Real Estate Trust Sells Solar Tax Credits in Pioneering Move

July 11, 2024
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According to Black Bear Energy’s announcement on July 10, 2024, a real estate investment trust (REIT) has successfully sold tax credits from its new solar installations. This development marks a significant step for REITs in the renewable energy sector.

The tax credits, established by the Inflation Reduction Act, were sold through Evergrow’s marketplace. These Tax Credits for Investment (ITC) can be allocated to external parties, aiding in their tax liability reduction.

These credits are generated from solar initiatives located on multifamily buildings in California and Washington, DC. The portfolio’s total capacity is 556 kilowatts (kW), with individual projects ranging from 66 kW to 195 kW.

Solar Tax Credit

This transaction is notable because it shows a market for tax credits from smaller-scale projects exists. Previously, REITs faced uncertainty about selling such credits due to their projects’ typically smaller size compared to utility-scale installations.

Drew Torbin, founder and president of Black Bear Energy, explained the financial impact of this approach. The sale of tax credits can boost project returns significantly, potentially by 3 percentage points or even up to 6 percentage points for projects eligible for a 10% bonus.

The deal also addresses REITs’ unique tax, accounting, and business requirements, potentially encouraging more REITs to invest in renewable energy.

James Richards, CEO of Evergrow, highlighted the broader implications, suggesting this new financing option could help the commercial real estate sector meet sustainability goals while improving financial performance.

This development introduces a complex financing method to the renewable energy sector. Known as tax equity, this arrangement involves investors funding solar projects in exchange for federal tax benefits. It’s a sophisticated process that combines financial and legal expertise.

Setting up these deals can be costly, with initial expenses starting around $100,000 but potentially reaching the millions. These costs cover various professional services, including legal, accounting, and engineering fees. The process involves thorough due diligence, extensive contract drafting, and careful compliance checks.

The ultimate goal is to create a secure framework for large investment groups to deploy substantial funds, often billions of dollars, in full compliance with U.S. Internal Revenue Service regulations. This careful approach aims to mitigate risks while maximizing the financial benefits of renewable energy investments.

This transaction represents a new direction in renewable energy financing, potentially making solar installations more appealing for real estate trusts and opening doors for increased solar adoption in commercial real estate.

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