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A structural mismatch between long-lived energy investments and short-term financing is holding back upgrades that are now essential for asset value, resilience, and cash flow.
In the prior discussion, I focused on why owners who invest proactively in building energy performance tend to outperform, through lower operating costs, stronger tenant retention, and more resilient cash flows. That conclusion raises a practical question: if the financial case is increasingly clear, why does performance investment remain uneven across the market? The answer lies less in owner hesitation and more in how commercial real estate is traditionally financed.
The commercial real estate industry increasingly understands the risk posed by poor building performance. Energy costs are rising, Building Energy Performance Standards are tightening, and inefficient assets face growing pressure on cash flow, valuation, and refinancing. What remains less understood is why the market continues to struggle to respond, even when the economic logic for upgrading buildings is clear.
The answer lies in a structural mismatch between how buildings create value through performance improvements and how commercial real estate is financed.
READ: Rokas Beresniovas | Performance pays: Why proactive energy investment improves occupancy, cash flow, and asset value (December 16, 2025)
Most energy performance upgrades deliver benefits over long time horizons. High-efficiency heating, ventilation, and air conditioning (HVAC) systems, electrification, envelope improvements, and advanced controls typically have useful lives of 15 to 25 years. The savings they generate—lower operating expenses, avoided penalties, improved resilience, and more stable cash flows—accrue gradually and predictably over that same period.
Traditional commercial real estate financing is not designed to align with this reality.
Conventional bank loans are generally structured around five- to seven-year terms, variable interest rates, and underwriting frameworks focused on current cash flow rather than future risk mitigation. From a lender’s perspective, this structure is rational. Regulatory capital requirements, interest-rate risk, and portfolio constraints limit the ability of banks to extend long-tenor credit tied to asset-level improvements whose benefits extend well beyond the loan term.
The result is a fundamental mismatch. Owners are asked to finance long-lived infrastructure with short-term money, even though the economic value of those investments unfolds over decades. Faced with this mismatch, many owners defer action, underinvest, or pursue incremental measures that fall short of what is ultimately required.
This problem is compounded by underwriting limitations. Most commercial lenders lack standardized frameworks to evaluate performance improvements as financial assets. Avoided energy costs and avoided regulatory penalties are rarely modeled as durable cash flows. Engineering analysis, measurement and verification, and performance guarantees are often treated as peripheral rather than integral to the credit process. As a result, performance investments struggle to compete for capital against more familiar uses, even when their risk-adjusted returns are attractive.
This is not a failure of individual institutions. It is a market design issue.
Solving it requires capital that is structured differently, underwritten differently, and deployed with a longer view of asset performance.
This is where specialized financing mechanisms become essential. Long-tenor, property-based tools such as Commercial Property Assessed Clean Energy (C-PACE) are designed to align repayment with the useful life of energy improvements. By attaching repayment to the property rather than the borrower and extending terms to match asset life, these structures reduce refinancing risk and improve project economics.
Green banks and similar public-purpose finance institutions play a complementary role. They are designed to absorb early-stage complexity, support technical diligence, and catalyze private capital by addressing risks that traditional lenders are not structured to take. Through credit enhancement, co-investment, aggregation, and technical assistance, they help transform performance upgrades from bespoke projects into financeable assets.
Public-private climate finance partnerships further extend this model. When public capital is used strategically—rather than as a substitute for private lending—it can unlock significantly larger pools of commercial capital. The objective is not to replace banks, but to enable them to participate by reducing friction, standardizing risk, and aligning incentives.
Importantly, these tools already exist in many markets. What is missing is scale and integration. Too often, performance financing is treated as a niche solution rather than a core component of the commercial real estate capital stack. As a result, owners encounter these options late in the process, after regulatory deadlines loom or refinancing pressure mounts.
The cost of this delay is significant. Projects executed under time pressure are more expensive, harder to finance, and less effective. Capital deployed reactively rarely achieves the same financial or performance outcomes as capital deployed proactively.
A more resilient model integrates performance financing early. Under this approach, long-tenor capital supports core infrastructure upgrades, while traditional lenders continue to finance the balance of the asset. Technical assistance informs investment decisions before they become urgent. Performance risk is addressed upstream, rather than priced in downstream through higher spreads or reduced leverage.
This evolution is no longer optional. As performance standards tighten and energy costs rise, the gap between what buildings require and what traditional financing can support will widen. Without structural change, more assets will become stranded—not because they lack demand, but because their capital stacks cannot support the investments required to remain viable.
READ: Rokas Beresniovas | The myth of the ‘free market’ in fossil fuels (November 26, 2025)
The transition to a performance-driven real estate market does not require reinventing finance. It requires aligning capital with reality. Buildings are long-lived assets. Their infrastructure should be financed accordingly.
Performance is now a core driver of cash flow quality, asset resilience, and long-term value. Financing that fails to recognize this will increasingly fall behind the market it seeks to serve. Financing that adapts will help define the next generation of competitive, durable commercial real estate.