C-PACE: At the Intersection of Real Estate and Sustainability
By Laura Yablon Rapaport
Sustainability has become a key metric by which companies and investors measure success. While some industries, such as transportation, have long been scrutinized for their impact on climate change, that lens has only recently been directed towards real estate – and with good reason: buildings are responsible for ~40% of greenhouse gas emissions globally, and close to 70% of emissions in urban areas.1 To stay competitive, real estate stakeholders have started setting sustainability goals and evaluating an asset’s environmental impact alongside its financial performance. As sustainability metrics are standardized and reported, greener buildings will become increasingly desired by tenants and investors.
It’s clear that sustainability is important, but the commercial industry needs more financing products to facilitate the green improvements we need. C-PACE (“Commercial Property Assessed Clean Energy”) is an effective option and one of the fastest growing green financing products in the space. As a leading specialty finance group, North Bridge supports commercial developers and property owners with green financing, so that they can qualify for higher proceeds at lower rates, while reducing their operating expenses.
C-PACE will help to bridge the gap between institutional real estate investors and their sustainability goals. C-PACE gives borrowers low-cost, long-term, fixed-rate, flexible financing in exchange for making clean energy and water efficient improvements to projects. Developers and property owners appreciate an alternative financing option that is structured to help them meet sustainability goals, attract, and retain tenants, and improve their projects’ bottom-line.
C-PACE loans are a passive form of financing that has no ongoing or covenants or cash flow tests. Additionally, financing is fully pre-payable and fully transferable, even upon a sale. Interest and amortization payments are paid back through real estate taxes over a duration of roughly 25 years (the useful life of the improvements). In many cases, a portion of the cost of the financing can be passed back to tenants who benefit from lower operating costs, and the improvements can be to attract tenants who want space in a more sustainable property.
Currently, C-PACE is available in over 30 states, and is continuing to expand. We expect NYC, New Jersey, Tennessee, and Hawaii to launch programs by year end. Additionally, most programs allow retroactive financing for projects completed within the last 1 to 3 years. C-PACE can help fund projects that need renovations, new construction, refinancing for construction loan take-out and/or passive rescue capital.
Laura Yablon Rapaport is founder and CEO of North Bridge, headquartered in New York City.