The National Institute of Building Sciences (NIBS) Council on Finance, Insurance, and Real Estate has recently released a report entitled Financing Small Commercial Building Energy Performance Upgrades: Challenges and Opportunities that discusses the current situation and future prospects for energy upgrades on smaller commercial buildings.

Although there are some bright spots, overall there is still plenty of work to be done when it comes to equipping smaller commercial buildings with the energy systems needed to conserve resources.

The State of Small Commercial Building Energy Retrofits

NIBS defines a small commercial building as a property with less than 50,000 square feet of space. These kinds of buildings dominate the commercial real estate market in the United States. Approximately 94% of all U.S. commercial properties are small buildings, which collectively account for about 50% of all commercial square footage in the U.S. market.

With small commercial buildings taking up such a significant share of the market in the United States, one might expect there to have been significant progress made on making these buildings more environmentally friendly. However, NIBS reports that there is a perfect storm of factors causing the small commercial building market to lag behind the rest of the commercial industry when it comes to energy upgrades.

The Challenges of Small Commercial Building Energy Retrofits

Although tremendous opportunity exists based on the number of small commercial buildings present in the United States, and the fact that the NIBS estimates that a majority of these buildings were built over 30 years ago, there are still some key challenges that are getting in the way of small commercial building energy retrofits, on both the owner and supplier side. Some of these obstacles include:

• Owners of small commercial properties often don’t have the technical knowledge that is needed to understand why a commercial building energy retrofit is a good decision. In some cases, even when a property owner is presented with a compelling case that explains to them why this type of upgrade would be valuable, they simply don’t believe it. This lack of understanding is a good reason why “lack of funding†has been the number one barrier to energy efficiency upgrades in small buildings for the past three years.

• Smaller properties are usually mixed-use or have atypical designs, which make them more difficult for investors to underwrite. The more complex or unique a building is, the riskier the investment is, which is why lenders prefer buildings of a uniform size occupied by a single user; most small commercial buildings, on the other hand, are designed for multiple occupants and are often designed in very unique ways, depending on their location.

• The creditworthiness of the owners of small commercial buildings is more likely to be questionable. As a result, these business owners have credit constraints and limited access to debt, which means they must be careful about what type of upgrade projects they take on. This is why many small commercial building owners adopt a “fix as needed†mindset towards property management.

Together, these challenges are a significant block to the vast potential savings that could come about from improving energy efficiency. NIBS says that retrofitting small commercial buildings alone could provide over $138 billion in energy savings over the next ten years. With this opportunity for savings, creative lenders and property owners have started coming up with inventive ways to combat the challenges of small commercial building energy retrofits.

Potential Solutions for the Commercial Building Energy Retrofit Challenges

One of the current bright spots in the commercial building energy retrofit field is the Property Assessed Clean Energy or PACE program. PACE is a financing method in which local financial institutions or governments provide financing for clean energy improvements for all types of buildings, from homes to shopping centers to warehouses. Once financing is approved, loan repayments are collected through the property’s tax bill. This makes loans much more secure for lenders and more accessible for property owners, which benefits everyone.

Another excellent solution for overcoming the challenges involved with commercial building energy retrofits is by using an integrated services model to deliver energy services to your utility customers, such as the one Lime Energy provides. Lime programs offer interest free financing, increasing participation rates and making for a more robust program offering.

Lime’s integrated approach is a turnkey program that covers everything from program design and financing to marketing and logistics scheduling. This system is designed to provide stress-free installation and upgrades for small businesses. It is the perfect solution for owners who are interested in making their buildings more energy efficient but lack the time, knowledge, or credit to make it happen.

Lime’s solution allows property owners to focus on their day-to-day operations while having a more predictable retrofit experience and a much stronger understanding of the benefits that this energy upgrade will provide. This ultimately will help them make smart decisions about how to improve properties through state-of-the-art energy efficiency programs.