A Fresh Look at Solar for Warehouses and Commercial Buildings

Fall 2022 Issue
By: Shaun Keegan
Heitman’s community solar project on this 316,000-square-foot warehouse in South Brunswick, New Jersey, generates revenue by renting the entire roof.

Rooftop community solar can position commercial real estate owners as ESG leaders while generating revenue and strengthening community relations.

A new type of solar, called community solar, is expanding rapidly across the country. Community solar allows commercial real estate owners to achieve their environmental, social and governance (ESG) goals and generate additional revenue at the same time. Environmental advocates, investors, residents and policymakers have widely shown interest in the concept, which is in use in New Jersey, New York, Maryland, Illinois, and soon, California. 

Community Solar Nationwide: ESG Goals Meet Rooftop Revenue

The commercial real estate sector is thinking more holistically about decarbonizing its operations — and financial health is increasingly tied to those efforts. BlackRock CEO Larry Fink made the connection between sustainability initiatives and investment prospects in his annual letter to CEOs, saying, “We believe the companies leading the [decarbonization] transition present a vital investment opportunity for our clients, and driving capital towards these phoenixes will be essential to achieving a net zero world.”

In a May 2022 report, Morgan Stanley noted that commercial real estate rooftops are “a largely untapped opportunity to create low-cost renewable energy.” The report, “Buildings & Parking Lots: Ready for a Recharge,” highlighted multiple community solar case studies, including one by Duke Realty, which was recognized as “Community Solar Project of the Year” by Solar Builder magazine.

With these directives from some of the top global financial voices, community solar presents a way for property owners to create a new revenue stream within their existing building footprints. By adding another tenant to a property — a rooftop tenant — through community solar, owners can maximize the value of their operations, improve relations with the surrounding community and deliver on ESG metrics.

The process involves a solar developer renting a commercial rooftop, installing panels and delivering the electricity directly to the grid. Instead of powering just the building, the energy gets credited to the local community, with benefits earmarked for lower-income households. The programs are usually run through a public utility commission and administered in concert with the utility companies. They enable residents to receive a guaranteed discount on their utility bills without installing panels on their own roofs. Through this program structure, commercial owners can meet ESG goals and generate monthly lease revenue in the process.

Community solar projects also contribute meaningfully to decarbonizing the electricity grid. For example, Solar Landscape is currently either operating or constructing 54 community solar projects across about 7 million square feet of rooftop solar that will power more than 11,000 homes, representing over 70 megawatts of emissions-free energy. These clean-energy projects will prevent more than 60,000 metric tons of carbon dioxide from entering the atmosphere every year.

With community solar, the public utility commissions — especially in leading states like New Jersey — have devised a program setup that works for owners, tenants and residents.

In 2021, the New Jersey Board of Public Utilities approved almost 165 megawatts of solar energy capacity, enough to power an estimated 33,000 homes.

New Jersey: A National Leader in Rooftop Community Solar

Community solar represents the “S” in ESG: “social.” It gives the property owner a meaningful way to serve as a good neighbor to surrounding residents. In addition, by hosting solar installations, real estate leaders spark workforce development initiatives and clean energy job creation, which often resonates with local elected officials. Heitman, Sudler Companies and Duke Realty are three companies that have undertaken community solar projects on their commercial properties in New Jersey. It was one of the first states to enact a community solar program and arguably has the strongest state policies for setting up high-quality projects that benefit lower-income residents.

Earlier this year, Sudler Companies, a private real estate owner and developer, began installation of community solar on 11 of its warehouses across central New Jersey. The projects span nearly 1 million square feet and will generate 11.9 megawatts of renewable energy that will power more than 1,000 homes each year. Not only did the solar project optimize Sudler’s operations, but it also helped the company meet its ESG goals and relay the community benefits to clients, stakeholders and customers. 

Global real estate investment management firm Heitman saw the opportunity to dedicate its 316,000-square-foot warehouse in South Brunswick, New Jersey, to a 3.8-megawatt community solar project.

“Community solar allowed us to check three boxes at once,” said Laura Craft, head of Heitman’s global ESG strategy. “It generates revenue through the rental of our entire roof — monetizing previously unused space — and it also allowed us to lower our carbon footprint for ourselves and the homes in the neighborhoods near our site. Through that connection, we were able to reach out and engage with local residents, and we’re proud we were able to energize the community in more ways than one.”

In Perth Amboy, New Jersey, an area with many warehouses located just across the water from Staten Island, Mayor Helmin J. Caba vowed to embrace community solar projects as a new way to make the city greener and establish its environmental leadership.

“Community solar projects continue to pay dividends for Perth Amboy residents,” he said. “They advance our fight against climate change, promote workforce development and make energy more affordable.”

The solar energy generated on Perth Amboy’s warehouses powers the local housing authority, linking the real estate owner with the local community.

“Community solar engages our most vulnerable residents into the goal toward 100% clean energy,” said Housing Authority of the City of Perth Amboy Executive Director Douglas G. Dzema

Easy to Implement, Increases Property Values

For real estate owners, a community solar project is straightforward from an operational and accounting standpoint. It presents no cost to the owner, and the solar developer is responsible for the installation, operation and maintenance of the system. The projects can also enable traditional building tenants to utilize the green energy being generated overhead. The building owner receives a monthly lease payment, and in the event an owner would like to sell the property, there’s no restriction on transferring the community solar lease. The long-term lease with the solar developer can result in increased property value, benefiting the building owner. 

The lease agreement is an asset, not a liability, as one recent Solar Landscape customer in South Jersey discovered when his property sold for a more than 4% premium because of the additional community solar lease revenue.

“In commercial real estate, it’s not often an opportunity arises to add a revenue stream to our business models,” said Dave Gibbons, a former NAIOP New Jersey leader and president of Elberon Development Group. “Community solar provides just that, with little commitment required from the owner. These projects expand the use of renewable energy, which will be vital to create a sustainable planet, and also benefit nearby residents. As projects that make economic sense, community solar provides a win-win for all stakeholders and the environment we all share.”  

Shaun Keegan is the CEO of Solar Landscape, a developer, designer, installer, owner and operator of community solar and solar energy solutions for the commercial and industrial marketplace.