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In the Climate Era, take note on the emergence of C-PACE. It’s both a financing tool and an industry, created for funding projects with private capital in energy efficiency, renewable energy and resiliency, on new and existing commercial properties in 21 states and the District of Columbia.
For the Commercial Property Assessed Clean Energy industry, market development, cumulative investments and association membership are signaling this esoteric finance mechanism is building mainstream muscle.
As with conventional financing, commercial property owners borrow C-PACE capital to pay for designated improvement costs. How does C-PACE differ from conventional financing? The borrowed capital becomes a property tax assessment, which the owners — and future owners, as the case may be — repay with the property’s regular tax bill.
Major movements in C-PACE market development occurred last year, as geographic areas opened in large East Coast and Midwest cities thanks to state enabling legislation and city-council adoption.
In the fourth quarter of 2019, the first transaction in the Windy City closed, enhancing publicity for the alternative finance tool. CounterpointSRE provided $21.25 million in C-PACE financing toward the capital stack, for redevelopment at the historic Continental and Commercial Bank Building, a Chicago Landmark.
The top five, formerly-vacant floors are transforming into The Reserve Hotel, a 233-room luxury boutique hotel and member of Marriott’s Autograph Collection, slated to open in spring 2021. The energy-efficient improvements are projected to net an estimated $3 million in total energy savings over a 25-year expected useful life. Plus, water-conserving, low-flow fixtures are pegged for net savings of 2.27 million gallons per year.
“Being able to support The Prime Group’s development of The Reserve Hotel is an important first step in the city for Counterpoint as we make our first investment in the sustainable infrastructure of Chicago’s diverse built environment,” said Eric J. Alini, managing partner of Counterpointe Sustainable Real Estate, in a statement.
“We look at this transaction as a sign of things to come for the nation’s larger cities,” Alini said, “including Philadelphia and New York City where programs are emerging.”
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Ten years ago, the first few C-PACE programs moved stealthily out from the shadows of the Great Recession. Since 2009, cumulative C-PACE investments in real estate have climbed to over $1.1 billion. That number comes from PACE Nation, the trade association for residential and commercial PACE programs, which tracks data voluntarily submitted. The data might not reflect all market activity for year 2019, yet.
C-PACE investment by project type or use, again cumulatively and from PACE Nation, is as follows:
- Energy efficiency 49%
- Renewable energy 23%
- Mixed-uses 22%
- Resiliency 7%
What’s more, additional capital providers have joined the ranks of the C-PACE Alliance, a coalition to promote Commercial Property Assessed Clean Energy financing. The C-PACE Alliance unifies capital providers and transaction experts as a collective with common goals, for the integrity of C-PACE program design and administration. Together they can bolster the volume of quality transactions for the consumer and the industry, while assisting in the reduction of energy consumption and improving the functionality of retail, office, industrial, apartment and agricultural buildings.
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The four most recent members to join the C-PACE Alliance are: Dividend Finance in San Francisco, California; Greenworks Lending in Darien, Connecticut; PACE Equity in Milwaukee, Wisconsin; and Stonehill Strategic Capital in Atlanta, Georgia.
“Each of these four companies adds a new perspective that will strengthen [our] efforts to make C-PACE financing widely available and easy to use,” said Cliff Kellogg, executive director of the C-PACE Alliance, in a recent statement.
Despite the expansion of markets, C-PACE remains unchartered territory to many commercial property owners. Though 10 years “in,” there remains a need for more market education. The general takeaway? In business, not every consumer becomes an early adopter.
Given the potential for growth and the potential variability of additional states’ authorizing legislation, it is important for best practices to take shape and be communicated, and the C-PACE Alliance is ready and in a position to advise accordingly.