A real estate investment company utilized C-PACE
financing for a rooftop array of solar panels, as well as
related heating and cooling improvements, at its headquarters. The company also upgraded a multitenant
suburban office building with a 76-kilowatt solar array.
The suburban office project is estimated to save the
company more than $933,000 over the life of the 30-year
loan and reduce the property’s carbon-dioxide emissions by 432 tons per year. The property’s annual utility
bill prior to the solar enhancements was about $28,000,
which is expected to drop to $3,350 in the first year
following improvements — a savings of 88 percent. The
company’s principal indicated that amortizing the loan
over 30 years helped to maximize cash-flow benefits
while offering a less-expensive form of capital.
The second case study involves a mixed-use development of a century-old building in Texas. A commercial real estate developer borrowed $24 million in
C-PACE funds to help transform a former office building and warehouse into retail and
office space, apartments and a dual-branded
hotel. The building had been empty for some
time and is now helping to spur development in
the city’s downtown area.
The C-PACE financing replaced mezzanine debt
— which can often include a double-digit interest
rate — and significantly reduced the debt-service
requirements while increasing project returns. The
developer is projected to save $2 million per year in
utility costs, savings that will be passed on to tenants.
The improvements included an energy-efficient
heating, ventilation and air conditioning (HVAC) system, as well as lighting, insulation, roofing, glazing,
exterior waterproofing, plumbing and irrigation.
n n n
As C-PACE financing continues to gain popularity,
commercial mortgage brokers, owners and investors
are finding this product provides the kind of flexibility
and improved costs of capital that have quickly earned
it a foundational role in the capital stack.
Whether a property owner uses it for more common upgrades to energy, water and other resource
systems, or in newer applications such as property
resilience or seismic improvements, C-PACE is poised
to become a multibillion-dollar financing sector in the
coming years. n
Woolsey McKernon is senior vice president and
chief revenue officer for CleanFund Commercial
PACE Capital Inc., based in Sausalito, California.
CleanFund is a leading direct provider of long-
term C-PACE financing for energy-efficiency,
water-conservation, renewable-energy, seismic and other
resiliency improvements to U.S. commercial, office, retail,
industrial and multifamily properties.
Chris Robbins is managing director for
CleanFund Commercial PACE Capital Inc. For
more on the company, go to cleanfund.com.
Reach McKernon and Robbins at
(415) 256-8000 or email@example.com.
the kind of flexibility
and improved costs
of capital that have
quickly earned it
role in the capital
<< C-PACE continued from Page 77 At its roots, C-PACE is a financial tool that was developed to help update the nation’s aging and inefficient infrastructure, and to make it easier for property own- ers to invest in energy efficiency, water conservation, renew-able energy and safety upgrades that improve their
buildings and the environment. These tangible benefits are heralded by lenders that are now considering how
C-PACE helps increase collateral value.
As importantly, commercial mortgage brokers who
include C-PACE in their product offerings can provide
potential clients with access to a direct form of less-expensive capital. C-PACE lenders typically charge
interest of 6 percent to 7 percent. As a result, C-PACE
financing gives brokers a competitive advantage
with potential clients. It also ultimately helps to close
Brokers, developers and investors who stay on top
of financing trends are learning how to execute successful C-PACE deals, including how to use new online
lending platforms to prequalify certain projects and
get indicative pricing that can be easily
included in deal proposals. If you’re
still learning about this product,
however, you may have some
questions, including: Why is
C-PACE’s popularity growing so
fast and where is it available?
C-PACE financings have roughly
doubled annually since 2011 and reached
$588 million in cumulative investments on more than
1,400 properties nationwide as of December 2017,
according to PACENation, an industry association. The
C-PACE market is well on its way to becoming a
multibillion-dollar industry within the next five years.
Wall Street is on board, too. This past July, the first
144A securitization of C-PACE assets was completed —
a $103 million, AAA-rated single tranche of more than
80 U.S. properties. Securitizing these types of assets
will help generate a more liquid and vibrant secondary
market for C-PACE which, over time, may help drive
down the costs of capital. C-PACE is now approved for
retrofit and rehab projects in 35 states and the District of
Columbia, and for ground-up construction in 12 states
and Washington, D.C.
From a purely financial perspective, C-PACE is attractive for its flexibility, interest rates and terms. A recent
mixed-use development deal that included C-PACE,
for example, reduced the weighted average cost of
capital to 7. 46 percent. If traditional mezzanine debt
had been used instead, the blended cost would have
been 9. 29 percent.
C-PACE’s long-term financing structure stays with
the property, even if it is sold, so the costs of the
improvements are aligned to the ongoing benefits for
owners and tenants. This is similar to common tax
assessments, such as sewer or school bonds. The
longer terms of C-PACE deals, which can range up to
25 to 30 years, further align costs with the improvements’ expected useful life.
Understanding and utilizing C-PACE is becoming easier
with a growing network of mortgage brokers offering
this financing option to their clients. Lenders that have
listened to feedback from market participants have
evolved their digital-lending platforms to better serve
the borrower, as well as brokers and other partners
who facilitate these transactions.
Online applications and prequalification assessments
are enabling property owners and mortgage brokers
to test the waters and see how C-PACE can work for a
specific property upgrade, with tools to adjust specific
aspects of a proposed transaction and tailor it to the
owner’s objectives. Online prequalification assessments
are offered by several state entities, such as Colorado
C-PACE as well as Energize NY, which offers New York
state property owners a process for eligible projects
involving commercial and residential properties.
Private-money lenders may offer online tools to
quickly determine eligibility for specific states or mu-nicipalities, for viewing indicative pricing and terms,
and for getting cash-flow estimates for solar-energy
projects. Whether the process is initiated online or by
working directly with a lender’s sales representative,
C-PACE financing involves steps similar to traditional
The following examples illustrate how C-PACE can
make a critical difference for commercial real estate
owners and investors. The first case study involves two
California office buildings.