In the ever-evolving landscape of commercial real estate, two pressing concerns loom large: getting creative with the capital stack due to interest rate pressure and meeting the market’s demand for sustainability. Balancing the financial bottom line while building above code can often feel like an uphill battle. However, a financial tool – retroactive Commercial Property-Assessed Clean Energy (C-PACE) financing -- is making waves in the CRE finance industry, offering a compelling solution to these challenges. This financing not only injects much-needed liquidity into projects but also rewards sponsors for building sustainably.
Unique Application of C-PACE Financing: Three-Year Reimbursement Window
Many property developers have faced a double whammy of cost overruns and maturing construction loans that are difficult to refinance. In this environment, sponsors need creative solutions to close the financing gap.
Retroactive C-PACE financing becomes the project’s savior by allowing reimbursement for eligible work completed anytime in the last three years, injecting fresh capital into a project. Eligible work includes energy efficiency, efficient plumbing, seismic resilience, and renewable energy improvements, which also meet sustainability benchmarks and decrease the annual operating expenses for the asset.
Key Benefits of C-PACE Financing:
- Liquidity Injection: Cash flow is the lifeblood of any project. This financing option infuses liquidity, easing financial strain, and enhancing project stability. Many clients use this injection of capital to pay down maturing mortgage debt in exchange for an extension.
- Budget Overage: With retroactive C-PACE financing, you can use funds directly to cover cost overruns, ensuring your project remains financially viable.
- Filling the Senior Lender Financing Gap: When senior lenders will only go to 60% LTC, C-PACE closes the gap to minimize outside equity.
One recent project demonstrates how C-PACE can be a creative, flexible solution for capital stacks:
Reset Hotel, a new hotel coming to the North Entrance of Joshua Tree National Park, used $11.2 million in C-PACE financing from PACE Loan Group to start construction. The 30-year loan was combined with a $7.5 million first mortgage, which resulted in a total LTC of 70%. PLG closed the loan in 37 days to allow construction to start.
In an industry that is constantly evolving, C-PACE financing is proving to be a transformative financial tool that addresses quickly changing capital markets while advancing sustainability goals. By tapping into energy efficiency dollars and allowing property owners and developers of all asset classes to reimburse themselves for past work spread financing over 20-30 years, this innovative financing mechanism empowers projects to thrive financially while making significant strides towards a greener, more sustainable built environment.
For those looking to build a sustainable and budget-friendly future, the path forward may just be through retroactive C-PACE financing.
Do you have a project seeking financing? https://paceloangroup.com/get-a-quote
PACE Loan Group (PLG) is a national leader in the C-PACE marketplace, providing direct C-PACE financing to commercial property owners. PLG benefits from institutional support from funds managed by AB CarVal, a subsidiary of Alliance Bernstein. The PLG team strives to educate property owners while providing expertise up and down the capital stack, from origination and underwriting to loan servicing. To learn more about PLG, visit www.paceloangroup.com.