Welcome back to How To Scale Commercial Real Estate! Today, we are joined by Hetal Parekh, an architect with a Ph.D. from Carnegie Mellon University in Building Performance & Diagnostics. She founded EnerYields with the aim of helping building owners save time and money on green construction and retrofits. Hetal sits down with us to discuss the incentives and funding options that are accessible for green building projects., as well as how to overcome hurdles when implementing green initiatives.
[00:00] – [07:56] Going Green in Real Estate
- Hetal founded her company in 2020 with the aim to help building owners go greener
- There’s an option to do green initiatives for commercial real estate but is often not entertained for the following reasons:
- Unfamiliarity
- Could seem like a lot of work
- She breaks down a project they did and the positive results they achieved
- What are the trends in green construction?
[07:55] – [17:25] Financing Green Building
- Government, non-profits, and private companies: there are a lot of financing vehicles and institutions involved in green cap stack financing
- How Hetal and her team researched and created the largest database of green investing
- Who is the ideal candidate and what is the ideal project for EnerYields
- Hetal takes us through the screening process
- New buildings are a green light as it is easier to model and justify making the energy performance better
- You can get started on seeking financial assistance if
- You already have a property that you want to purchase
- You have everything prepared: team, project improvement plan, etc.
[17:26] – [19:21] Closing Segment
- Reach out to Hetal!
- Links Below
Tweetable Quotes
“What is not very commonly known is that there are billions of dollars that are freely available in the form of green incentives and financing.” – Hetal Parekh
“That was the whole reason why we have EnerYields, to kind of mediate between a commercial billing owner and help them access all these different forms of financing.” – Hetal Parekh
—————————————————————————–
Connect with Hetal Parekh by following her on Linkedin and visiting the EnerYields website! Email her at hparekh@eneryields.com.
Connect with me:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Like, subscribe, and leave us a review on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in!
Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
[00:[00:00] Hetal Parekh So clients reach out to us at two different stages. One is when you’re scoping the property out where you already know that you’re about to purchase but you’re you’re starting to put together all the different pieces to understand at that point, how should they be structuring it to actually take advantage of green financing. And then the second part is when you’ve already figured out everything, you have a team in place, you have a project improvement plan, and everything else lined up.
[00:[00:45] Sam Wilson: Hetal is the founder of eneryields.com. She’s a building energy scientist. She has her Ph.D. in Building Performance and Diagnostics from Carnegie Mellon University. Hetal, welcome to the show.
[00:[00:57] Hetal Parekh: Hey, thanks for having me.
[00:[00:59] Sam Wilson: Absolutely. The pleasure is mine. There are three questions I ask every guest who comes on the show, in 90 seconds or less, can you tell me where did you start? Where are you now? And how did you get there?
[00:[01:08] Hetal Parekh: So we’re a young company. We started off in 2020. This year was big for us, we caught our first couple of paying customers to kind of get the ball rolling. And well, EnerYields started off from my Ph.D. research. I am a Building Energy scientist, like you mentioned, I have my Ph.D. in building performance and diagnostics, and my research was focused on identifying why commercial building owners don’t prefer going green. So what are the policy hurdles? What are the economic hurdles? The framework for EnerYields was one of the solutions that was proposed and very well received as a part of my research. So that is how it all started.
[00:[01:52] Sam Wilson: So a researcher, you said, you were answering the question, Why are commercial building owners not doing or using green initiatives? Why are they not building green buildings? Is there one or two things that were like the standout conclusions from that research?
[00:[02:11] Hetal Parekh: Yeah, absolutely. So what is not very commonly known is there are billions of dollars that is freely available in the form of green incentives and financing. So even if you’re bringing the building up to code, or you’re just doing like a gut rehab of the building, there’s tons of money that could be available to bring down your blended cost of capital for a project. But these are fairly new. There is no standard process on how you can access this information. And they’re very technical. And these are some of the hurdles that commercial building owners face. And that’s why they, they refrain from using it because one they’ve never heard it. And second, if they’ve heard of it, it just seems like a lot of work. So that was the whole reason why we have EnerYields is to kind of mediate between the commercial building owner and help them access, you know, all these different forms of financing.
[00:[03:09] Sam Wilson: It’s one thing to say, look, you know, there’s the, you know, we can implement these projects, we can implement these green initiatives. And, you know, you could you can do this, but I guess the questions I would have, or at what cost and at what return, you know, who cares if all this money is available, if it slows down the project by nine months, if it, you know, does all these things that negatively impact the project, or any of those factors kind of built into the research where you said, oh, there’s there’s actually some other economic incentives or maybe noneconomic incentives that are being tied into their decision-making process?
[00:[03:43] Hetal Parekh: Yeah, absolutely. So let me walk you through one of the projects thatm one of the early projects that we worked on, it’s a hotel that was based out of South Carolina, the project was a revamp, they were just upgrading to another franchisee. The overall cost of the project was close to 11 million from the existing scope of work, right, like not doing anything that is specifically green or out of the ordinary, just by upgrading the a track system in a building or by just fixing new windows, we were able to identify at least $2 million worth of work which qualified as energy efficient, and this money was available to them at 2% or less. So you know, compared to the existing cap stack, when I added in the green financing bit into it, I was able to bring down the blended cost of capital so the project from 10 and a half to 5.6% which is a significant jump. So if you’re talking returns-wise, it is much higher. And it actually came at no added cost to the developer or it did not add any significant time to you know, how long it took to carry out the project.
[00:05:01] Sam Wilson: Right. And those are great. I mean, that’s, that’s certainly, you know, I don’t know anybody, anybody in commercial real estate investment that goes, Oh, hey, cool. So you’re gonna save me money? And you’re gonna make the project go easier? No, let’s not do that. Like, nobody says that. I think that’s really cool. And when it makes sense. Tell me, you know, you mentioned there an upgraded HVAC system, you mentioned, you know, a windows upgrade, are there building improvements, you know, that can be made that maybe aren’t just run on a call it run of the mill? So forgive me if I offend you, but there just aren’t, olay, windows and HVAC upgrades. Are there things that you’re seeing coming down the line that people should be thinking about when it comes to their buildings?
[00:05:51] Hetal Parekh: So right now, electrification is getting a huge push, right? That is like moving away from your natural gas systems or other systems for heating the building, especially like if you’re in colder climates, climate zones, so you’re seeing a lot of push for making the envelope more secure, so that there is not a lot of heat loss. So that includes insulation, roof, windows, all of that. And then switching your systems to all electric systems. And there is a lot of money that is now being made available for this.
[00:06:33] Sam Wilson: Got it.And that goes down into the into the energy consumption side, are there building materials that are coming out that are different, maybe than what we’ve traditionally used in the past that you’re seeing from your, your perspective that just aren’t mainstream yet?
[00:06:50] Hetal Parekh: Well, what more than innovative building materials getting approved, it is more about more and more consciousness towards moving towards energy star-rated stuff. So knowing for a fact, how much is that gonna save you, right? How much energy is that going to save you? How much is that going to result in a reduction in your utility bill? So the way we had for appliances, now, you have ratings for pretty much 50 to 60% of different building elements, and then for the building as a whole as well. And it’s a good way to benchmark and know how your building is performing.
[00:07:30] Sam Wilson: Yeah, yeah, absolutely. I’m all for saving energy and all for saving money. I mean, there’s no, when it comes down to what we’re doing, this is an investment business, and it is there to benefit the people that live in our facilities or use our facilities. But, you know, there’s no sense in being wasteful either. So, you know, finding ways to cut energy consumption, I think makes all the sense in the world. And there’s, you know, for what we do, there’s some unique ways to do that. But, you know, finding and accessing the capital is what it sounds like you’re really focused on, obviously, you know, you need to know the language of building materials and how you can implement that. But it sounds like you’ve really figured out a niche in finding and accessing the capital in order to help building owners go more green.
[00:08:15] Hetal Parekh: Yeah, absolutely. So that is the goal to help building owners and investors try to figure out a green cap stack for the project. There are multiple different financing, green financing vehicles that are available. A lot of it is free money, which means it comes at 0% interest, it’s like literally just given to you. And a lot of it is below market rate. So when you add that to your additional source of financing or your primary financing, it really impacts the way you look at the building. And while this is a lump sum cost, by doing this, you’re also reducing the operational cost of your building. And as we know, the operational cost of the building is like 90% of the cost over the entire life span of a building.
[00:09:00] Sam Wilson: Absolutely. Other than maybe governments that print the money themselves, who is in the green cap stack financing business?
[00:09:11] Hetal Parekh: So you have utility companies that provide rebates. And they also have some utility companies also have additional form of financing like an on-bill financing program that is available to upgrade your building. You have, like, rightly mentioned different sectors of government that are pushing for different stuff. Then you have nonprofits, who are all focused on energy efficiency and energy efficiency financing, and you also have private companies. So CPS is essentially a public-private partnership where the legislation is passed by the government, but the money is lent out to you by a private institution.
[00:09:50] Sam Wilson: There are a lot of moving pieces on this what, what did you do to educate yourself and synthesize all of this into something meaningful, it sounds like that would have been years of research, just figuring out who the players are, and how it can how that really fits into this space.
[00:10:08] Hetal Parekh: This is an extremely data-intensive space, so to speak because there are so many different financing vehicles, so many different players offering you financing, and the structure is very different for all of them. The core of Eneryields is our database of all different energy efficiency, and financing so we maintain the largest database of it’s kind of all different green incentives and financing, which helps us just look at your scope of work or your project improvement plan, and directly match the line items against, you know, our database and tell you where we can find you the money. So the effort is more on collecting the information and staying on top of it. And then that’s what enables us to do what we do today.
[00:10:58] Sam Wilson: Who is a key question, who is somebody that you would say is an ideal candidate for your company? And or just the looking at the green initiative as a whole in their buildings? Is there a certain, I’ll use the word avatar, but is there a certain person or a certain building type or a certain age or a certain location, that you’re like, hey, this is the sweet spot?
[00:11:24] Hetal Parekh: So we have all commercial and multifamily buildings. So that’s commercial multifamily mixed, use the sweet spot to kind of make take maximum advantage from Green financing projects anywhere above a million and a half. So they’re not necessarily for a single system upgrade. And currently, we are based out of five geographies. So we cover Michigan, New Jersey, New York, Massachusetts, in Florida.
[00:12:00] Sam Wilson: That’s a lot even so. Your Michigan, New Jersey, New York, Florida, what was the other one?
[00:12:06] Hetal Parekh: New York, New Jersey, Michigan, Massachusetts, and Florida.
[00:12:11] Sam Wilson: Okay, that’s it. Are there different programs at every single state? Is that why scaling this nationwide is more challenging or just haven’t gotten there yet? Is that is that one of the…
[00:12:24] Hetal Parekh: So federally, there are a few programs available. The private sector is mostly nationwide. But the public sector and the utilities are very specific to each individual state. So to understand what they’re leaning towards, and collecting all of that information, kind of restricts in how we’re scaling?
[00:12:44] Sam Wilson: Yeah, absolutely. And if I heard that number, right, you said it was a million and a half dollars. Is that on the improvement plan? We’re not before putting under 1.5 million into the building? It just becomes kind of a no factor.
[00:12:58] Hetal Parekh: It’s the stabilized value of the property, actually.
[00:13:03] Sam Wilson: Oh, well, that that that opens up, I mean, on the commercial real estate side, almost everything. I mean, not everything, but quite a bit of it.
[00:13:11] Hetal Parekh: Yeah. Unless it’s like a single system upgrade, like, okay, my AC broke down. Can you find me some money for it? Yeah, those might not be the ideal use cases.
[00:13:21] Sam Wilson: Right, right. I’m sure you could figure one system out on your own, tell me this. I mean, so if it’s a million dollars on the stabilized property value, what is the project size, when somebody comes to you that it makes sense to you know, to place a phone call to you.
[00:13:38] Hetal Parekh: So minimum project size actually varies, it’s about the scope of the work more so. So the process that we follow is, you know, we do an initial screening to understand if this is a good fit, and we offer some preliminary, high-level information on what financing would be available to them. And if it seems interesting or lucrative enough, and then we do a deeper dive and provide them with something that we call a green report, which gives them like a line-by-line breakdown of where they can find the money and how they’re, you know what the payback period looks like, etc.
[00:14:17] Sam Wilson: Right? Are there kind of like projects that are almost just greenlighted from the go, where it’s where, you know, hey, we’re looking to do like you said, I’m gonna use your example. HVAC and window upgrades. Okay, that one’s an easy. That’s an easy one, it always gets done. Is there? Is there that type of project? Or is every project? Completely unique and new?
[00:14:36] Hetal Parekh: No. So if it’s a new construction project, we know that you’re going to build a building up to code. So that’s a green light. So we know that you would be complying with certain measures. If the building has been vacant for a long time, or if you’re rehabbing a really old property. That’s a complete green light for us. So So there are a few cues in there, which tell us and otherwise it depends on what systems you’re upgrading. So lighting, a track building envelope, it could even be seismic or, you know, any kind of other retrofitting activity that you’re carrying out.
[00:15:15] Sam Wilson: Got it. So when you say new construction, what do you guys see in the new construction world where you say, okay, new construction, but it’s going to look differently? What are the parameters, what things are happening in new construction build maybe that wouldn’t have been done otherwise?
[00:15:34] Hetal Parekh: So the only reason why it makes it easier for us to underwrite a new construction property is because year by year the codes become if the building codes become even more stringent, right? So by default, you’re building a more energy-efficient building, it’s easier to model it and justify it for us, to anybody who’s giving you money to build a green building. So and all the materials that are going in, because, you know, the industry is advancing at such a fast pace, the materials that are going in are going to be fairly superior to the materials that you would have in an existing building. So we already know that the energy performance is going to be better.
[00:16:19] Sam Wilson: Yeah, absolutely. Absolutely. When Should someone reach out to you, let’s say they’re going to build a new building, or they are underwriting a, let’s say, it’s a large multifamily acquisition, that’s going to require a significant amount of capital expenditure, where in the process that they reach out to you.
[00:16:36] Hetal Parekh: So clients reach out to us at two different stages. One is when you’re scoping the property out where you already know that you’re about to purchase the property, or you know, but you’re starting to put together all the different pieces to understand at that point, how should they be structuring it to actually take advantage of green financing. And then the second part is, when you’ve already figured out everything, you have a team in place, you have a project improvement plan, and everything else lined up. That is the second part when they reach out to us. And what we essentially help them with is tell them how to structure a green cap stack for a project like this and help them get all of that financing.
[00:17:25] Sam Wilson: That’s absolutely fantastic. Hetal, thank you for taking the time to come on today. And tell us about something quite honestly, I just don’t know very much about I think that’s kind of the beauty of someone like yourself is that you’ve taken the time literally taking the time doing your doctoral thesis, in order to understand this product intimately and make away for the rest of us. Because as you probably are well aware, people like myself, just would probably ignore it because of the amount of complications that go into actually figuring out what programs work. So thanks for taking the time to synthesize that and make this available to the rest of us. If our listeners want to get in touch with you learn more about you or schedule a consultation, what is the best way to do that?
[00:18:06] Hetal Parekh: So the best way to reach me is via email, and I’m happy to share that with you. My email address is hparekh@eneryields.com. And I’m sure Sam can have that, you can have that somewhere. And otherwise, you can check us out on our website, which is eneryields.com.
[00:18:29] Sam Wilson: Fantastic. We’ll make sure we put that all in the show notes. But for those of us who are listening or maybe just driving down the road and go hey, I want to make sure I remember that. Hetal’s email, it’s H P A R E K H @eneryields.com. Is that right?
[00:18:43] Hetal Parekh: Yes.
[00:18:43] Sam Wilson: That’s E N E R Y I E L D S .com. Hetal, thank you again for coming on the show today. I certainly appreciate
[00:18:53] Hetal Parekh: Absolutely, Sam. It’s been a pleasure.
