcend brings to bear a recently signed a joint venture investment with Mitsui USA, the US subsidiary of one of the world’s largest trading companies, as well as a track record of successful development and execution of energy efficiency improvements in more than thirty buildings. In addition, Transcend secured $9 MM in American Reinvestment and Recovery Act (ARRA) funding through the Chicago Metropolitan Agency for Planning to provide credit enhancement for lenders funding Transcend sponsored efficiency projects in the Chicago region.

The Clinton Climate Initiative,, a partner of the C40 Cities Climate Leadership Group (C40), has played a significant role in raising awareness of the innovative approaches to energy efficiency, such as MESA.

"Transcend's approach will bring investment to energy efficiency projects across commercial buildings and private higher education and health care facilities,” said Scott Henderson, Director of Building Energy Efficiency Finance, Clinton Climate Initiative. “It will help overcome one of the biggest and longstanding barriers to energy efficiency – finance - and enable projects that otherwise would simply not get done."

Transcend commits itself to attracting debt providers to leverage its equity commitments while aggressively marketing and financing projects identified by Better Buildings Challenge partners and showcasing projects under the Better Building Challenge to help stimulate additional demand.

Mitsui USA and Transcend Equity Development Agree to Form Innovative Joint Venture in Energy Efficiency

2011-06-15T16:38:00.000-05:00

NEW YORK, NY (June 14, 2011) – Mitsui & Co. (U.S.A.), Inc. (“Mitsui USA”), a subsidiary of Mitsui & Co., Ltd., finalized terms of an equity investment in a joint venture with Dallas-based Transcend Equity Development Corp. (“Transcend”). Transcend utilizes a proprietary investment platform that allows the firm to invest in comprehensive energy-saving retrofits in commercial buildings, private universities, hospitals, and other privately owned buildings without violating the terms of existing financing or adding debt to their balance sheets.

Initial investments by the joint venture are expected to target several private energy efficiency retrofit projects across the United States, which are currently being developed by Transcend. These projects are expected to save 30% or more of the energy use in the retrofitted buildings and represent a growing pipeline that Transcend and Mitsui USA have identified in the largely untapped sector of energy efficiency in privately owned real estate, which is estimated at well over $100 billion in the United States.

“Mitsui USA assessed many qualified firms in the energy efficiency sector before selecting Transcend for an investment,” remarked Shigeyuki Toya, General Manager of Mitsui USA’s New Business Development Department. “We believe that Transcend has the ability to make a major impact on energy use across the aging building stock in the U.S. and abroad. This joint venture reflects Mitsui USA’s ongoing commitment to innovation, energy efficiency and forward integration.”

Mitsui USA’s decision to invest in a new joint venture is in line with the Company’s strategy to create and operate platform group companies in specific industries in order to expand its existing core businesses.

About Transcend Equity Development

Transcend Equity Development Corp. was founded in 2002 specifically to address the lack of options for retrofit investment in privately owned real estate, where split incentives inherent in commercial leases and restrictive mortgage provisions prevent conventional lease-purchase structures from playing a role. The company incubated its Managed Energy Services Agreement approach working closely on two dozen buildings owned by a Maryland-based REIT. It is the only firm of its kind with a track record of proven energy saving projects funded through a services contract that does not place debt on the balance sheet of the host asset. More information about the company may be found at www.transcendequity.com.

About Mitsui & Co. (U.S.A.), Inc.

Mitsui USA was incorporated in 1966 in New York as a wholly owned subsidiary of Mitsui & Co., Ltd., Tokyo, Japan, a leading international trade and investment company operating with an extensive global network. Beyond traditional trading, the Company’s newer emphasis is on project development and management, business investment, capital goods leasing and technology transfer. With its comprehensive services capabilities, Mitsui USA aspires to meet the needs of its customers as “Your Global Business Partner®,” while committed to sustainable growth and good corporate citizenship. More information on Mitsui USA may be found at www.mitsui.com/us.

This Man Will Pay Your Utility Bill

2011-04-26T10:45:00.002-05:00

Michael Kanellos with Greentechgrid wrote an article about us on April 25th. Check it out.

"Transcend Equity takes the pain and mystery out of efficiency retrofits for commercial buildings."

On average, Transcend can lower utility costs by around 30 percent. In some cases, like the 1025 Elm Street building in Dallas, utility bills dropped by 40 percent with about $10 million in capital improvements. If you are in New York, go check out 125 Maiden Lane, where Transcend will replace the building controls system, ancient electric motors and other equipment.

Wall Street Journal Article on the MESA Structure

2011-04-07T21:05:00.001-05:00

We were honored to be part of this WSJ article and working with Liam Pleven. We'll let the article do all the talking about Liam's subject matter. Thanks Liam for the opportunity to work with you.

Read the full WSJ article here.

Cycle-7 and Transcend Fund Retrofit of Lower Manhattan Office Building

2011-03-16T21:36:00.001-05:00

Cycle-7 and Transcend Fund Retrofit of Lower Manhattan Office Building

Cycle-7 is pleased to announce the retrofit of the core systems of 125 Maiden Lane, a 310,000 square foot office building two blocks from Wall Street in Lower Manhattan. The project, funded through a Managed Energy Services Agreement with Transcend Equity Development, will include the replacement of inoperable pneumatic controls with full direct digital controls, original motors from 1958 with new high efficiency motors and variable frequency drives, and a series of new valves and dampers for automated management of flows of air and water. This retrofit will save more than 30% of the energy use in the building. A condominium office building sponsored by Time Equities, 125 Maiden Lane is home to several important non-profits including the US Fund for Unicef, the Guttmacher Institute and the Jewish Forward. It is the first MESA agreement in New York City.

Collecting Energy Efficiency Performance Data

2010-11-05T20:31:00.001-05:00

Several local and national efforts are underway to collect pre- and post-performance data on energy efficiency retrofits, some focused on multifamily buildings, others on commercial, others encompassing multiple property types.

The best of these projects are targeted at creating a dataset that can ultimately be used to backstop underwriting.

It would be ideal if data collected across these various projects could be combined – many of the organizations involved have commitments to transparency and data sharing. Combining the data raises the question of compatibility, however. Indeed, one wonders whether the data in any one of these efforts is internally consistent. The process brings light on questions like:

Was the pre- and post-usage data complete?
Does the dataset include actual installation costs by measure?
Does the post-usage data account for changes in weather and occupancy? If so, how?

To be of any use at all in underwriting, it is imperative that the methodologies applied to one project in a dataset apply to the others as well – that the “fields” in the data set and the method for generating the data in that field is the same for each building. If that were true not only within each data-gathering project but across each of them, the contribution to underwriting energy efficiency could be significant.

Energy Efficiency Finance Options That Are Failing

2010-10-22T18:42:00.001-05:00

The principal efforts to stimulate private lending to energy efficiency have thus far failed to adequately isolate savings creation as a financeable credit distinct from the host (the property where the activity takes place) or the equipment (the instruments used to create savings).

For example, the Property Assessed Clean Energy (PACE) program would give lenders security in the host property via government tax assessments. Traditional equipment finance (equipment leasing, lease purchase, etc) gives the lender security in the equipment. Pending legislation in Washington would give the lender recourse to a government guarantee.

The problem with these approaches is not simply that they run afoul of the mortgage covenants that prohibit additional debt or liens, which is the chief reason they have failed in the marketplace. They are problematic both as financial policy and environmental policy.

Any time a lender does not have to worry about whether projected energy savings are actually created because there is some other recourse, there is the potential for (arguably an incentive for) bad energy projects. Developers, equipment vendors, contractors and others whose fees are inevitably tied to the size of the project will be heavily incentivized to press the envelope, to exceed what savings will justify, even to build projects with a marginal relationship to energy savings.

Lenders eager for new opportunities to place debt will gladly cooperate if the debt is backstopped by federal guarantees or somehow circumvents the seniority of the existing mortgage.

As financial policy, these approaches risk freighting property with additional debt without an offsetting increase in income (via savings), which is why the distinction between “host risk” and “performance risk” is a dubious one. As a matter of environmental policy, capital should seek out inefficient buildings, not assets that can sustain more debt. These current approaches put the credibility of “green finance” at risk.

The Green Skyscraper | The Energy Collective

2010-10-11T20:32:00.002-05:00

The Green Skyscraper | The Energy Collective

We recommend this blog post by David Levy (professor) mainly because he does a good job of laying the groundwork for the need in LEED EB. There are several big thoughts to consider when reading his blog post:

- LEED EB projects are up 35% since last year
- NYC has over 5,000 buildings that are classified as skyscrapers, and over 900,000 buildings in total
- 80% of NYC's greenhouse emissions are created from these skyscrapers
- In the United States as a whole, 38% of greenhouse emissions are created by commercial buildings
- 85% of the buildings in NYC by 2030 already exist today

So, in summary, LEED EB is growing rapidly and it won't slow down anytime soon. This also means the financial modeling of how to pay for all these projects will continue to expand and innovate the industry.

With PACE Program in Limbo - Part 2

2010-09-03T20:47:00.003-05:00

Everyone is talking about PACE, including us obviously. Based on our last blog posting it is evident we are interested in covering this topic because of the financial setbacks and legal hurdles facing the program. The holes in the program a very hot topic lately, and for very good reasons.

For instance, from the recent article by GreenBiz.com on "How the fate of PACE could effect the clean energy economy," there was one small but very important snippet from the article that read: "PACE financing is a potentially revolutionary way to retrofit commercial, residential, and industrial properties with energy efficiency and renewable energy technologies. The program overcomes one of the largest hurdles to investment in clean energy -- the upfront cost."

So what is wrong with this portion of the article? There are two primary problems:

1. From the commercial building aspect it is impossible to put additional debt on the mortgage lien already in place...it just can't be done, period. So, PACE should really not be including commercial as an area of solutions provided.

2. Is the upfront costs really the biggest issue? Yes, it can be the big issue for some. But, no it isn't the biggest issue facing a commercial property that has $3M in energy efficiency upgrades coming up (for various reasons). There are a dozen other factors that play into a successful EE project and a complete failure of a project.

What are your thoughts on PACE working in the commercial space?

With PACE Program in Limbo - Part 1

2010-08-27T20:31:00.001-05:00

With Property Assessed Clean Energy (PACE) in a sort of indefinite limbo, efforts are underway to find alternative methods to finance retrofits of existing buildings. Congress will soon begin considering legislation that may give federal credit enhancement -- some kind of guarantee -- to loans for energy efficiency retrofits. Guarantees as high as 90% of the debt are contemplated. Leaving aside the fact that the guarantee will not begin to solve the fundamental problem, the violation of the mortgage covenants underlying the permanent financing that caused PACE to founder, the coverage levels raise a more troubling issue. The energy services company (ESCo) industry argues that the loan guarantee will address the foreclosure problem (or host risk) and that therefore mortgage lenders should accept it. Savings performance, the argument goes, is not a risk. Why? Because the ESCo guarantees the savings. Even in the lending community, one occasionally hears the "performance guarantee" mentioned as a sort of backstop for financing, a credit enhancement.

It would help to advance the debate around energy efficiency investing to eliminate or at least to temper this unhelpful fiction. The guarantee is not, in fact, a financial structure or an element of a financial structure. The guarantee is a legal agreement that aims to limit, to the maximum extent possible, the circumstances under which the guarantee can be called and establishes a framework for resolving disputes through engineering methodologies over which the ESCos have vastly greater mastery than their typical clients. Even if successfully called, compensation would materialize after engineering analysis, modeling, and verification -- and still later in the case of litigation. There is no financial reserve backing an ESCo guarantee. It is not in any sense a first loss or other credit enhancement to an energy efficiency project. In very important ways, therefore, there is no difference between performance risk and "host risk" -- the guarantee does not offer any bankable way to distinguish whether cash flow problems that jeopardize a property's financial stability are the result of the host's challenges or the failure to achieve savings.

Pulling Together the Value Streams for Building Retrofits | Buildings | GreenBiz.com

2010-08-18T20:51:00.000-05:00

Pulling Together the Value Streams for Building Retrofits | Buildings | GreenBiz.com

LEED-EB Helps Reverse Financial, Environmental Consequences of Underperforming Energy Systems

2010-08-13T11:28:00.000-05:00

LEED-EB Helps Reverse Financial, Environmental Consequences of Underperforming Energy Systems

GlobeSt.com - Webinars - Financial Implications of Sustainability

2010-08-02T22:02:00.002-05:00

Register for this GlobeSt.com Webinar and hear four different perspectives on the Financial Implications of Sustainability. They have a good panel put together that will address the existing building market. There are many stakeholders in energy efficiency projects now days, and this panel discussion should shed some light on the current trends.

Topics of this Webinar will include:
• Breaking down the costs of green improvements and designs and how to get them financed.
• How improvements can add resale value to an asset.
• How long-term cost savings can be realized via building features including alternate energy generation, HVAC systems, lighting and construction materials.
• How brokers can position themselves to gain new agency or tenant rep assignments through understanding this issue.
• New reconnaissance on LEED ratings.

Green Leases and Green Building Slideshow

2010-07-18T16:47:00.007-05:00

This slide show does a good job for an overview piece, but it

doesn't address the biggest puzzle piece of all,

which is the energy efficiency retrofits of

existing commercial buildings.

Green Leases and Green Building

View more presentations from Scott Wolfe.

What's wrong with PACE?

2010-07-14T16:27:00.000-05:00

Is the recent article by The New York Times titled "Loan Giants Opt to Block Energy Programs" just one layer of the onion?

What exactly is wrong with the PACE program, and is it really innovative like they say?

These are serious questions for lenders and property owners to answer.

Support Extending Energy Performance Contracting???

2010-07-07T14:53:00.001-05:00

A recently released 'Talking Points Memo' in July by the financing solutions company, Hanson Armstrong, talks of asking for support for the legislation that would extend Energy Performance Contracting into the commercial real estate market.

After reading the memo it was hard to miss one large point that was identified in a small foot note regarding the definition of performance risk. The foot note states "Performance risk includes price, schedule and completion, as well as the guarantee of savings over time. Under a performance contract, all these risks are guaranteed by the contractor."

The reason this is a large point of focus is that until energy service companies have real skin in the game then performance risks on savings is a thing of interpretation.

Imagine a energy service company that actually invests their own capital into the energy projects that they are contracted? Having skin in the game is the only true way to guarantee costs, schedules, the completion of the project and the SAVINGS of the energy efficiency project.

It all comes down to who is making the investment into the energy project and how is the investment structured.

Corporate responsibility is driving LEED EB Market

2010-06-26T10:13:00.005-05:00

More REITS are getting in the act of repositioning the very office space they actually office out of, but they are also repositioning the buildings in their major markets in order to get corporate LEED EB leases. Wells REIT is obviously repositioning a chunk of their portfolio not just for themselves but because that is what the market is demanding. This is a trend we are seeing across all major markets. Commercial property owners can't move fast enough to renovate their buildings for the ever demanding energy efficiency market.

Corporations that need to market themselves (like Novartis) for one reason or the other as energy efficient conscience or "going green" are looking for leases in LEED certified buildings. They must do this because consumers are watching ever move corporations make. It all goes back to their marketing communications to the public, their investors and the government. Because of these new corporate responsibilities the CRE market is scrambling to reposition their portfolios.

After all, how would it look for a large consumer brand corporation like GEICO to be saying they are energy efficient focused and care about the environment in their TV ads but then Dateline NBC finds out that their 45,000 sqft headquarters is in a energy hog building?

The pressure to become energy efficient and environmentally responsible is coming from all directions. The financial roadblocks of doing so will become more and more profound over the next few years. Banks aren't lending like they used to, and probably won't ever again.

How to Underwrite Sustainable Properties

2010-06-14T11:58:00.007-05:00

If you have not downloaded this free online book by Scott Muldavin "Value Beyond Cost Savings - How to Underwrite Sustainable Properties" then do it today and enjoy an in-depth analysis by Scott.

The book is part of the efforts of the Green Building Finance Consortium.

The Green Building Finance Consortium was formed to help fill the void of information, methods, and practices for the valuation and underwriting of sustainable properties.

Are "Green" Universities becoming standard?

2010-06-03T10:10:00.008-05:00

According to the newly released white paper "Green Building Trends in Higher Education" by Yudelson Associates, there are more than 3,000 LEED-registered projects across the country on College campuses. This accounts for about 15% of the entire LEED market.

In addition to this new white paper, the Sustainable Endowments Institute (SEI) has released it's 2010 College Sustainability Report Card, the first website of its kind to start ranking colleges by their energy efficiency and green movements on campus.

With the release of these two new reports it is easy to assume that going green on college campuses is no longer just a trend but it is becoming standard. And even more so, colleges are being racked and stacked against each other on sustainability measures across the board.

The big questions are:

1. How are all of these projects being funded?

2. Are they being funded by the savings created?

3. Are private Universities using their endowments to finance the projects? How?

4. Is there a blend of financing being used with the traditional ESCO model?

5. Who is making the payback and performance guarantees?

6. Who tracks and validates the guarantees?

7. What institute benefits from the funding?

The green university standard is here, but what is the best standard to follow when it comes to funding the projects?

Another interesting sustainability tracking system was created by AASHE, called STARS.

But what about the financial barriers to going LEED-EB?

2010-05-26T11:26:00.001-05:00

This is a great short video on LEED-ED and the market drivers and influencers that are creating a shift in why landlords are seriously considering LEED-EB. The major problem that is not addressed in this video is the financial barrier of achieving LEED-EB. I think every landlord understands the advantages of LEED-EB, but when they get the analysis of what it will take they step back and say "we can't pay for all that." Sure, sometimes achieving the LEED-EB certification doesn't require a substantial investment, but what about when it does? What does a landlord do when they find out that their HVAC system and other related energy controls have to be completely replaced for a tune of $3 Million dollars. How are they going to pay for it?

Q&A about MESA - When, where and why

2010-05-19T14:31:00.002-05:00

With this mini-brochure we answer a few of the larger questions we get about using MESA when funding EE projects in the existing commercial building market.

Q: Why wouldn't the owner make the energy retrofit investments if they generate returns MESA's investors?

Q: What about triple net leased buildings? How does MESA work?

Q: What about buildings with full service gross leases (where the landlord pays all operating costs)?

Q: When would it make sense to use our own capital?

Q&A about MESA and Transcend's Financial Solution for EE Projects

Case Study - MESA Solution for 1025 Elm Street in Dallas, Texas

2010-05-14T12:02:00.001-05:00

This Managed Energy Services Agreement case study shows how the building owner accomplished over $10 million in capital improvements at no cost while still recovering their reserve fund from their lender.
Transcend 1025 Elm Project Profile

Podcast Presentation: Going Green in Existing Commercial Real Estate - The Split Incentive Problem

2010-05-07T13:53:00.000-05:00

NYInc Magazine runs first Green Issue

2010-04-28T11:16:00.008-05:00

In it's most recent issue the NYInc Magazine covered the subject of "How Green Are We?"

As part of their in-depth reporting the magazine named 13 EcoPeople that are considered the brightest advocates for the Green Movement and Sustainability in the city.

Sean Neill (Managing Director at Transcend Equity and owner of Cycle-7) was named as one of the thirteen "Green leaders."

Part of Sean's interview:

As managing director at Transcend Equity Development Inc., Sean Neill has worked with large buildings for years and understands the difficulties landlords face in retrofitting properties. That’s why, last year, he started Cycle-7 to help landlords jump the legal and financial hurdles on their way to becoming green by developing financial strategies that will generate a return. In the same vein, Transcend invests in buildings to fund retrofits, with “no debt or liens associated—secured only by the savings,” says Neill. Transcend has funded about 30 retrofits so far, and will fund about 10 more this quarter. Neill hopes that by investing in buildings, the energy savings that are generated will be used to pay for the retrofit.

Read more about the other twelve EcoPeople named by the magazine.

Green Operations Summit May 6, 2010 (Dallas, Texas)

2010-04-23T11:55:00.001-05:00

On May 6th the Vice President of Transcend Equity, Steve Gossett Jr., will be the keynote speaker at this all-day event in Dallas. The main purpose of this event is to educate building owners and operators on the new trends, programs and improvements when it comes to energy efficiencies in commercial real estate.

Mr. Gossett's keynote address will primarily cover the split incentive problem facing commercial real estate landlords.

Hope to see you there. Register here for the Green Operations Summit.

The event is part of the North Texas Green Council.

Detailed report on energy efficiency financing by CalCEF Innovations

2010-04-19T15:47:00.010-05:00

This report released back in February of 2010 is one of the better ones written in the last year or two. Bob Hinkle and David Kenny do a good job of covering everything from the basics to the major hurdles facing large commercial (and others) energy efficiency projects.

Obviously the biggest hurdle facing the commercial market is how do landlords pay for or finance large CapEx projects when the split incentive exist between the landlord and the tenants.

Bob worked with Steve Gossett Jr. on the section of the report that covers Transcend Equity's Managed Energy Services Agreement (or MESA).

The CalCEF report uncovers into good detail on six case studies.