Financial and Leasing Structures for Decarbonizing Industrial Real Estate
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Yang_cherry_y_msred_cre_2026_thesis.pdf
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19.39 MB
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Author(s)
Yang, Cherry Xinlan
Advisor(s)
Foster, Jason
Zheng, Siqi
Date Issued
February 2026
Publisher
Massachusetts Institute of Technology
Abstract
Industrial real estate plays a critical role in the decarbonization of the built environment, yet progress in retrofitting existing warehouse assets has been slow. Under prevailing triple-net lease structures, tenants control energy consumption while landlords control capital investment, creating a persistent split-incentive problem that undermines retrofit adoption despite increasing demand for lower-carbon industrial space. This thesis examines how alternative leasing and costsharing mechanisms can better align incentives between landlords and tenants to support energy efficiency, electrification, and on-site renewable energy investments in existing warehouses. The research adopts a mixed-methods approach that combines stakeholder interviews alongside the development of a stakeholder-specific discounted cash flow (DCF) model. Interview findings inform key underwriting assumptions, risk perceptions, and decision constraints faced by each party. The DCF framework is then applied to a set of hypothetical case studies, including a 100,000sf warehouse in Oakland, California, to test various scenarios: firstly, the installation of on-site renewables under three different stakeholder ownerships in three cities, and secondly, the respective returns to the tenant and landlord under four cost-sharing or cost-recovery strategies : (a) a baseline NNN scenario, (b) amortized capital expenditure recovery, (c) rent adjustment, and (d) shared upfront investment and savings. The model evaluates tenant and landlord returns across varying lease terms, hold periods, energy prices, tax treatments, and policy environments. The results indicate that achieving retrofit feasibility depends less on isolated cost-recovery mechanisms or proportional cost-and-savings splits, and more on converting energy savings from tenants into contractual cash flows via rent adjustments, which landlords can underwrite and capitalize. Overall, the thesis demonstrates that effective collaboration, anchored in lease-based mechanisms, is essential to both value creation and the scalable decarbonization of industrial real estate.
MIT Department
Massachusetts Institute of Technology. Center for Real Estate. Program in Real Estate Development.
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