BARRETT CAPITAL PRESENTED ITS CREATIVE FINANCING SOLUTION
FOR ENERGY EFFICIENCY PROJECT AT CO-OP CITY TO
MANHATTAN CHAMBER OF COMMERCE
Barrett Capital’s Energy Efficiency Financing Structure Provided $2MM of Capital For Green Energy Management Services, Inc. (“GEM”) In Connection with the Installation of Energy Efficient Lighting Fixtures at All Co-op City Garages
New York, NY-June 19, 2013
Barry P. Korn, CEO of New York City-based Barrett Capital Corporation, presented a case study on how its creative financing programs help bring energy efficiency projects from the concept stage to reality to the Finance Subcommittee of the Manhattan Chamber of Commerce Green Committee’s monthly meeting on June 10.
The case study focused on Co-op City, located in the Bronx (the largest cooperative housing development in the world with over 15,000 units and a population of 55,000), and its plan to replace its existing light fixtures in its 8 parking garages with energy efficient lighting. The cost of the project was approximately $3 million. The new lights help Co-op City save a significant amount of money on its electric bill as well as to reduce energy usage.
Co-op City’s requirement that the contractor undertake the project without any cash contribution from Co-op City and, the cost of the project be paid for through the energy savings, meant that creative financing was a necessity.
GEM, an energy management company, structured a shared savings contract in which the savings from the energy efficiency project itself, combined with a $1 million grant from NYSERDA, covered the cost. But that left GEM with its own creative financing challenge: It wanted to be paid up front from the proceeds of the shared savings, rather than receive payment over the 10 year term of the contract;
Barrett Capital stepped in with an elegant financing solution that:
- Fulfilled GEM’s requirement for upfront financing by taking assignment of the Co-op Shared Savings Contract with a cash infusion of nearly $1MM.
- Confirmed, through the work of its own independent engineers that the promised energy savings would be realized, despite some complexities and uncertainties at the Co-op City garages.
- Helped bring to completion an energy efficiency project that is expected to save 2,300,000 MWh over a ten-year period, which is the equivalent of saving the CO2 emissions of 338,000 over that same time period.
There are many important energy efficiency ideas and projects on drawing boards all over the New York area and beyond that are starved for financing. With deep experience in all manner of real estate finance, as well as relationships among key players in the energy efficiency arena (contractors, engineers, etc), Barrett Capital is uniquely positioned to bring the necessary creative financing mechanisms and capital to help bring those projects to fruition.
CO-OP CITY CASE STUDY
In 2011, Co-op City, located in the Bronx, and the largest cooperative housing development in the world with over 15,000 units and a population of 55,000, had the opportunity to save a significant amount of money on its electric bill as well as to reduce energy usage in its “city within a city” by replacing its existing light fixtures with energy efficient lighting in its 8 garages. The cost of the project was approximately $3 million.
Co-op City’s challenge was to locate a contractor that could undertake the project without requiring any capital contribution from Co-Op City. In order to provide for the energy efficient lighting at no up-front cost to Co-op City, Green Energy Management Services, Inc. (GEM), an energy management company, structured a shared savings contract in which the savings from the energy efficiency project itself covered the cost.
The challenge to GEM, which arranged for the replacement of the 6,100 light fixtures at Co-op City’s 8 parking garages, was how it could be paid up front, instead of having to receive payment over the 10 year term of the contract. Thus, a creative financing solution was needed to fund GEM, given the shared savings arrangement and variables within the garages. The process was complex and time consuming, but by selecting Barrett Capital to handle the financing, GEM secured a commitment to provide it with up front financing.
PROCESS & APPROACH
Barrett Capital developed and executed a financing plan, in line with its business model, which involved working closely with Co-op City, its excellent management team and advisors, and GEM to:
Verify that the energy savings the originating energy services company projected would be realized despite the uncertainties at the Co-op City garages;
Provide Co-op City with a meaningful financial incentive to achieve Co-op City board approval of the assignment of the contract to Barrett Capital;
Arrange for the appropriate legal documentation that would be approved by New York State’s Division of Housing and Community Renewal (“DHCR”); and,
Create a payment plan that would be simple and require minimal administration by Co-op City.
Barrett Capital devised an innovative structure to finance the Shared Savings Plan, providing funding for almost $2 million, or 65% of the $2.9 million cost of the project. The New York State Energy Research and Development Authority (NYSERDA) provided a $1 million grant to fund the other 35% of the cost. Barrett Capital entered into an Assignment, Assumption & Indemnity Agreement with GEM taking an assignment of the Co-op/GEM Energy Shared Savings Contract. Upon receipt of fully executed documents from the Co-op, Barrett Capital paid GEM its $993,000 upfront payment.
To induce Co-op City to acknowledge the assignment from GEM to Barrett Capital and consent to an agreed upon payment schedule, Barrett Capital provided a financial incentive for Co-op City. In accordance with the Assignment Agreement, all representations and warranties stayed with GEM. Barrett Capital assumed the credit risk of the repayment from the savings.
Barrett Capital’s business model calls for bringing in an independent engineer to verify the projected savings. Since Barrett Capital is being paid back from the savings, its interests are aligned with the client, Co-op City.
On its site visit, Barrett Capital’s engineer learned that there was a maintenance facility being operated in one of the garages and a radio tower being operated from another. Both generating substantial additional electricity. Despite not knowing of these variables at the time, Barrett Capital’s structure was able to deal with them to everyone’s satisfaction.
Barrett Capital’s financing of the Shared Savings Plan resulted in a rare WIN-WIN-WIN.
WIN for Co-op City: A massive energy efficiency upgrade at no out-of-pocket cost, an incremental financial windfall and with substantial immediate savings on its garage energy costs on the order of $300,000 per year.
WIN for GEM: An infusion of nearly $1 million in cash, allowing the company to pursue and fund additional energy efficiency projects, as well as a validation of its business model.
WIN for the Environment: The projected energy savings, over the 10 year period, are expected to be on the order of 2,300,000 MWh which is the equivalent of taking 338,000 cars off of the road.
Barry P. Korn
Get the most up-to-date information on our staff and their work in the industry by contacting us. We are proud to meet the needs of clients throughout the country.