A brief tax analysis on REITs and Renewables

I recently came across a Deloitte white paper named The changing environment of R&R (REITs and Renewables) (Jessica Duran and Charles Temkin, 2010, .pdf available here) in which the authors have summarized the means by which REITs may integrate renewable energy infrastructure into their corporate form as of today. Before describing how some of the common leaseback arrangements are structured, however, the authors take some time to discuss the various current tax regimes and how they fail the REIT sector. For as most renewable energy insiders will know, the game of identifying how REITs may 'go green' is almost always more a discussion about restrictions than opportunities. As Duran and Temkin note,

There already exists a broad menu of federal, state, local and public utility financial incentives to encourage renewable energy and accelerate capital investment. Among these are fast track permitting, rebates, green power purchasing programs, tax deductions, credits and grants. However, REITs with a sustainability initiative will confront unique tax issues and a regulatory regime that may limit their ability to avail themselves of the benefits extended to non-REIT commercial property owners.

While the authors note the common problem of the tax issues REITs will confront in their green initiatives, the real benefit of their work is where they point out some creative avenues by which future successes may come. For example, the discussion of performance based incentives provides an example of what could be accomplished by a REIT team with a bit of creativity, while the brief sections on Treasury authority and legislative proposals provide a solid background on some more traditional routes with potential and echo some of the work we have posted on this site in the past.


In recognition of the potential that exists for REITs to have an impact on green development, the paper helpfully restates the common theme in REIT circles that changes need to be made;

Financial incentives will continue to be a key factor in stimulating advances in developing and distributing renewable energy. As popular vehicles for attracting capital and owning and operating real estate, it is inevitable that REITS will play an important role in furthering the greening trend...But additional guidance and regulatory refinements are needed in order for REITs to more fully enjoy available incentives and impact the growth of renewable energy.

Meanwhile the authors conclude that there is no better time than the present for a discussion of how REITs could both benefit and benefit from the green revolution, noting that, 'Now is a good time for a lively discussion regarding tax issues that will affect REITs in the context of a strong greening trend.' Indeed. The entire paper, is worth a look for the interested, and manages to dispense with the hot air in packing a multitude of information into a four page document. If their peers could only be so efficient....