Roofing Question from New Commercial Investor

[Eric Hamm]

I just purchased my first commercial property.  19,200 square feet with a restaurant, 2 retail spaces, and 3 offices.  It needs a new roof.  I got two bids when I was doing my due diligence.  The first roofing contractor proposed spraying over the existing roof with polyurethane foam.  The second contractor gave me two bids.  The first was to roof over the existing roof.  The second (which was twice as much) included tearing off the existing roof, fixing all the dry rot, then re-roofing.

The dry rot isn't horrible, but there are a number of areas where dry rot exists.  The price to fix the dry rot and re-roof was $96K.  The price to spray the polyurethane foam OR roof over the existing roof was roughly $45K.

I intend to keep the building for about 5 years then sell it.

If I roof over or spray polyurethane, will that come back to haunt me?

[Janice S.]

@Eric Hamm and @Ben Peterson check out the PACE program. For commercial properties a new roof can qualify as an energy efficiency project. The PACE program is a government sponsored, private financing partnership option which provides commercial property owners access to no down payment and no out-of-pocket costs for energy efficiency improvements. Repayment of the improvement is secured with what's known as a benefit assessment through your property taxes. Thus if your tenants are paying for your improvement if they are in a NNN leases, otherwise it's spreading out your capital improvement over 20-30 years. If you sell in 5 years the assessment gets passed to the new owner.

 You can add other energy efficiency improvements such as insulation, windows, LED lighting, the entire building envelope. Renewable energy (solar) qualifies for this program as well. All of these types of improvements the tenants benefit from so the program makes sense for both owner and tenant. Best of all helps with your cash flow!

We recently became PACE certified as roofers here in Colorado. It is opening up great potential in the CRE space to us as investors and as a contractor.

Here's the California PACE website: https://renewfinancial.com/commercial