Up on Nixon Peabody’s Roof
By Thom Amdur
7 min read
On a cold day last December, I stood on the roof of the Washington, DC building where the Nixon Peabody law firm has its DC headquarters with partners Jeff Lesk and Herb Stevens gazing at the expanse of empty roofs and imagining the possibilities. As a result of Lesk’s and Stevens’ foresight and creativity, as well as new legislation in the nation’s capital, the roof we were standing upon had been converted into an asset for the surrounding community—part of a multibuilding solar generation facility producing 182kw of renewable energy for two low-income rental properties, a model that could be replicated in DC and many other communities throughout the country.
Herb Stevens literally wrote the book on the LIHTC. His A Developer’s Guide to the Low Income Housing Tax Credit was my constant reference when I began my career in affordable housing. In more recent years, he has specialized in New Markets Tax Credits and Renewable Energy Tax Credit, helping countless developers innovate new structures and navigate thorny tax issues.
Jeff Lesk is, literally, the first lawyer I ever met to pursue the LEED AP designation and in the years since I have known him has developed an extensive practice in green building and the syndication of renewable energy credits. As managing partner of Nixon Peabody’s Washington, DC office, he was also responsible for managing the lease negotiated for their new office space.
As Nixon Peabody’s former lease was winding down, Herb, Jeff and their partners did not want to move to just another downtown DC office space – they wanted to put their green experience to work and turn their commercial lease negotiation into a platform to generate renewable energy, which eventually led to a platform to distribute the energy produced to low-income renters.
The “Green” Lease
As Jeff and his colleagues negotiated the lease with their new landlord, Brookfield Office Properties, they were seeking a “green lease,” an agreement that acknowledged the energy efficiency design principles they were designing1 into their new office space. Among the unique provisions they sought was separately metering their office space so that they could be removed from the pro-rata share of the building’s operating expenses – allowing them to capture the energy savings from the green features in their LEED Platinum office. They also negotiated for the rights to the building’s unused roof space so they could develop a solar installation. To my surprise, Brookfield Office Properties, was more than happy to contribute these rights to the new lease.
Brookfield is a sophisticated operation that owns 257 properties totaling more than 125 million square feet of real estate across five continents. One must wonder, if the roof was so attractive for a solar facility, why wouldn’t they simply develop it themselves? It turns out that for most commercial office real estate owners, the juice from solar simply isn’t worth the squeeze. The offset in utility bills generated by a small scale solar facility (limited by the roof size) simply is not enough to justify the time, brain damage and transactional costs for an owner like Brookfield and, in most cases, utility expenses are simply passed through to the tenant.
Meanwhile, there are thousands of low-income residents across the city that could benefit enormously from a small scale renewable energy project but for various reasons have no ability to do so.
Herb and Jeff wanted to turn this dynamic on its head, and, because of a recent change in the District of Columbia’s utility law, they were perfectly positioned to do so.
Community Solar – A Paradigm Shift
Community Solar legislation is the key to unlocking new renewable energy entrepreneurial opportunities for real estate developers and owners. Through “virtual” net-metering, Community Solar allows owners of solar facilities to transfer renewable energy from where it is produced to where it is needed most. Lesk and Stevens observed, “We had an opportunity to use our experience from our renewable energy and community development practices for the good of as many people as possible.” To take advantage of this opportunity, Jeff and Herb created a non-profit solar entity, New Partners Community Solar Corp (NP2), to leverage their green lease and turn that unproductive roof space into a self-sustaining renewable energy facility that generates no-cost solar energy for low-income residents across the city.
NP2 leveraged federal solar investment tax credits, DC’s Solar Renewable Energy Credits (SRECs), a grant from the DC Department of Energy & Environment and a CDFI loan to develop 182kw of solar photovoltaic electricity on the rooftop of their office and two neighboring buildings also owned by their landlord and contributed to the NP2. DC’s SRECs are a particularly rich subsidy and they are not unique – at least ten states and many more jurisdictions have similar programs and more get created every year.
The solar investment structure utilized by NP2 is not especially new at this point – it is what they did with the energy that is so interesting. NP2 expects to generate approximately $25,000 worth of electricity annually, which it is distributing, free of charge, to approximately 110 residents of two apartment complexes – the Copeland Manor Cooperative, a Section 8 property in Southeast, and Trinity Plaza, a LIHTC property in Southwest Washington, D.C. This translates to approximately $20 per month per unit, which, for the residents earning less than 30 percent of AMI is meaningful.
On The Horizon
The partners at Nixon Peabody were driven by mission – they took no developer fee and contributed all the legal work associated with the project pro-bono. And their model is replicable, particularly as it is scaled.
The total cost of the project was close to $800,000 and to pay for this, they secured a loan and tax equity that made up almost 75 percent of the cost. The rest of the cost came from grants of more than $200,000 from the District of Columbia and the law firm.
For a tax credit developer with properties in DC, or any of the other jurisdictions with good community solar legislation, this structure is replicable as a community benefit project. The demonstration project did show that if all the electricity produced is given away, there has to be another source of revenue. In DC that comes from the robust market in solar renewable energy credits (SRECs). Most other commercial building owners will do the same cost-benefit analysis that Brookfield Properties did. However, for an experienced tax credit developer in a favorable jurisdiction, this is a relatively straightforward transaction structure, one that could offset their tenants’ or their own common load and create a nice PR opportunity for all involved. It’s a win-win situation. Brookfield Properties saw the light right away – after they signed Nixon Peabody to its green lease, they happily contributed the roofs of two additional properties to NP2.
1 Through the use of smart design features like transparent walls that allows natural light to flow deep into their suite, the firm was able to design space that would reduce lighting useage by 25 percent compared to other downtown DC office space and reduce their physical footprint by 30 percent while accommodating for growth. Readers interested in learning more about the design features of the office suite can read this June 21, 2015 profile in The Washington Post. http://wapo.st/1ClQUP6?tid=ss_mail
DC’s Department of Energy and Environment (DOEE) seeks eligible entities to carry out projects that will install additional solar capacity, provide benefits to low-income residents and develop solutions. The amount available for the project is $8 million. The deadline for application submissions is March 31, 2017 at 4:30pm. For additional details visit https://doee.dc.gov/node/1219361 and download from the list of attachments at the bottom of the page or email a request to [email protected] with “Request copy of RFA 2017-1714-EA” in the subject line.
