Green Office Properties & the SBA 504 Loan

Business owners in need of office space often ask themselves, which is better: rent or buy? The well-known advantages of renting are the low capital commitment, improved cash flow, tax-deductible rent, reduced responsibilities, and the ability to occupy space in a more high-end office building than you could afford to purchase. When you rent, however, you are not building up equity; your landlord is. Moreover, your landlord controls most aspects of your premises, which can lead to frustrating situations.

The advantages of ownership are many, beginning with equity, which increases in value when a property appreciates over time. You can deduct your mortgage interest from your tax bill, and take a tax deduction for depreciation for up to 39 years of ownership. Perhaps most important of all is that when you decide to purchase an office property and plan to occupy a little over half of the space, you will be eligible for financing under the SBA 504 program offering the best features possible in a commercial property loan, including 90 percent LTV (loan-to-value ratio) financing, a low fixed rate, and up to 25-year terms.

For SBA 504 lending, a property is considered to be owner-occupied when 51 percent or more of the property’s space is occupied by the owner’s business. Owner-occupiers are considered a lower risk for lenders because they are assured that the owner will be committed to the property both as landlord and as chief occupant.

Even better, when you acquire a green office property you can help protect the natural environment, have a healthier workplace, and take advantage of the special SBA 504 Green loan program, when the office property you are purchasing meets certain environmental standards.

Green Is Good for Business

The office of the future is already here, with the multifaceted trend toward sustainability “not just a good thing to do, but something we must do to stay competitive.” The U.S. Green Building Council’s LEED green building certification is the globally recognized standards for the sustainable design, construction and operation of green buildings. LEED certification is also an SBA public policy goal, extending to SBA 504 loans with up to $5 million aggregate limit per borrower. The commercial real estate industry is generally proactive on sustainability, and, like many local and state governments, continues to advance green design without regard for national policy. “We Are Still In,” a coalition with members from all 50 states that affirms their adherence to the Paris Agreement on climate change and sustainability, represents $6.2 trillion in economic power, according to JLL.

Energy savings are a focus for green building and construction, and many real estate investors are committed to “high-performance sustainable real estate.” The Alliance for a Sustainable Future, which includes 102 cities, promotes energy efficiency policies with incentives for commercial real estate. According to the World Economic Forum, LEED-certified buildings in the US and other countries consume 25 percent less energy and 11 percent less water than non-green buildings.

Wellness Wins

Today, wellbeing is an important workplace value that emerged in part due to the early ‘90s flap over chemical emissions and “sick buildings.” Employee occupants care about a company’s investment in sustainability, and green buildings have been shown to impact people’s health directly. Beyond physical wellness, employers want to support the cognitive and emotional wellbeing of their employees. According to Building Design & Construction’s blog, a study by the Harvard University T.H. Chan School of Public Health found that indoor air quality, CO2 levels, and chemicals have a direct impact on cognitive function. Employees scored on average 61 percent higher in cognitive function scores in strategically designed green offices than their counterparts in non-green office environments. “Biophilia” describes the scientifically proven connection between people and the patterns, rhythms, and textures of nature and natural materials. Biophilic design increases occupants’ connectivity to the natural environment through the use of direct and indirect nature. It can reduce stress, enhance creativity and clarity of thought, improve wellbeing and expedite healing.

Occupy Your Own Green Office Property

The SBA 504 Green loan program emerged from a shared mission of the SBA and the US Department of Energy to inspire small business owners and entrepreneurs to leverage SBA loan programs for building owner-occupied energy efficiency projects and improving energy efficiency in existing properties. According to the National Renewable Energy Laboratory, increased loan amounts and savings on utility bills are not the only benefits of going green. While further benefits may be difficult to quantify in a financial analysis, efficient equipment like LED lighting saves on costs because it lasts longer. Building insulation, reduced leakage, and energy-efficient HVAC systems, improve air quality, occupant comfort, and wellbeing. Increasing the amount of daylight in a space can save energy, improve the quality of lighting in a space, and help increase occupant productivity, reduce the number of sick days, and improve customer experience.

A good example of such energy- efficient improvements was the recent acquisition by H Cabinet, Inc. of an industrial property in San Diego, California. Liberty SBF arranged the borrower’s SBA 504 Green loan. Part of the square footage is unfinished office space, and the rest of the building is a large box warehouse, ideal for storage and/or other industrial uses. The borrower’s plan to implement $55,000 worth of improvements to reduce energy consumption qualified the property for the Green loan program.

Class B Office Buildings Offer Opportunities

Another way for owner-occupiers to take advantage of the SBA 504 Green loan program is to acquire and reposition outdated Class B and C office buildings by improving amenities and upgraded energy efficiency that today’s tenants have come to expect. Rents for these properties are rising, and those that lack key amenities are losing potential tenants to newer office buildings. Investment in improvements can reposition these existing properties as competitive, green, Class A assets in a “rise of the underclass,” according to executives of ADI Construction.

No matter which type of office building you invest in and occupy, Liberty SBF can advise and assist you to make your property eligible for an advantageous SBA 504 Green loan. You will have the added satisfaction of saving energy costs and making your own contribution to the global movement for sustainability. An experienced SBA lender like Liberty SBF will help you overcome any potential obstacles and conclude the loan process successfully.


Contact Liberty SBF today. Email info@i.libertysbf.com or call (213) 297-5747.

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