CastleGreen Financing/ X-Caliber Capital, through the use of C-PACE (Commercial Property Assessed Clean Energy) financing program requirements, provide private capital for building construction and renovation projects. These projects lower development costs through the deployment of lower cost capital. This will reduce future operating costs by virtue of sustainable energy efficient solutions and controls. The principals about C-PACE Financing requirements contribute towards the overall concepts of Green Energy in its consideration of environmental impacts, including economics and public health.
Working Together for Sustainable Energy and Efficient Use of Resources
Collaboration of Asset Development & Sustainable Energy Solutions
C-PACE Financing is a rare financial instrument where culture and economics join hand in hand. It provides a connection between the strong cultural momentum behind green environmental initiatives and the economic motivation to help property owners adhere to more stringent building code requirements, as well as to meet the needs of its tenants and users. Property Owners enjoy lower cost of capital, building efficiency and resilience while its users benefit from a healthier environment.
Building Efficiency, Environmental Preservation & Physical Wellbeing
C-PACE Financing programs promote Environmental, Social and Governance (“ESG”) initiatives by helping owners save electricity and reduce water consumption, decrease carbon emissions and enhance economic development while also creating jobs. The Center for Clean Air Policy states that buildings account for roughly one-third of global greenhouse gas emissions and consume 40% of the world’s energy making it a key target for improvement towards environmental preservation. While C-PACE Financing is deployed one property at a time, it provides a significant financial solution for continued enhancement of greener building code requirements across the country.
C-PACE stands for ‘Commercial-Property Assessed Clean Energy’. It’s a program legislated at the state and municipal levels allowing private investments to provide financing exclusively for energy efficiency and sustainability construction and improvements to commercial buildings. This public-private partnership was initiated to encourage investors to provide capital for the purpose of promoting commercial building energy efficiency and improving building systems as well as strengthening the physical structure of commercial real estate properties.
C-PACE may be used to finance building improvements that contribute to energy and water savings, as well as resiliency or “risk mitigation” such as seismic improvements or wind resistant improvements. Light to heavy renovations, gut rehabs, adaptive re-purposing and ground up development projects can utilize C-PACE financing as part of the capital stack.
There are several advantages provided by the C-PACE that are superior options to more traditional real estate financing instruments.
- Long term, fixed rate financing provides predictability of borrowing by a reduction of carrying costs, in addition to a hedge against future increases in market rates.
- Flexible prepayment options are available allowing property owners more freedom in their buy-hold decisions, as well as, easing the refinance burden.
- C-PACE financing is property-based and non-recourse to the property owner with no financial covenants. Since it is property based, there is due on sale and the C-PACE is freely transferable to real estate buyers.
- C-PACE is processed as a real estate tax and as such is treated as a property expense, as opposed to contingent liability against the owner’s balance sheet.
- Financing costs may be offset by recovery through tenant tax reimbursements on retail, office or industrial assets or green room taxes/fees on hospitality assets.
- Many jurisdictions have “lookback” features of one to three years. This provides the ability to access liquidity for energy efficient improvements that have already been completed without refinancing the entire capital stack.
- C-PACE financing is a low-cost alternative to expensive construction first mortgage debt or mezzanine debt.
- C-PACE assessments by definition have quantifiable savings and the result is increased building value, lower operating expenses and a better building for tenants which makes it a stronger asset for both building owners and mortgage lenders.
The financing is similar to other long-term, self-amortizing, fixed rate financing instruments historically used in commercial real estate. Terms generally range from 10 to 30 years and are underwritten consistent with the Estimated Useful Life “EUL” of the improvements for which they finance. At closing, the stream of interest and amortization payments are converted into a voluntary, non-ad valorum real estate tax or special assessment. The payments are subsequently collected as part of the real estate taxes collected by the municipality. Funds are administered through an investment grade rated trust or escrow account and released in accordance with draw requests from the general contractor or property owner.
- Installation and maintenance of high efficiency HVAC, including new heat pumps, water heaters, chillers, central air conditioning, building automation, and “smart” thermostats.
- Modernized lighting technology like LED and Compact Fluorescence lighting for both indoor and outdoor use. LED and Fluorescence Lighting use less energy and produce far less heat.
- Water Conservation is a big part of energy efficiencies through the use of low-flow faucets, shower heads and toilets, irrigation controls and high efficiency sprinkler systems.
- Installation and updated resiliency measures improve structural integrity related to wind mitigation, seismic strengthening, wind and impact resistant doors and windows.
- The building envelope includes a variety of eligible items through the insulating features of high efficiency glass, insulating doors, solar control window film, updated thermal insulation material, solar reflective cool roof panels and fluid silicon coating systems.
- Renewable Energy Improvements include (but are not limited to) solar system installations, wind turbines, grey water recycling, charging stations, and energy storage systems.
Frequently Asked Questions
No. Although C-PACE assessments become a real estate tax obligation of the property and functions as a property expense, they may also be prepaid, thus creating a win-win situation for the property owner. The prepayment flexibility in C-PACE transactions allow the Borrower to eliminate the property obligation if they choose upon sale or refinance like a mortgage or mezzanine debt and therefore do not have a negative impact on the market value of the property. In fact, the energy efficient improvements financed by C-PACE serve to reduce utility costs permanently and increase property value.
Can I combine C-PACE with other energy related incentive programs and other rebates, grants or tax credits?
Yes, in fact C-PACE is complementary with other incentive programs and tax relief programs. The C-PACE provider does not participate in the benefits of any utility or property-based incentive program, leaving the benefits of such to the property owner. CastleGreen is supportive of the use of utility incentives and tax benefit programs to enhance energy efficiency, renewables and water conservation measures.
In the vast majority of the United States, C-PACE may be used retroactively for a period of time after completion of a C-PACE eligible renovation or new construction completion. Retroactive periods typically range from one (1) year to three (3) years after completion or certificate of occupancy. Please inquire about the specifics of your property’s location.
Yes. C-PACE contains no due on sale provisions and may remain in place through a sale and/or refinance of the property. The C-PACE is freely transferable to the new owner without approval or transfer fees.
Yes. The C-PACE is secured by an assessment against the tax identification of the fee ownership parcel(s). A C-PACE may qualify for a leasehold improvement with the consent / participation of the fee owner.
Yes. Certain soft costs i.e., architectural costs, permits, development fees, etc. may qualify for C-PACE financing in conjunction with the financed hard costs. In addition, all fees, closing costs and payment reserves associated with the C-PACE transaction may be included in the financing.
Over 200 national, regional and local mortgage lenders have consented to and participated in C-PACE transactions. This list and the acceptance of C-PACE as a beneficial part of real estate capital stacks continue to grow. They include prominent lenders like JP Morgan, CIBC, Housing and Urban Development (HUD), US Department of Agriculture (USDA) and other banks, insurance companies, credit unions and private lenders.
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