For companies in the self storage industry, your facility itself is probably one of your most significant assets. Unlike other industries that are considering going partly or wholly remote after the pandemic, the self storage industry will always need a large physical space to run its business. Therefore, it makes sense to continuously invest in the upkeep of the facility you own and find ways to increase its market value.
One great way your company can increase the market value of the property is by installing on-site solar. On-site solar can be installed on the rooftop, mounted on the ground, or built as canopies over parking lots. In this blog, we provide you with an overview of how the re-sell value of a commercial property is determined and how solar can amplify that number.
How solar increases your facility’s valuation
First, it is essential to know how your self storage facility would be evaluated in the real estate market. Commercial properties are valued based on their projected capacity to produce recurring revenue and their impact on the buyers’ net operating income (NOI). Any feature that increases the NOI has a positive impact on the valuation. According to Inside Self Storage, for every dollar of increase in the NOI, the sale price can grow by an additional $10 to $13.
Electricity expenses are factored in NOI calculations. Self storage facilities in the U.S are typically 57,000 square feet and at least 3-6 stories tall. The power also needs to be turned on to the maximum capacity at all times to maintain the climate-controlled environment and ensure that every customer’s belongings are safe. This means that the utility costs are undoubtedly one of the largest line items in the operational budget and can play a significant factor in the property’s NOI calculations.
Installing on-site solar will reduce your utility bill, which in turn can increase your self storage facility’s NOI. Thanks to a policy framework known as ‘net metering,’ customers with solar energy systems can transfer the excess energy produced by their arrays into the grid in exchange for receiving credits that lower the property’s annual utility bill. This means that when your system “overproduces” solar energy during spring and fall, you can use those credits to apply towards the summer and winter seasons—when energy usage is typically higher. According to some estimates, the average commercial property saw an 89% decrease in their annual electricity expenses after installing solar. When the cumulative reduction in energy costs is considered, the NOI increases significantly, which raises the overall value of the entire property.
As the average public is becoming increasingly educated about the benefits of going solar, the value that it adds to a property is being recognized across the real estate market. In fact, according to the American Association of Appraisers, properties that already have a solar energy system installed receive a greater market and re-sell price.
Raise property value, pay no additional taxes
A higher market value is excellent when considering selling your property, but not that great if you intend to operate your business there for an extended period. Upgrades to a building can raise property taxes. Therefore, you may be worried that adding solar will increase your tax bill.
If your self storage facility is based in one of the 36 states that offer a property tax exemption for the value that a solar energy system adds to a building, then you have nothing to worry about. Some states offer a 100 percent exemption on the value add of solar on a property. This policy incentive is excellent because you can enjoy a greater market value without paying any additional taxes. And if there comes a time when you are considering selling your facility, you will receive a higher price than what you originally paid for it.
You must directly purchase solar to enjoy a higher market value
It is important to know that your property’s market value will only increase if you directly purchase the solar energy system or take out a solar loan. Power Purchase Agreements (PPAs) are among the most common alternatives to directly purchasing a solar energy system. However, entering a PPA contract will not add much direct value to the market rate of a property.
If your company decides to go the PPA route, a solar developer will pay the upfront investment needed to install solar in exchange for a long-term agreement for you to purchase the energy produced from the system at a per kilowatt-hour (kWh) rate. As the developer would get the long-term revenues from the installed system on your property, it would not be added to your facility’s market valuation.
Nonetheless, PPAs are still an excellent way for your company to enjoy the long-term benefits of going solar. Many companies choose a PPA because they might not have the budget to pay for solar’s upfront costs. The monthly rate that you would pay the developer will be lower than what you currently pay your local utility, so your electricity expenses will decrease over time. However, in this case, you will just not be able to apply the lowered costs towards your property’s market value.
Why your next building upgrade should include solar
While there are many infrastructural upgrades you can do to increase your self storage facility’s market value, on-site solar is the way to go. Unlike renovating the foyer or adding more parking space, solar can actually help you offset future electricity and operational expenses.
Solar can also help your facility stand out from the competition and potentially increase revenue in the future. In today’s world, many people choose to spend their money on brands that value the environment. By placing solar panels on your facility’s exterior, you can clearly show that your company is committed to sustainability. Please read our blog to learn more about using solar to market to new and existing customers.
Contact Pivot Energy today
Working with a qualified solar developer like Pivot Energy can help you understand how solar can increase your property’s valuation. We can help you design a solar energy system that is tailored to your facility’s annual energy usage needs and manage all the permits needed to net meter your system. Lastly, we can help you understand which solar ownership model best fits your budget and how that decision would impact your facility’s market value. Reach out to a member of our team today!