Hospitality Capital Markets Update: June 10, 2024
C-PACE Q&A
Summary: C-PACE financing can be added to the capital stack to help with the upfront costs of projects that improve energy, water, or resilience. It is long-term, fixed rate, non-recourse financing for new development projects, renovations and adaptive reuse. It can be used to replace or reduce more expensive financing options such as mezzanine debt or preferred equity.
What is C-PACE? Commercial Property Assessed Clean Energy program that exclusively funds commercial real estate projects. These programs provide commercial real estate owners with attractive capital for energy, water efficiency, renewable energy, and resiliency projects. Most commercial properties do qualify for C-PACE financing and will be able to obtain low-cost and long-term fixed rate financing to contribute to energy initiatives.
Who is eligible for C-PACE? Building types include hospitality, agricultural, industrial, mixed-use, multi-family, office, senior-housing, and retail. Project types include new developments and gut rehabs.
Which improvements are eligible for funding? Most energy or water saving projects qualify for C-PACE, including energy-related deferred maintenance/CapEx, solar and roofs, and energy-related work associated with new construction projects.
Where is C-PACE available? AK, CA, CO, CT, DE, FL, GA, HI, ID, IL, KY, MA, MD, ME, MI, MN, MO, MT, NE, NJ, NM, NV, NY, OH, OK, OR, PA, RI, TN, TX, UT, VA, WA, WI & D.C.
How does C-PACE work? It starts with a state-level government policy that classifies clean energy as a public benefit. These upgrades are repaid as a benefit assessment on the property tax bill that matches the life of the improvements after being financed with no money down. These efforts reduce the owner’s annual costs and provide sustainable construction. With C-PACE, the debt is tied to the property and not the owner, because the property serves as collateral. Therefore, a remaining balance on a C-PACE loan remains even when the ownership of the property changes. C-PACE loans are repaid through property assessments and are added as an addition to the property taxes.
Why use C-PACE? These loans can boost project IRR, reduce the high cost of capital, replace mezzanine and/or preferred equity capital, reduce personal risk with non-recourse funding, increase both NOI and overall property value, and lower overall equity requirements.
