Thursday, June 20, 2013

MCC Member: Barrett Capital Corporation: CO-OP CITY CASE STUDY

CHALLENGES

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.

SOLUTION

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.

RESULTS

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

Managing Director

bkorn@barrettcapital.com

No comments:

Post a Comment