C-PACE financing: when should you use it?
C-PACE stands for Commercial Property Assessed Clean Energy. It’s a program that uses private finance for building retrofits and new construction, like normal funding, except that it is turned into a property tax assessment on the building and collected by the county.
So why would a building owner want to do that? Well, to start, the term is 20 years, and because C-PACE is structured as a property tax assessment, it’s a loan on the building, not the owner. If you sell the building, then the assessment transfers to the new owner. This keeps the loan off your balance sheet — allowing you to spend your capital on other things besides a new HVAC system. C-PACE assessments are also non-recourse and non-accelerating, so they’re pretty low risk.
Great, I hear you say. But what’s the catch? Well, it’s in the name: clean energy! For building retrofits, 70% of the project has to be related to energy efficiency. For new construction, C-PACE can be used as a smart replacement for expensive mezzanine debt.
So, let’s say you own a 50,000 square foot building valued at $10,000,000 and that this building needs a new HVAC system ($700k), LED lighting ($150k), and a building automation system ($150k). You can fund all $1,000,000 of this CapEx through C-PACE, turning it into a property assessment, on a 5-7% fixed-rate loan against the building over a 20-year term. Some or all of the C-PACE assessment can be passed through to tenants, that’s your choice. However, if the design engineering is done right, then the annual C-PACE assessment will be more than offset by the utility bill savings.
It’s not much of a catch…. Of course, you need someone to work through the energy audit, design engineering, financial analysis, and wade through the admin — but that’s what we do. We are C-PACE project developers that expertly guide building owners to finance capital expenditure through energy savings. To learn more, contact us for an overview.