C-PACE Financing – Using ESG Tools to Generate Stronger Returns for Owners

by | Jun 3, 2022 | Growing the Business

C-Pace financing helps Family businesses with real estate improve the value of their real estate holdings.

C-PACE financing was created to help reduce the environmental impact of commercial real estate and, by doing so, creates a net benefit to both owners and tenants.

Across the nation and the real estate capital markets, several trends are converging to accelerate the adoption of Commercial PACE financing (“C-PACE”).

  1. Users such as tenants, owners, and developers are emphasizing ESG principles when deciding where to locate their businesses, invest in real estate or develop property.
  2. Developers are delivering a seemingly ever-increasing number of new properties to meet the
    demands of an expanding and aging population and are often seeking to value engineer the capital
    stack to meet their yield requirements in a rising interest rate environment.
  3. State governments are realizing the benefits to both the environment and economy that can be
    created by implementing PACE legislation and are signing legislation that creates PACE programs
    in their states.

C-PACE is an alternative financing tool for commercial and multifamily properties that provides low-cost, long-term, non-recourse, fixed-rate funding for building components that improve energy efficiency, utilize renewable energy, and conserve water. Legislation in certain states also provides for financing of seismic retrofits and storm strengthening. Examples of eligible improvements include high efficiency lighting, automated building controls, water conservation measures, HVAC upgrades, roof replacement, building envelope, renewable energy, boilers, chillers, and furnaces. Generally, anything that will positively impact utility expenses will be an eligible cost.

Case Study

Interstate Development Partners, headquartered in Milwaukee, Wisconsin, and Hempel Companies, located in Minnesota, partnered to acquire, and redevelop an historic building in downtown Milwaukee into The Avenue, a 265,695 SF mixed-use project consisting of 194,989 SF of office and 70,797 SF of retail space. Amenities will include multiple tenant conference and event spaces, a state-of-the-art fitness center, indoor bike storage, a doggy wellness center, a movie theatre and a world class food hall: the 3rd Street Market Hall.

Interstate and Hempel secured C-PACE financing from PACE Loan Group as one component of the project financing with loan proceeds used to fund high efficiency lighting throughout the property as well as significant upgrades to the HVAC system. The energy audit conducted as part of the C-PACE financing determined these improvements would generate almost $400,000 of annual utility costs savings. These savings will completely pay for the costs of these improvements in less than 4 years. More importantly, the property improvements funded by the C-PACE financing will lead to significantly lower CAM charges and occupancy costs for tenants long into the future.

Next Steps

C-PACE financing is readily available in most major markets now that 39 states and the District of Columbia have passed C-PACE legislation. Given the availability of C-PACE financing, as well as the financial benefit to both themselves and their tenants, owners, operators, and developers that are seeking to satisfy their ESG requirements will be expanding the volume of C-PACE loan originations for both new developments and existing properties for many years to come.

About the Author

Kris Jones is a Vice President of Originations at PACE Loan Group. PLG, a balance sheet C-PACE lender, is a leading provider of energy efficient and clean energy loans for multifamily and commercial real estate. Based in Minnesota with an origination team based on the West Coast, the East Coast, and throughout the Midwest, PLG operates as a direct originator and servicer. Explore C-PACE financing options for your project.