The objective of a C-PACE project
C-PACE has been designed to fulfill a void in the finance industry.
Financing significant capital improvements, such as a new heating and cooling system (typically depreciated over 20 years), presents a challenge for building owners. Improvements in net operating income (NOI) are often made by deferring necessary capital expenditure, leading to a minimum investment philosophy. These deferrals are often reconciled by a discount in asset value when the building is sold. This problem occurs because capital expenditure on key building infrastructure has to be either drawn from the balance sheet or financed on short-term notes of 5-7 years.
C-PACE financing uses the building’s energy savings to pay for capital improvements over a longer period, up to 25 years. A well-designed C-PACE project will encompass the “total” energy infrastructure needs of the building for the next 20-25 years — dramatically reducing energy cost while addressing capital expenditure needs over the same period. The C-PACE project should include any and all energy-related capital expenditure that is due (or will become due) over this period, in a comprehensive and holistic project that saves sufficient energy to pay for the improvements.
Best practice for C-PACE project development begins with an assessment of the building’s energy infrastructure to guide development of a balanced mix of energy conservation measures (ECMs), which include necessary capital infrastructure, to deliver a cash flow positive C-PACE lien that correctly positions the building for the next two decades. This will improve NOI and increase asset value, which will not be discounted during a transaction due to poor capital expenditure planning.
In this way, capital is preserved today to be deployed elsewhere and future risk to capital is mitigated by preserving the buildings value at the point of sale. If you are interested in understanding how a C-PACE project can preserve your asset value, we can show you how to finance capital expenditure through energy savings. To learn more, contact us for an overview.