If you haven't already, you will soon be hearing about a powerful financing mechanism, C-PACE. The acronym stands for Commercial Property Assessed Clean Energy, and C-PACE has financed more than $1 billion in commercial real estate projects in a handful of states so far. Recently approved in Pennsylvania, with other states in various stages of approval and implementation, C-PACE financing is here to stay and be a source of high leverage, low-rate, non-recourse financing for property owners. In addition, some C-PACE financing situations, such as hotels, allow a pass-through to other parties, thereby enhancing NOI and, ultimately, value. This is a short primer on the C-PACE program.
What is C-PACE
C-PACE is a nationwide program financing up to 100% of the hard and soft costs incurred to improve the energy efficiency and resiliency of commercial buildings.
Available in 35 states (so far), C-PACE makes energy efficiency, water conservation, renewable energy, seismic safety and other building improvements easy and affordable. C-PACE projects reduce an owner’s operating expenses and their carbon footprint. C-PACE covers most commercial buildings—industrial, office, retail, 5+ unit multifamily (except in Pennsylvania), hospitality, healthcare and other special use properties.
Why Use C-PACE?
Although the main reason C-PACE financing exists is to reduce energy loads in existing and new buildings, thereby reducing buildings’ carbon footprint, owners also benefit from lower operating costs (higher NOI and value), a source of low-cost, non-recourse capital that can provide higher leverage in the capital stack, offsetting the need for mezzanine debt or equity. The end result is a win-win that increases building values while allowing the owner to retain more equity.
Projects that Use C-PACE
Value-Add
Transitional & Repositioning
Major Capex Financing
New Construction
Features of C-PACE
Long-term, fixed rate, non-recourse financing
Repaid through an assessment, similar to property taxes
Fully transferable and assignable upon sale
Prepayment anytime
Potential pass-through to tenants (e.g., Hospitality)
Typical Uses of C-PACE Financing
For specific projects, such as a new HVAC or co-generation unit, C-PACE can finance 100% of the hard and soft costs of the project. For major building renovations or ground-up construction, C-PACE will generally finance 10% to 20% of the total construction hard and (efficiency-associated) soft costs (e.g., engineering, installation).
C-PACE typically finances the following:
Energy Efficiency
Insulation
HVAC
Lighting
Building Envelope
Water Heating
Air Sealing & Ventilation
Refrigeration Compressed Air
EV Charging Stations
Elevator Modernization
Building Controls
Daylighting
Cool Roofs
Renewables
Solar
Wind
Fuel Cell
Co-generation
Battery Storage
Water
Low-Flow Fixtures
Irrigation
Cooling Towers
Reclaimed Water
Building Resiliency
Seismic/Storm strengthening
Wind resistance
What Assets Are Eligible for C-PACE Financing?
C-PACE financing is available for a wide range of property types, including the following:
Eligible Core Assets
Office
Retail
Healthcare
Hospitality
Multifamily
Mixed-Use
Industrial
Eligible Special Purpose Assets
Hospitals
Golf Courses
Wineries
Educational
Cold & Self Storage
Warehouse
Distribution
Theaters
Auto Dealerships
Manufactured Housing
Non-profit owned
Ineligible
Gas Stations
Dry Cleaners
Auto Service Stations
Condominium/PUD Developments
SFR (1-4 Units)
Any project with unresolved environmental remediation or contamination
C-PACE is a powerful addition to the capital stack, and we can help you navigate the local regulations and any potential issues.
Axcel Capital Group, a leading capital markets firm with operations in Philadelphia and Florida, is an expert in C-PACE financing, and in structuring the optimal capital stack for commercial real estate projects nationwide. Contact Stephen Arrivello at (215) 519-1010 or sa@axcelcap.com to discuss any C-PACE or other financing scenarios.