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For commercial real-estate (CRE) owners and developers, the extreme economy-wide volatility that began two years ago is still wreaking havoc in the form of delays in materials delivery, labor shortages and inflation—yielding cost increases that have stalled or derailed development projects nationwide. But an effective solution is available in the form of an innovative financing tool that provides vital funding to help get projects back on track while delivering meaningful benefits to local communities and the environment in the process.

The funding need is clear. Although the CRE market rebounded in 2021, the recovery came with higher-than-average increases in construction costs—increases that are projected to continue throughout 2022. By the middle of 2021, final costs for a commercial project had increased by 4.5%, and those costs will go up an additional 4% to 7% through this year, according to real-estate firm JLL. As a result, developers are continuing to delay or cancel projects that otherwise would have gone forward.

A Nationwide Problem—and a Solution

The “stalled project” phenomenon has been nationwide. As of January this year, ConstructConnect was tracking nearly 8,500 stalled projects across the country, with California, Texas, New York, Pennsylvania and Illinois seeing the greatest number of these projects.

Enter Commercial Property Assessed Clean Energy (C-PACE) financing. For many owners and developers, C-PACE is a powerful option for alleviating these financial strains. Now enabled by state policy in nearly 40 states nationwide, C-PACE lets CRE owners access low-cost, long-term, fixed-rate financing for sustainability improvements, including energy-efficiency measures, water conservation and renewable-energy projects that are underway, planned or recently completed—helping to fund construction-cost escalations and overruns and get stalled projects finished.

C-PACE operates with a distinctive and innovative structure. The financing is enabled at the state level where the state classifies clean-energy upgrades as a public benefit, just as a new sewer, water line or road is classified. With that classification, qualifying upgrades can be financed with no money down, typically at a better-than-market rate, and repaid as a benefit assessment on the property tax bill over a term matching the useful life of the improvements and/or the new construction infrastructure—usually 20 to 30 years.

Saving Money from the Start

The property-tax structure keeps the funding off corporate balance sheets and allows costs to be passed along to tenants where applicable. Borrowers generally save more on their energy bill than they pay back on their property-tax bill—so the project savings outweigh the annual C-PACE payment from day one. In addition, if a property is sold, the C-PACE financing automatically transfers; the next owner takes on the repayment obligation, and no payoff is required.

The bottom line on C-PACE: Annual costs are reduced, property value is meaningfully enhanced, and—when the financing helps move a stalled project to completion—the local community and economy gain a valued amenity that otherwise might never have come to fruition. Importantly, by supporting property improvements that reduce energy use, C-PACE is also making a meaningful contribution to nationwide efforts to cut carbon emissions and enhance overall environmental sustainability.

A Hedge Against Rising Rates

The proposition becomes even more appealing in a rising rate environment. CRE construction projects are currently being squeezed from all sides. As long-term, fixed-rate capital with a 20-plus-year term, C-PACE provides some insulation from necessary hedges and rate shock, offering a “set it, forget it” approach for developers compared to traditional variable rate financing.

Below is a sampling of projects recently completed or enhanced with the help of C-PACE financing:

1320 West Jefferson Blvd., Los Angeles, Calif.: The property is a 129-unit student housing development located near the University of Southern California campus. It will include 13 low-income units and qualifies for senior funding via a community investments program of the Federal Home Loan Bank of San Francisco. The sponsor was able to use nearly $6.5 million in C-PACE funding to finance energy-efficient development costs, including plumbing and seismic improvements; the funding reduced the sponsor’s equity need and was accretive to ROI.

2074 East 20th St., Chico, Calif.: A 93-room Holiday Inn Express & Suites serving visitors to Chico and the surrounding area, the property recently underwent a large-scale capital-expenditure construction project. The hotel was able to recapitalize recently completed energy and water-related expenditures through C-PACE financing. The retroactively financed measures included site concrete, building envelope, elevators, plumbing, HVAC and electrical with a total of more than $3.5 million in C-PACE-eligible financing, allowing the hotel to free up liquidity and replenish operating reserves.

OM Station, Madison, Wis.: The former Oscar Mayer headquarters, OM Station consists of 1.7 million square feet of industrial and office space on a 69-acre site. The facility includes manufacturing, cold storage, offices, creative workspaces and a high-bay warehouse distribution space. The owners purchased the property in 2017; since then, they have completed substantial improvements and are now actively leasing. By tapping into PACE Wisconsin’s ability to finance recently completed C-PACE-eligible projects, the property owners were able to replenish equity used to start the project with C-PACE capital. The owners used the equity for additional investment while enhancing the return on the property. C-PACE capital was able to refinance more than $7 million in project costs for new lobby windows, lighting upgrades, HVAC, low-flow water fixtures and electrical optimization of the building.

In a difficult financing environment, C-PACE is making a significant difference in filling critical funding gaps and helping to move to completion projects that are enhancing communities and also meeting urgent sustainability objectives. A growing record of projects successfully funded and completed nationwide demonstrates that C-PACE strongly merits inclusion as an integral element of the financing toolkit of any forward-looking owner or developer.


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