Investors Unlock Hidden Millions Using Tax Incentives,Green Financing & Smart Underwriting

Ara Nenninger (00:00)
The biggest external threat I see.

is one of omission, not capturing this value that’s left on the table. 179D has been wildly underutilized by the market and that’s millions of dollars the government anticipated doling out that just haven’t been requested. So that’s really the silent threat that I see is not recognizing that value capture and acting on it with a strategic advisor such as myself.

Scott Bursey (02:01)
the Real Estate Pros podcast powered by Investor Fuel. Today we have a strategic mastermind in the house. Ara Nenninger of Kairya Advisory. Ara brings the fuel of data strategy to every deal, helping pros navigate hidden value. Get ready for a masterclass in maximizing your portfolio because Ara is bringing the fuel. Ara, welcome to the show. It’s great to have you here.

Ara Nenninger (02:24)
Thanks, Scott. Thank you. Happy

Scott Bursey (02:29)
And for our listeners who may

Ara Nenninger (02:29)
to be here.

Scott Bursey (02:30)
not be familiar with, Please tell us, how did your journey begin and what is your main focus now?

Ara Nenninger (02:39)
Well, my journey began in construction management and sustainable development focus in college.

I got to work in construction management, building the work for quite some time. Then I transitioned to working in architecture, actually designing the work and informing the design. I then worked in private equity, learning how to get a deal off the ground. And throughout this was always approaching it through the sustainability lens. So really understanding how the green financing and third party sustainability certifications could impact the deal.

And now, because I have this unique experience of actually being able to speak the financing language and really unlocking the value of the certifications like LEED, ENERGY STAR, and Green Financing, I’m now providing advisory services to the real estate market.

Scott Bursey (03:35)
Okay, and I understand that you just started chiro advisory. Please tell us.

Ara Nenninger (03:40)
I did. I really developed this in response to hearing clients unmet needs. There’s a real hole in the market now where certification consultants can get you that plaque to put in your marketing material, but they aren’t really the correct provider to provide that financial analysis to get you the ROI on if upgrading that chiller or changing out that HVAC.

system is really going to get you the return you’re looking for.

Scott Bursey (04:15)
exciting that you launched the new business. Congratulations. Let’s jump right into the deep end here. If you would care.

Ara Nenninger (04:17)
Thank you. Thank you.

Happy to.

Scott Bursey (04:29)
Alright, what is the biggest strength an investor can leverage when structuring a complex multi-asset deal in your view?

Ara Nenninger (04:39)
biggest thing they can do in terms of the services I offer is look at their portfolio from a 10,000 foot view and really understand how engaging with Energy Star, Green Financing Programs, LEED, Passive House, Well, some of these other standards can really get them lower cost of debt, higher NOI and captured tax incentives.

Scott Bursey (05:55)
That’s where partnership strength really shines.

Ara Nenninger (06:00)
I agree, absolutely.

Scott Bursey (06:03)
And Aaron, in today’s high pressure market, what is the single most common weakness you see in an otherwise solid investment thesis?

Ara Nenninger (06:12)
people really not capturing the value of this approach in their underwriting to lock in that lower cost of capital and really realize this value throughout the development cycle. So it’s not just applicable during the whole period, but really leveraging it through underwriting acquisition, holding and disposition.

Scott Bursey (06:35)
I see. Okay. And what is some of your strategy for the next 12 to 18 months in that regard?

Ara Nenninger (06:41)
I really see ⁓ there are some really interesting tax incentives available now in terms of 179 and those are sunsetting in June 30th. So if you haven’t broken ground on a construction project that could capture those tax incentives and really the bar is much lower than people think here. A lot of code mandates are requiring the efficiencies that would also garner you those tax incentives. So really

Getting your tax advisor lined out on how to best approach that from a tax strategy perspective is really the biggest opportunity I see in the near three to six month term.

Scott Bursey (07:27)
Could you break down the 179 for us, please?

Ara Nenninger (07:31)
Absolutely. So this is a deduction where you can get up to I think it’s $5.81 a square foot per building area that you renovated or design and constructed. And that is a tax deduction that you get that lowers your tax burden just for putting that work in place. Again, many people are just leaving this money on the table because they don’t realize what they’re already doing as part of

⁓ capital expenditure and know, typical maintenance is going to get you these tax incentives. So really making sure that you’re evaluating that perspective at the asset and portfolio level.

Scott Bursey (08:15)
Thank you for breaking that down in depth. Our listeners are certainly going to appreciate that. What is the clearest, most immediate opportunity emerging right now for the real estate investors using expert consulting to gain a strategic edge in your eyes era?

Ara Nenninger (08:18)
My pleasure.

It really depends where you are in the development cycle. So in terms of if you’re looking at underwriting, right, I think…

having a strategic play in terms of what green financing you’re pursuing, what utility rebates, what design-side management programs those utilities offer that you have to engage in much earlier in the development cycle than I think people typically understand in order to garner the full value of those incentives and programs. Does that answer your question, Scott?

Scott Bursey (09:05)
Okay, well thank you for that explanation.

If you could elaborate a little bit more on that and break it down maybe to a level where a broader ⁓ percentage of our audience can comprehend.

Ara Nenninger (09:18)
Absolutely. So here’s an example.

If you’re going to refinance within 6 to 18 months and you have a property where you’ve done some upgrades but you haven’t maybe got that energy certification or you haven’t demonstrated that you’re operating at a 30 % lower cost than a building that wasn’t designed or ⁓ included those retrofits, those efficiency retrofits, you’re losing the value of getting that ⁓ in place before you go and refinance.

because you will get ⁓ a better refinance rate if you can demonstrate that your property has that added value.

Scott Bursey (10:33)
Okay. And what is some long-term vision for your new company?

Ara Nenninger (10:40)
Well, my long-term vision is to keep building with institutional clients. I’m lucky enough to have some REITs that I’m working with now that ⁓ I’ve really been able to demonstrate on a portfolio level the right-sized approach to each asset and unlocking this value, whether it’s pursuing formal certification, whether it’s just demonstrating that we are operating at a more efficient level and thus increasing the NOI. If it is

showing that we are increasing the asset value at disposition. So really from a strategic level, helping them unlock their capital strategy around certifications and building efficiency. It’s really eking the green out of the green. Yeah.

Scott Bursey (11:24)
that’s awesome.

Okay, and era beyond inflation and rising interest rates. What is the biggest external threat that pros should be actively mitigating in their strategy sessions right now?

Ara Nenninger (11:38)
The biggest external threat I see.

is one of omission, not capturing this value that’s left on the table. 179D has been wildly underutilized by the market and that’s millions of dollars the government anticipated doling out that just haven’t been requested. So that’s really the silent threat that I see is not recognizing that value capture and acting on it with a strategic advisor such as myself.

Scott Bursey (12:08)
And speaking of value for a growing consulting firm like Kairya Advisory, what is the one difference that clients value most right now and in your view, are you aiming for?

Ara Nenninger (12:20)
Really, it’s the fluency to speak the capital markets language and the certification ⁓ language. So I think it’s a unique skill set to be able to bridge both of those areas and to leverage one to recognize the most value out of the other.

Scott Bursey (12:38)
Clarity and confidence if I’m understanding you correctly.

Ara Nenninger (12:42)
That sounds right, Scott.

Scott Bursey (12:45)
And is there any advice any golden nuggets you’d like to leave with our listeners here today?

Ara Nenninger (12:52)
Absolutely. If you’re already going and getting the plaque for LEED certification, don’t just stop there and let that value be the marketing material. Let’s take a look at how you can leverage that in terms of refinancing or disposing that asset or perhaps how to get cheaper debt to get a project off the ground in the first place.

Scott Bursey (13:16)
Awesome. Anything else that you’d like to tell us about your new ⁓ launch business?

Ara Nenninger (13:22)
We’re really excited to be providing this service to the market. am happy to be on this podcast with you today, Scott. So thank you. Just really happy.

Scott Bursey (13:34)
awesome and how big is your team?

Ara Nenninger (13:38)
Currently, it’s a one-woman operation. We just are incorporated as of a week ago. So we are building to meet need. We currently have a couple clients that are sizable and growing.

Scott Bursey (13:54)
What inspired this newly launched business?

Ara Nenninger (13:58)
Really, it was that I heard clients needing to understand the financial aspect of their sustainability decisions. Should we go for the more efficient HVAC system? Should we include the mother’s room in the design of the building? Do we want to provide more outdoor space? What is that payback period to us?

as long-term operational holders of this? Or if someone is wanting to get rid and dispose of an asset in the short term, what does that add to the value of the asset? And I really found that clients weren’t able to answer this. People were able to get them the plaque and the marketing material side of it, but they weren’t able to really adept and prove the financial business case for sustainability, which is where I accept.

Scott Bursey (14:55)
What will your growth strategy be from going to a one woman operation to perhaps a bigger operation if you so choose?

Ara Nenninger (15:43)
Absolutely, I’m putting a lot of parts and pieces in place now for scalability and really trying to understand how to meet the market demand because it certainly is clamoring for this service. And I have quite a few, a large network of active individuals that are already providing a component of this service. So I’m acting as a general practitioner now to sort of stitch together this network that I will grow and strengthen as we build.

Scott Bursey (16:14)
This has been pure gold Before we sign off, know our pros are going to want to connect with you on this ⁓ wonderful new launch business and follow your journey or they may even want to collaborate with you. How can they reach you?

Ara Nenninger (16:18)
Thank you.

Absolutely. Please reach out at kairyaadvisory.com, K-A-I-R-Y-A, advisory.com. Schedule a 20-minute consult and figure out how I can help you.

Scott Bursey (16:43)
Thank you so much for joining us today.

Ara Nenninger (16:47)
Thank you, Scott.

Scott Bursey (16:50)
And to our listeners, we appreciate each and every one of you. If you got value from today’s episode, please subscribe. We have a lineup of exceptional guests coming up just like Ara, who are making huge moves in the market. Until next time, keep your standards high and your vision clear. We’ll see you on the next episode, everyone.