The SolarKal Quarterly 1Q24: Could Solar Be The Valuation Game-Changer You Need? (w/ Sam Delisi @ Moderne Ventures)

Quarterly Report




David Wei


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SolarKal Quarterly – 1Q 2024

Real estate asset managers are rethinking how they’re evaluating their portfolios based on the newfound value of rooftop solar.

Your roof is part of your building. It can — and should — provide additional value beyond keeping you and your tenants dry. Think of it as part of your rentable square footage. Installing solar on a metro New York property’s 125,000-square-foot roof, for example, will increase the asset’s value by $2 million at today’s rates.

Let’s break it down into three major segments:

  1. Great Macro [1]
  2. Solar Improves Asset Economics: Lower operating expenses (OpEx) or higher net operating income (NOI)
  3. Solar As A Valuation Difference-Maker, with Sam Delisi, Operating Partner at Moderne Ventures

Great Macro

Your building is a multi-decade asset designed to generate income and positive returns. It’s also designed to withstand both economic and weather cycles. It’s critical for asset owners and managers to think ahead, and solar helps future-proof your investments.

Solar is the incremental market share winner, with 48% of all capacity additions in 2023, according to SEIA.

Moreover, solar adoption has been accelerating to become the single largest contributor to capacity for each of the last five years, driven largely by the decline in solar prices — down over 90% over the past decade alone.

After seeing a record year in 2023 with 33 GW of new solar installations in the U.S. (55% year-over-year growth), solar is expected to grow approximately 14% per year over the next five years. Solar panel prices are at all-time lows, while ESG awareness is at all-time highs. The resulting value proposition of solar has never been stronger, and commercial building owners are critical contributors, with companies like Apple, Prologis, Walmart, Digital Realty, and Target leading the way.

Solar Improves Asset Economics

We discussed this extensively in the “What’s the Sun’s Cap Rate” quarterly, but it’s worth reiterating the three main approaches to improving your economics through solar:

  • Higher NOI: Through a solar lease, asset owners receive a lease payment from a third party who owns the system and rents the roof. Monetizing your roof allows you to increase your property’s rent per square foot with zero capital expenditures. The system owner retains majority economics.
  • Lower OpEx through power purchase agreement (PPA): Through a PPA, a third party owns and operates the solar system while providing the site with solar power at a discount to the retail rate. This allows you to lower your property’s operating costs while making zero capital expenditures.
  • Lower OpEx through ownership: Through a typical ownership structure, the owner is the offtaker and replaces a portion (or all) of the site’s power demands with solar power. The owner pays for the system and retains 100% of the economics and benefits, which improve over time as electricity prices increase.

There are a lot of nuances and benefits to each structure, and there are many state and federal incentives that impact economics. SolarKal’s leading advisory services can help you determine what’s best for your unique situation.

Solar As A Valuation Difference-Maker

Your roof is part of your building — think of it as part of the rentable square footage.

A building’s value per square foot or stabilization metrics are better when solar is deployed. Exactly how much better is very project dependent, but similar to how a new rental lease is valued, we focus primarily on leveraging the concept of cap rates when calculating the range of outcomes.

For example, according to the latest cap rates report from CBRE, the average cap rate for an industrial property in the New York metro area is in the 5% range, while the average cap rate for an office in Los Angeles is in the 7% range.

In the case of a metro New York industrial property, a building with a 125,000-square-foot roof may net $100,000 in annual lease payments, which would see the asset’s value increase by $2 million at today’s rates.

Likewise, a 60,000-square-foot roof in Los Angeles may net $50,000 per year in savings via a PPA, which would increase the property’s value by over $700,000.

To further illustrate how important this extra value is, we spoke with Sam Delisi, Operating Partner at strategic real estate venture fund Moderne Ventures (MV). He gave us his thoughts on how asset managers are using solar as a critical part of the asset toolkit.

Below are a few excerpts from our conversation:

(Disclosure: SolarKal is a graduate of MV’s Moderne Passport program. Moderne Ventures owns a stake in SolarKal.)

SolarKal Quarterly (SQ): Hi, Sam. Thanks for joining us. How would you describe your real estate experience?

Sam Delisi (SD): Great to speak with you. I have 41 years in commercial real estate, where I ran property management for offices, industrials, and retail for companies including CBRE, Newmark, and more!

SQ: We’re highlighting the relationship between income from solar and property valuations. As a person with a front-row seat to all things real estate, what have you been seeing out there in terms of cap rates?

SD: As you know, there is an inverse relationship between real estate values and cap rates. The lower the cap rate, the higher the value. A lot of sectors have seen a 2%-plus increase in cap rates over the past 24 months, and naturally, when an asset moves from a 4% to a 6% cap rate on a stable base, that results in a significant decrease in value. It really helps to add another income stream with solar. For example, rent in industrial buildings today could be in the $10-per-square-foot range, and when solar adds another $0.50 to $1.00, you are really moving the needle. When you see what is happening in terms of interest rate increases, the additional solar income can mean the difference between being able to refinance the building or losing it in foreclosure.

SQ: Wow, that really highlights the fine lines that asset owners are walking in today’s environment. Given that, how have you seen asset owners and managers think about their primary objectives when it comes to solar?

SD: Revenue and clean energy benefits. The asset manager’s job is to maximize the value of the asset, and solar revenue clearly does this. The other element is whether the asset is receiving the associated LEED or GRESB benefits as well as the availability of clean energy for tenants who are focused on reducing their carbon footprint.

SQ: Right, it’s important to note that some additional considerations like renewable energy credits (RECs) also depend on who the solar system owner is, which can be complicated. Any final thoughts?

SD: What I’d say is that I love that SolarKal puts clients in a scenario where they get the best price or economics for the solar installation by shopping projects to a group of potential tenants. The lower the installation cost, the more rent the tenant can pay. It is really one of SolarKal’s biggest values for asset owners.

SQ: Thanks, Sam!

Quarterly Quick Hits:

  • In December, the New Jersey Community Solar Program announced the first group of projects accepted for 2024, and 13 out of 14 SolarKal projects were accepted, a great result considering the program’s less-than-50% acceptance rate. If you’re considering solar for your property in NJ, now is the time! Reach out to for more info.

What I’m Looking Out For:

  • California Community Solar program[2]  rollout: We’re still awaiting final program guidelines.
  • Massachusetts’ SMART Program: Various bills are still underway to determine the successor to the challenged SMART Program (i.e., H.3992).

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