Transformation of New England’s rural commercial real estate market - by Sean Sargeant

One exception to this general trend is the retrofit of older commercial buildings with solar powered electrical generation and on-site storage. Buoyed by federal and state tax credits, a market for the sale of the generated renewable energy credits and a favorable regulatory environment that rewards solar generation at a credit per kilowatt hour well above the cost of generation, many historic buildings in our market now include some form of solar power. Coupled with new on-site storage technologies such as Tesla’s “Powerpack,” which our local utility has promoted as a way to reduce the strain on limited-capacity transmission lines, adoption of these building systems should accelerate going forward despite the current installed base of 150-year-old inventory that is not going to be replaced any time soon.

Real property that includes these sustainable features often creates a complex real estate appraisal. The Appraisal Institute developed the “book of knowledge” on the valuation of real property with a solar element. Our local chapters present seminars and courses on these topics regularly. Every real property appraiser should educate themselves on these technologies, even if it is just to the point where they understand the terminology and realize it’s not the sort of assignment they are interested in performing.

With several appraisals of sustainable buildings, or just old buildings retrofit with a limited set of “sustainable” technologies, under my belt and speaking from practice more than theory I find the only supportable approach to value at this time to be one based on income. In rural New England a dearth of sales of buildings with these technologies and an eclectic installed inventory conspire to make credible “contributory value” paired sale or nested paired sale adjustments elusive. Without a solid opinion of contributory value based on actual sales, it is not easy to support adjustments of either functional or external obsolescence in the cost approach. However, an income approach based on the rights in real property being appraised and capitalized at a rate derived from the market for investments of similar risk often results in a credible valuation result and is based upon the motivations of owners who invest in these technologies. Just remember to have an in-depth discussion with the client prior to the start of the assignment to form a common definition of the subject property, which may include or exclude items such as power purchasing agreements, the assignment of renewable energy credits or tax credits that may not transfer with the real property upon sale.

Sean Sargeant, MAI, SRA is a certified general real estate appraiser at Sargeant Appraisal Service, Rutland, VT.