By Nicholas Leider
FINANCING GREEN INITIATIVES
Going green — in whatever avenue one wishes to take — is a laudable goal in a world where environmental concerns become more and more pressing . But when it comes to the bottom line , every project has to make sense , which can make things a bit more complex . One approach that has grown in popularity is the Commercial Property Assessed Clean Energy ( C-PACE ) program . This financing structure allows building owners to borrow
Randy Eckers money to complete these projects with repayment made through an assessment on their property tax bill .
C-PACE programs are legislated at the state level , with 36 states and the District of Columbia currently offering them . ( At least five other states are currently considering PACE-related bills .) With financing coming from private investors and / or government programs , C-PACE provides long-term loans at favorable rates . Randy Eckers , chair of the real estate finance practice for Akerman LLC , is looking to spread the gospel of C-PACE — especially as businesses look for creative financing options in the wake of the COVID-19 pandemic .
“ One of the biggest problems with C-PACE is that there ’ s just a lack of awareness of it ,” he says . “ A lot of people in the target audience [ are ] not even aware that this could be used as rescue capital or that it even existed .”
In addition to the usual borrower and lender roles in a loan , C-PACE financing includes an administrator to oversee the project and ensure it meets local requirements . This role can be filled by a government employee or a third-party administrator .
While available to all sectors in CRE , ranging from oil and gas to seniors housing , C-PACE has been particularly beneficial to those in the hospitality sector . With hotels and vacation destinations seeing business disappear overnight during the initial outbreak of the pandemic , many owners , operators , and investors found C-PACE as a lifeline thanks to a specific detail in the legislation .
“ It ’ s common to have a lookback period ,” Eckers says . “ Let ’ s say that the lookback period is three years . If you ’ re a hospitality owner and during the past three years you have constructed improvements at your
A lot of people [ are ] not even aware that [ C-PACE ] could be used as rescue capital or that it even existed .
property that would have been eligible for the C-PACE program , you can still go back and get a loan as if you were financing those components for the first time , even if projects are already complete .”
In addition to projects in existing properties , C-PACE is also an option for new developments . For an office building , for example , this additional financing could open doors to increased environmental efficiencies that would not be available to developers otherwise , Eckers says .
Though the structure of the financing is outlined in a specific state ’ s legislation , C-PACE avoids many of the downsides that often come with a state program .
“ One obstacle [ with C-PACE ] is the misconception that this is a government program filled with red tape ,” he says . “ Our clients think it ’ s going to take nine months or a year to arrange financing , but they find the process much , much easier than expected .”
With climate risk and ESG initiatives here to stay , each developer , investor , owner , or operator in CRE needs to decide just how much energy efficiency and environmental considerations they will incorporate into their assets in the coming years .
“ New York City is the most well-positioned market for C-PACE right now ,” Eckers says . “ If you look at the NYC Climate Mobilization Act , it requires buildings to reduce carbon emissions by 80 percent by 2050 and 40 percent by 2030 . If you combine that with New York ’ s C-PACE program just coming online , there ’ s a lot of opportunity there .”
As for the future of such unorthodox means of financing environmental improvements , Eckers hopes C-PACE will become more of a fixture in the near future .
“ In the next five years , I hope people will be much more aware of it ,” he says . “ And that this will be a nontraditional loan that is frequently seen in capital stacks . I ’ m extremely bullish on C-PACE — I just think people need to know about it and understand the misconceptions , which can be overcome .”
Nicholas Leider
Senior content editor of Commercial Investment Real Estate Contact him at nleider @ ccim . com .
Editor ’ s note : This article is adapted from a full-length
Commercial Investment Real Estate podcast . To listen to the full episode , head to SoundCloud , iTunes , Spotify , or wherever you listen to your favorite podcasts .
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SUMMER 2021