The Internal Rate of Return or IRR is the unit of measure that investments are measured by. A building owner has many places to invest cash to improve their personal or corporate balance sheet. Consider a value add, class B office building located in the Chicago, Il. According to CBRE study in 2013, capitalization rates are reported being at 9%. An investment of a Thermolite Window System retrofit of a past project cost $2 million and had an energy savings of $400,000 in year 1. Assuming a 3% increase in utility costs of investment building at the end of year 5, the project has more than paid for itself at the end of month 60. The sale price of the building is proportional to the net operating income which has been increased by the reduction in utility cost / operating costs.
Assuming the CBRE study noted cap rate of 9%, the Thermolite product has an Internal Rate of Return of 32.2%.
This does not consider the reduction in capital costs need to heat and cool the building due to the added thermal insulation nor does it take into account additional value of a new LEED certification which would be assisted by Thermolite. The 32.2% IRR is considerable.
Consider some of the alternative private equity investments as reported Dec 31, 2012:
Large Financial Buyout funds had an IRR of 10.82%
Mega Financial Buyout Funds had an IRR of 15.80%
Mid Market Financial Buyout Funds had an IRR of 13.72%
Small Financial Buyout Funds had an IRR of 11.40%
Real Estate Debt Buyout Funds had an IRR of 21.88%
Venture Capital Buyout Funds had an IRR of 10.31%
Certainly there is more personal risk and more time needed to cultivate this scenario but Thermolite and all other high performing energy saving commercial building retrofit options should be considered first on IRR alone if the object of the investment is to sell in the mid and short run.
references
http://www.cbre.com/AssetLibrary/Cap%20Rate%20Survey%20Feb%202013.pdf
http://www.sib.wa.gov/financial/pdfs/quarterly/ir123112.pdf
