There has been a sharp increase in demand for C-PACE (Commercial Property Assessed Clean Energy) financing across the U.S. as commercial property owners and developers are turning to it as a cost-efficient financing mechanism to fund new construction projects, substantial rehabilitation projects, and to recapitalize recently completed CRE projects (up to three years in most states). Industry leader, Nuveen Green Capital (NGC) has exceeded $3 billion in all-time cumulative originations this year.

The C-PACE growth surge has been particularly evident on the West Coast, where the NGC deal team, led by Cory Jubran, Senior Director of Originations and Aidan McLaughlin, Director of Originations, have deployed a record-setting $700 million in C-PACE capital to West Coast construction projects over the past 12 months.

Once considered a niche financing mechanism, C-PACE has seen more mainstream adoption recently, particularly given its attractive terms when compared to other CRE financing options. Available on a near-national level in 40 states  as well as Washington, D.C., C-PACE works by providing commercial property owners and developers access to low-cost, long-term, non-recourse financing.

View of the Thompson Hollywood looking west from across Wilcox AvenueHunter Kerhart Architectural Photography

The attractive benefits of C-PACE, in addition to its growing availability, have led to an active 12 months. NGC provided C-PACE financing for several significant West Coast projects, notably 200 Park, a state-of-the-art newly delivered office building developed by Silicon Valley mainstay Jay Paul Company, and the tommie and Thompson Hotels in Los Angeles where the team provided a combined total of $90.4 million in C-PACE financing to recapitalize the sister hotels, located in the heart of Hollywood. Due to the existing improvements and the buildings’ energy efficient construction profiles, C-PACE proceeds were used to refinance the existing note on the assets, enabling the Sponsor to dramatically lower their average cost of capital, while simultaneously allowing for the continued success of the Sponsor’s business plan.

Senior Director of Originations – West Coast Head, Cory Jubran said “We are very proud that C-PACE continues to be a cost-effective solution for today’s shifting CRE market and that we have had this level of success over the course of these last 12 months. This, paired with our team’s ability to work with strong West Coast sponsors and senior lenders, has helped contribute to C-PACE’s massive growth as it becomes a mainstream financing product in the west – and nationally.”

A few other notable transactions include:

Rendering of the Somm HotelNuveen Green Capital

$92 million in C-PACE financing across three asset classes as part of a 20-acre master planned large-scale development project, Harvest - northeast of Seattle, in Woodinville, WA – which includes $30 million in C-PACE financing for The Somm. Hotel & Spa, a 164-room full-service luxury Autograph by Marriott hotel, which will serve as the centerpiece of the development; $42 million in C-PACE financing for The Yard, a six-building retail, restaurant, and local winery destination, and most recently, $20 million for the River Run Townhomes, a 31-unit luxury townhome development. C-PACE was used to fund core building systems and seismic mitigation systems, enabling the Sponsors to significantly reduce the projects’ weighted average cost of capital.

$9.74 million in C-PACE financing for Keystone, a 74-unit, five-story multifamily development located in West Seattle in which NGC was able to reduce the Sponsor’s overall weighted average cost of construction financing to provide ~60% LTC construction financing, enabling the project to move forward while helping to add much-needed affordable housing in Seattle.

C-PACE can cover hard, soft and any associate costs of measures that improve the water and energy performance or resiliency of a commercial building, and it can be utilized for nearly all commercial buildings, including multifamily, hospitality, office, industrial and retail.

C-PACE is typically layered with senior bank debt or other forms of private capital, and can also be used alongside economic development incentives such as TIFs and historic and new market tax credits. The term and amortization of the financing match the expected useful life of the improvements or new construction infrastructure, which is typically 20-30 years. The assessment is fully prepayable, or transfers upon the sale of the property, and it can also be passed through to tenants where applicable.

While facilitating sustainability efforts, the program reduces property owners’ annual costs and provides significantly better financing terms than the available alternatives to fund CRE projects. And amid volatility in the capital markets, C-PACE provides one of the least expensive forms of construction financing available.

Benefits of C-PACE’s flexible capital

C-PACE’s flexible structure allows for it to fund commercial real estate projects pre-, mid-, or post-construction.

C-PACE can finance new construction projects to:

  • Reduce weighted average cost of capital
  • Replace more expensive forms of financing
  • Eliminate need for a participant lender
  • Provide incremental leverage

C-PACE can finance projects mid-construction to:

  • Fund construction cost overruns
  • Provide additional working capital for interest reserve deficits
  • Provide additional capital for future contemplated tenant improvements
  • Eliminate or reduce need for capital call or additional equity injection

C-PACE can finance recently completed projects post-construction to:

  • Recapitalize projects up to 3 years after completion
  • De-risk and paydown the senior lender
  • Bridge the gap for slow lease-up or to stabilize projects
  • Stabilize the asset with lower debt service by paying down expensive capital
  • Flexibility to push out debt service payments for ~3 years
     

Economic driver

C-PACE unlocks public policy benefits for development projects and serves as a tool for economic development and sustainability. Using 100% private capital, the program effectively utilizes public-private partnerships to drive investment, not only providing owners and developers significant financial benefits, but benefiting local communities and the environment as well.

NGC — one of the nation’s leading C-PACE capital providers, has funded over $3 billion of C-PACE capital into a large range of projects across CRE markets, asset types and stages of construction. As an increasing number of owners and developers are turning to it as a cost-efficient and flexible financing tool, C-PACE continues its growth trajectory as an attractive alternate form of debt in a capital constrained market.

To learn more about C-PACE financing, contact Cory Jubran, NGC’s senior director of originations at cory.jubran@nuveen.com, or Aidan McLaughlin, NGC’s director of originations at aidan.mclaughlin@nuveen.com, or visit: Nuveen.com/greencapital.