Last week, Greenworks Lending closed on an additional $150 million in funding for its investment grade rated portfolio of Commercial Property Assessed Clean Energy (C-PACE) assets. This was a strong signal to the market that even amid times of economic instability, C-PACE assets offer an enduring, secure financing solution.
Institutional Investors like C-PACE transactions due to its steady, long-term cashflows; low prepayment rate; and the senior-secured position its lien has on commercial properties — which is senior to mortgages with respect to due and unpaid amounts. Investors see C-PACE as a secure investment because the financing is repaid on the property tax bill allowing lenders the ability to offer better interest rates and longer repayment terms than are otherwise available. In addition, historically, there have been no losses and only a small percentage of temporary delinquencies. C-PACE is also a good investment for those looking to improve upon and meet sustainability investment objectives – especially as the ESG sector becomes more prominent.
Since the inception of the C-PACE industry in 2009, there has never been a more challenging time for the commercial real estate industry than the one we are currently facing with the COVID-19 crisis. Commercial building owners and developers are finding that traditional sources capital are drying up as they look for solutions to fund their deferred capex work and fill their capital stack. During this time of economic volatility, investors that invest in C-PACE transactions are helping small business owners save on operating costs, improve the value of their property, and create jobs — all of which will have a significant impact on reviving the economy. C-PACE can also be an effective tool for economic instability by providing retroactive financing that can reimburse property owners for recently completed C-PACE-eligible projects, providing property owners much needed liquidity during the COVID-19 fallout.
As a nimble financing structure, C-PACE can be an advantaged source of capital in times of economic prosperity and volatility. C-PACE makes it possible for commercial property owners to obtain low-cost, long-term financing for energy efficiency, water conservation and renewable energy projects. The program starts with a state-level government policy that classifies clean energy upgrades as a public benefit. These upgrades can be financed with no money down and then repaid as a benefit assessment on the property tax bill over a term that matches the useful life of improvements and/or new construction infrastructure. The assessment transfers on the sale of the property and can be passed through to tenants where appropriate. While facilitating sustainability efforts, the program reduces property owners’ annual costs and provides dramatically better-than-market financing for green new construction. As mentioned, during times of economic uncertainty, C-PACE refinancing provides liquidity for businesses by reimbursing property owners for recently completed C-PACE-eligible projects, freeing up capital for operations and reserves. C-PACE can also fill funding gaps in new construction, gut rehab, and retrofit projects – solving issues with construction delay, cost overruns, and lender/investor pullback. And in some cases, capital providers can offer repayment delays up to 24 months.
The versatility and agility of C-PACE are part of what continues to make C-PACE a quickly growing asset class. As we continue to ride out the storm from COVID-19, it is clear that C-PACE has a large part to play in the revitalization of the commercial real estate industry for property owners, developers, and investors alike.