Climate change is one of the defining issues of the day, and that means ample growth opportunities lie ahead by enabling the world to go green, says Jeffrey Eckel, president and CEO of Hannon Armstrong Sustainable Infrastructure Capital (NYSE: HASI).
Hannon Armstrong provides financing to the sustainable infrastructure markets. The firm’s financing enables projects that help cut down on greenhouse gas emissions. Hannon Armstrong also sees investment and services opportunities in infrastructure assets that help manage and mitigate the impact of climate change.
“We see a very large amount of change that will happen, and a lot of money that will get made and lost as the world decarbonizes,” Eckel says.
Seeing green
Hannon Armstrong reports that the global market for energy efficiency and renewable energy in the coming 35 years could cross the $100 trillion threshold. The company has a current 12-month project pipeline of more than $2.5 billion, providing green upgrades to the public and private sectors.
Right now, the thrust is on expanding the company’s presence in the commercial real estate space. Hannon Armstrong has expanded a partnership with CounterPointe Sustainable Real Estate LLC to enable it to benefit from their commercial real estate expertise. The alliance will operate as Hannon Armstrong Sustainable Real Estate and will focus on major developers, owners, and property managers of office buildings, hotels, multifamily housing, and other commercial real estate assets, Eckel says.
“We look forward to continuing our leadership position in the commercial property-assessed clean energy program (C-PACE) market, putting capital to work in upgrading commercial infrastructure that simultaneously creates jobs, increases productivity, and reduces a building’s use of fossil fuels,” Eckel adds.
The C-PACE program, which is in effect in 33 states and the District of Columbia, enables building owners to engage in projects such as energy efficiency, water conservation, and hazard management upgrades, while getting a tax lien on the property to finance the upgrades.
Project financing
Typically, energy efficiency companies turn to Hannon Armstrong to factor their receivables, thus getting their money upfront rather than waiting 10 years or longer toget money back on projects in which their end-user clients engage.
Considering that the C-PACE transactions are smaller, the CounterPointe partnership will help aggregate these transactions more efficiently, according to Noah Kaye, a senior research analyst with Oppenheimer & Co.
Hannon Armstrong tends to securitize investments, effectively monetizing the energy savings off a consumer’s energy bill, when it finds that more efficient than holding on to the assets on its own balance sheet. Kaye notes that a larger on-balance-sheet portfolio can generate recurring earnings.
“To do that though, you need access to continuous capital. They can continue to follow a capital-light model heavy on securitizations for a while, but over the long term they clearly want to grow the balance-sheet portfolio,” Kaye says.
The company has raised convertible debt in the past, and could also access the equity markets to raise any additional capital, according to Kaye. And in another financial management maneuver, in 2017 the REIT converted 92 percent of its debt to fixed-rate instruments to limit interest rate exposure. Eckel says he is now looking to cash in with higher profit margins as interest rates rise.
Looking ahead, Hannon Armstrong has more opportunities to tap into. “There will always be new growth opportunities arising from new technologies. Hannon’s focus has always been to participate in those opportunities where there is sufficient scale and repetition to build a business, not invest in a new technology in a one-off type project,” Kaye says.