REIT completes commercial-scale solar tax credit transfer

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Black Bear Energy, an onsite renewable energy developer, announced one of its customers, a real estate investment trust (REIT), has completed the sale of tax credits associated with its new solar assets.

The REIT sold Inflation Reduction Act created Investment Tax Credits (ITC), which can be transferred to third parties with a tax appetite in exchange for cash. The transaction was completed on a marketplace operated by Evergrow.

“By unlocking tax credit financing for REITs, Black Bear and Evergrow are forging a new path for improved returns that simultaneously support the commercial real estate sector’s sustainability objectives,” said said James Richards, chief executive officer of Evergrow.

The tax credits are generated from multiple projects installed on multifamily assets in California and Washington DC. The portfolio totals 556 kW and individual projects range in size from 66 kW to 195 kW. 

Black Bear Energy said the transaction will open doors for broader REIT participation in renewable energy projects and unlock monetization of the ITC. It said that prior to this transaction, it was unclear if there would be a market for REITs to sell tax credits, as the associated projects are magnitudes smaller than utility-scale project tax equity transactions. REITs also have special tax, accounting and business requirements that make knowledgeable partners important.

“With this transfer, we have proof of concept that demand exists for credits of this size and risk profile,” said Drew Torbin, founder and president of Black Bear Energy. “This is significant as the ITC sale proceeds typically increase the returns by 300 basis points and upwards of 600 basis points for certain projects which qualify for the 10% bonus adder.”

Tax equity, a financing arrangement where investors fund solar power projects in exchange for federal tax benefits like investment tax credits, is a complex field that integrates capital and labor.

Initial costs for assembling these deals can start under $100,000 but may quickly escalate to millions. These expenses, covering fees for lawyers, accountants, and engineers, support extensive review of data rooms and the drafting of extensive contracts, focusing on compliance and diligence. The objective is to ensure that large investment groups can safely deploy billions of dollars in compliance with the U.S. Internal Revenue Service regulations.

(Read: “Solar tax transfer for smaller projects: Dissecting a $600,000 tax credit transaction”)

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