An aspect of the Economic Stimulus Act of 2008, one that you most likely did not hear the talking heads and pundits discussing, is an incentive designed to increase commercial real estate construction.
A potential upshot of this ignored section could be the most cost-effective way for apartment owners to retrofit, improve or construct their apartment buildings and reap the benefits of environmentally-friendly buildings.
The bipartisan legislation, passed in response to the economic troubles caused by the subprime mortgatge meltdown, includes a provision that increases the amount that may be written off in the first year for improvements to residential rental property.
The Economic Stimulus Act, most widely known for it’s highly publicized rebate to American taxpayers, (hopefully the checks for between $300 and $1200 will arrive sometime this summer) also increases to 50% the amount a landlord can write-off for the first year. A landlord would therefore be able to deduct half of the cost of any “qualified leasehold improvements” from his or her total taxable income.
This is the perfect opportunity for apartment management companies to take on green projects that offer long term benefits but may be unrealistic based on the initial pricetag. More and more people are looking to rent an apartment that is envirornmentally friendly as renters look for ways to reduce their own impact on the environment and lead greener lives. Cities themselves are passing legislation that hold new construction products to higher environmental standards. Getting a tax exempt jump on probable governmental regulations could end up saving apartment management companies millions.
Furthermore, the long term benefits of going green are substantial. The Solaire Building, the 27 story luxury apartment building in New York pictured here, consumes 35% less energy, 65% less peak electricity and 50% less potable water than a conventional high rise apartment building. The owners, in addition to slashing utility costs, also receive a tax credit of $2.8 million over five years.
This type of long term savings, coupled with the tax write offs available for the first year certainly constitute a hot iron for apartment management companies to strike. Let’s revisit an article we posted a few weeks ago on the issues facing San Francisco’s Park Merced’s plans to revamp it’s entire complex in favor of a more eco-friendly design in order to assess how this particular property would benefit by making green improvements.
The Park Merced’s plan would cost over $1.2 billion dollars to implement over 20 years. If they were able to spend $60 million (an equal share per year) in the first year, they’d be able to write off $30 million for their 2009 tax returns.
As a renter, would you put a premium on living in a greener apartment? Have apartment management companies weighed the option of going green, but hesitated because of the initial cost?