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5 Wins of C-PACE Financing
What is C-PACE?
Commercial Property Assessed Clean Energy (C-PACE) is a private, affordable, long-term financing vehicle funded nationwide by billions of dollars in ethical investments, and enabled through a public-private partnership enacted by state or local municipality law. C-PACE is a smart and cost-efficient way to increase commercial property values and make buildings more energy-efficient and profitable in both the short and the long-term.
C-PACE financing is an off-balance sheet form of financing commercial property, not leverage. It doesn’t appear on the balance sheet and is shown as an operating expense the same way property taxes and insurance are accounted. Because PACE is a targeted fund it replaces a portion of the debt on the proforma for all hard and soft costs associated with PACE-qualified improvements and can increase the return on the initial investment.
Why is C-PACE worth considering?
This all sounds great, but what are the real wins of C-PACE financing for privately held commercial property owners?
1. You leave the cash on the books.
C-PACE financing doesn’t require any money out of pocket as a down payment on the loan. It’s zero cash down. The assessment can finance up to 100% of eligible energy-related improvements, thereby limiting the up-front cash payment for the entire financial stack. There are no financing covenants and the financing is off the balance sheet.
2. Property owners don’t have a personal guarantee on a loan.
The building itself is guaranteeing the loan, as it’s part of the property assessed. As an individual, a property owner doesn’t have to guarantee repayment of the loan. There will be no foreclosure on the building as long as the tender is being paid, like taxes.
3. The building is improved both aesthetically and operationally for you and your investors.
PACE financing improves the value of the property, either with improved mechanical systems and energy and water usage systems (such as plumbing and fixtures) and/or improvements to the building envelope, as related to the energy use of the building. In structures 15+ years old and older, there are very few energy conserving measures in the building envelope that aren’t PACE eligible. And who doesn’t want to own a property that is both operationally efficient and aesthetically pleasing?
4. Your tenants are happy.
There is an emotional reaction and sense of pride that comes with stepping inside an improved building that is visually appealing as well as environmentally friendly. It’s no longer just a building – it’s a place of importance. Tenants’ improved health and wellness are often byproducts of improved mechanical systems that include air filtration, air exchanges, lighting, and renewable energy systems.
5. The neighborhood sees a refreshed property.
A refreshed building in an otherwise stagnant or outdated-looking neighborhood is exciting. It conveys the idea that someone is willing to invest in improving the neighborhood, and often spurs other property owners in the area to seek PACE funding and revitalize their structures as well.
BONUS
The appraised value of the building after PACE-funded improvements is higher than before the project was started – the tax base for the area increases because the property value increases. Additionally, property owners can apply for a number of tax incentives separately – PACE fund administrators are familiar with bundling incentives and can help with the process. PACE is simply one more tool that can reduce the financial hurdles for making building improvements.
The experience of most developers in Texas using a PACE loan show it is a significant tool for building the financial stack for a major remodel. Project after project has turned from non-performing to performing on the total expected return to investors and projected negative cash flows turn positive.
