A Triple Net lease (Triple-Net or NNN) is a lease agreement on a property whereby the tenant or lessee promises to pay their portion of the expenses of the property including real estate taxes, building insurance, and maintenance. These payments are in addition to the fees for rent and utilities, and all payments are typically the responsibility of the landlord in the absence of a triple, double, or single net lease.
When owners want to improve their building by completing energy efficiency projects, (such as HVAC upgrades) this can cause a conflict in that the tenant receives the energy cost savings via lower utility bills, but the owner is responsible for paying for the building improvements (referred to as the ‘split incentive’).
How can the owner benefit?
Obviously adding value to the building raises the property value, and the net operating income of the tenant rises by occupying a more efficient space – but that may not be enough for the owner to jump on a prospective good project.
C-PACE – Commercial Property Assessed Clean Energy funding can make this a win-win for the owner and tenant. C-PACE, by supplying up to 25-year funding that is paid back via property taxes allows the owner to pass through the property improvement payments to the tenant via their tax bill. Due to the 25-year term, payments are lowered and with a well-structured efficiency project the tenant’s utility cost savings outweigh the increased tax payment, providing a net positive cash flow to the tenant.
Another benefit of a C-PACE loan results when the property is sold the tax assessment rides with the property so the future C-PACE payments are passed on to the new owner – thus, taking on a 25-year term is not complicated by a property sale.
The XCo Flow Controller (XFC) system will qualify for C-PACE funding and XCo will work with NNN building owners to understand if C-PACE is an opportunity at your facility.
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