Using C-PACE finance for escalatable capital expenditure
Acknowledging that passing through escalatable capital expenditure is a difficult conversation for asset manager and tenant alike, it may be warranted when the expenditure reduces operating expenses for tenants, and the resulting benefit should be shared between tenant and owner.
If capital expenditure is to be passed through, it is typically amortized over the expenditure’s useful life, subject to the specific language of the lease. However, there is now an alternative. Using the C-PACE finance program achieves the same outcome by applying the capital expenditure loan to the building through a property tax assessment. The extent to which the assessment is passed through to the tenants depends on a careful review of the lease and ensuring that the combined package of energy conservation measures and necessary capital expenditure provides demonstrable energy savings that can be translated into a reduction in operating expenses.
If your building is approaching a significant capital expenditure, we can provide a comparison between traditional bank or balance sheet financing passed through as an escalating capital expense, to a balanced portfolio of energy conservation measures financed over 20 years and collected as a property tax assessment, which can be passed through to tenants because they reduce operating expenses.
To understand the advantages of using C-PACE, contact us. We specialize in developing C-PACE energy efficient building retrofits that achieve this balance of reducing operating expenses while including necessary capital expenditure.