Energy Retrofits Boost California Retail Portfolio
Phillips Edison teams up with Blue Sky Utilities for a series of upgrades that cut costs for owner and tenants while reducing the REIT's carbon footprint.
Helping retailers to provide meaningful shopping experiences through environmental stewardship is central to the mission of Cincinnati-based Phillips Edison & Co. (PECO). The retail REIT’s expanding portfolio of California properties equipped with solar arrays resonates with environmentally conscious consumers when they arrive to shop or dine.
By the end of 2019, Phillips Edison expects to complete five solar projects at properties comprising more than 500,000 square feet in Central and Northern California. The company is partnering with Blue Sky Utility, a Napa, Calif.-based renewable energy developer. “We’ve got about 12 deals signed with Blue Sky and there are plans to expand to Massachusetts,” reported Eric Richter, Phillips Edison’s senior vice president of property management. Two PECO properties have been retrofitted so far, and a third installation is under way. Each project has taken about six months, from permitting and application with local utilities to installation.
“We teamed up with Phillips Edison to bring renewable energy to PECO tenants, not just national accounts but also the smaller tenants,” noted Barend Venter, founder & CEO of Blue Sky Utility. “Now there is a solution to enable tenants to meet their global environmental requirement targets while their customers can feel great about buying at a progressive retail center.”
Some of PECO’s national anchor tenants run their own utility programs and are already buying power at a discounted rate, but many mom-and-pop tenants are seeing a 6 to 8 percent savings that goes straight to the bottom line. As the landlord, PECO has signed up its common-area accounts and is also enjoying a 6 to 8 percent savings.
Carports and Rooftops at Work
Phillips Edison started investigating solar panels in 2002 as a way to offset costs of common area electric accounts. “We invested about $100,000 in a 10-kilowatt solar array, and once it was in operation for over a year we did some calculations and determined it would be a 34-year payback,” Richter said. Instead of making further capital outlays, Phillips Edison assessed whether to lease or own the program before signing a deal with Blue Sky. Blue Sky owns and installs the solar panels while allowing tenants to participate in a reduced energy purchase.
The first solar installation at Winery Square in Fairfield, Calif., encompasses approximately 72,000 square feet of roofing and 1,000 panels. The second project, Boronda Plaza in Salinas, Calif., allows the center’s anchor tenant, a Food 4 Less grocery store, to offset its energy usage by 80 percent. Boronda Plaza required about 2,200 panels for 60,000 square feet of solar roofing and another 30,000 square feet for carports.
“This is one of the first installations where a national REIT and a grocery- anchored tenant, Food 4 Less, agreed to install solar shaded carports for parking in front of the store, which is in the middle of the strip mall surrounded by the other tenants,” said Venter. Shaded parking is a luxury during California’s hot summer months and also reduces the heat island effect of the strip mall.
For this project, Blue Sky used cutting-edge bifacial panels which boost the yield by an additional 10 to 15 percent. “This is a new technology intended to optimize the available area for maximum solar production,” Venter noted. “It is also aesthetically pleasing to contribute to the surrounding buildings and overall look and feel of the retail center.”
Reducing the Risk
The third project, currently in progress, is unfolding at Broadway Pavilion in Santa Maria, Calif. Some 90,000 square feet of roofing is being replaced. Many solar developers, including Blue Sky, typically won’t install solar panels on a roof older than five years, Richter noted. “The benefit to us at Winery Square was $400,000 worth of roofing that we did not have to pay for because it was built into the program,” he explained.
“These deals with Blue Sky have very positive components for the landlord,” Richter added. “You don’t have to replace the roof—they take ownership for the 25 years that the lease runs. That includes roof leaks.”
Another plus is that the solar panel system reduces the number of leaks brought on by blowing debris because it provides an extra layer of protection over the roof. “From a property management [perspective] it really makes you sleep well at night,” he adds.
However, when the solar panels and inverters first go live you have to take the entire shopping center off the grid for two to three hours. PG&E, the utility that serves the properties, schedules shutdowns between 12 p.m. and 2 p.m.—an inopportune time for a grocery store, restaurant or drugstore.
Nevertheless, Phillips Edison has managed the challenges successfully and earned industry plaudits in the process. In 2018, the retrofitting initiative took top honors in the sustainability category at the Institute of Real Estate Management’s REME Awards.
“Phillips Edison’s partnership with Blue Sky Utility is the definition of a win-win-win-win: for Phillips Edison, Blue Sky, their tenants and most importantly, the environment,” commented Don Wilkerson, 2019 IREM president and CEO of Gaston & Wilkerson Management Group. Phillips Edison’s retrofitting efforts, he added, shows “that the best sustainability programs are the ones whose foundations start with sustainable relationships.”