Adding Value to Your Property Comes First

In the area of energy retrofits and sustainability there is a tendency to waste too much time and energy on discussing the highfalutin issues of climate change and it is forgotten that, for property owners, maximizing property values is the proper economic function. More would be accomplished if we became value-maximizing investors than if we wasted more time on high-minded goals.

For me, there are two seminal events that form the foundation of what our company does. One was the realization, when I sold my house of twenty years in Connecticut in 1998, that I had done a lot about energy, but mostly just responding to various incentives, etc. doing what everybody else did, and not realizing significant value. I had operated like a chicken with my head cut off, even while professionally I was all about optimal financial decision making and finding intra-marginal investment opportunities in the business I was involved in. The second was when I once presented a workshop for building managers about doing thirty-year capital budgeting for energy for your properties. Many in the audience wanted to know: How can I do this at home? In short, they saw the logic, but they were more interested in their own pocketbook than in their business. My conclusion is that most businesses are not very good at managing for optimal financial outcomes, where people would have transparency about the contributions they can make.

The underlying theme is that all we do is sorting out fact from fiction, and in particular get the ideology out of the purely financial decisions about energy retrofitting. Simply put, energy technology has evolved so far that the best you can do is to maximize the value of your property or business by leveraging those technologies and you will be doing more for the environment and for your wallet than with the endless jerimiads about climate change and sustainability that seem to be obligatory fare everywhere you go, these days. Our focus has become on some simple efficiency technologies that profoundly enhance the value of retrofits, and expand the market appeal of many of today’s best solutions, be it heat pumps, or HVAC systems in general, or solar PV, or wind power, or hydro-power or even fuel cells or CHP. The two products we represent offer 10-20% increased efficiency in electricity and thermal performance respectively.

The simple fact is, if you own a home or a business, or a building, you KNOW it will use energy to do what it is doing and to the extent that you can reduces a known risk, you can often make spectacular investments. My guess is for the next twenty years, energy retrofitting will outperform the stock market. Finding the right retrofit projects will typically generate a high NPV and an above market rate return (high alpha) and a low risk (low beta) because it reduces a risk (liability) that your property or business already has. It is also sheer balance sheet magic, because it moves energy from liabilities to assets.


One seminal development is a current NYSERDA project, called RetrofitNY, which is about net-zero retrofitting for multi-family properties, in particular low-income housing. This type of activity will permanently alter the game in real estate, and net-zero is in the process of becoming the gold standard, so that real estate valuation in the future will be driven by the concept of a discount to net-zero for every dollar of energy bills and even water bills that a property still has. That information is increasingly in the open and it is starting to drive the smart money in real estate. These projects also make it clear that retrofits are major investment decisions, and you want to avoid the incremental approach, lest you end up with a lot of sunk costs if later it turns out that you are going to change a building’s energy infrastructure. As long as decision making is left to operational people, those kinds of mistakes will continue to be the norm, not the exception.

In short, the RetrofitNY project is very encouraging in proving the economic feasibility of net-zero retrofits for older properties, and also to help improve these economics because a lot of experience will be gained. Ultimately again, this will help us to get on a track towards the proper focus on maximizing property value, and avoid pointless talk of sustainability and climate change: energy retrofits, when properly analyzed, are some of the best intra-marginal investments we could find.

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