Renewable Energy Could Get a Boost From the Sale of Tax Credits

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The Inflation Reduction Act offers tax credits for renewable energy generation and storage. But, these credits often aren't feasible for REITs with low tax liability. Recently, a REIT managed to sell its tax credits. In today’s email, we analyze the potential impact of this development on the IRA.

This week's Propmodo Technology focus on security continues with an exploration of new technologies that enhance emergency response times by improving communication and navigation within buildings.

Renewable Energy Could Get a Boost From the Sale of Tax Credits

The Inflation Reduction Act of 2022 is one of the largest American government spending packages and the single largest investment in energy and climate in U.S. history. It includes a tax credit for property developers and owners who invest in sustainable technologies like renewable energy generation or storage. These credits are meant to support renewable energy investments but come with stipulations such as paying workers prevailing wages and hiring a certain number of qualified apprentices. The credits can also be increased for investments made in low-income areas or “energy communities,” which are regions that previously relied on coal or petroleum industries.

While tax credits are a great incentive, they have varying impacts. For instance, REITs (Real Estate Investment Trusts), which don’t pay federal income tax as long as they distribute all their earnings to shareholders, may find these credits less appealing due to their low tax burden. But, for the Inflation Reduction Act’s tax credits to be effective, they must be useful for large property owners like REITs.

Recently, a REIT discovered a way to sell its tax credits from solar installations to a third party, creating a significant new development. Although details are scarce, including the REIT's name, this innovation could be crucial. Drew Torbin, founder and president of Black Bear Energy, the developer of the solar projects, stated, “This is significant as the investable tax credit sale proceeds typically increase the returns by 300 basis points and upwards of 600 basis points for certain projects which qualify for the 10 percent bonus adder.”

The ability to sell or transfer tax credits could greatly enhance the use of this incentive, similar to the Low-Income Housing Tax Credits. Many low-income housing projects are completed thanks to investors coming in as equity partners in return for the tax credits upon completion. The same is likely to happen for renewable energy, potentially having an even greater impact. Additional incentives for projects in underinvested areas could make these projects a priority for investors, boosting investment in renewable energy and supporting struggling neighborhoods, two primary goals of this substantial spending bill.

Being able to sell or transfer tax credits has the ability to greatly increase the use of an incentive, as we have seen for the Low-Income Housing Tax Credits. Many low-income housing projects are only completed thanks to investors coming in as equity partners in return for the tax credits upon completion. The same thing is likely to happen for renewable energy, but the effects could be even greater. Since there are additional incentives for certain projects, like those in underinvested areas, those types of projects might become a priority for investors. This could help boost investment in renewable energy and help out struggling neighborhoods, two of the main goals and one of America’s largest spending bills.

Multifamily Innovation Showcase

Multifamily real estate is at a turning point, with high demand but slowing rent growth and rising costs. Nearly half of U.S. markets saw rental prices drop, and inflation and interest rates are squeezing owners. Despite these challenges, the industry is innovating with efficient designs, new services, and impressive amenities. Increased competition and new developments are driving these changes. Our showcase, with the support of Elevated Living, highlights unique multifamily properties addressing current industry challenges.

What’s Happening in Commercial Real Estate

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Starting in September, any structure rebuilt after a disaster using Federal Emergency Management Agency money will be required to be elevated at least two feet above local flood levels.

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The futures market is predicting the first rate cut to come in September after Federal Reserve Chair Jerome Powell’s neutral tone in his speech to the Senate Committee on Banking yesterday.

Propmodo Technology

New technologies are enhancing emergency response times by improving communication and navigation within buildings. These advancements aim to ensure reliable connectivity and provide detailed information about building layouts and hazards. By helping first responders act quickly and effectively, these innovations can save lives and prevent disasters.

Check out this week’s Propmodo Technology focus on Security with the support of our friends at Avigilon.

What to Watch

Join us on Tuesday, July 30th, for a Propmodo Live webinar where we will explore the latest office occupancy trends reshaping workplace performance and utilization. We'll delve into shifting demand patterns, highlight success stories from various sectors, and discuss the effects of hybrid work models on occupancy and operational strategies.

In case you missed it, watch the recent webinar video about multifamily strategies and what to expect in H2 2024.

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