C-PACE Use for Multifamily: Q&A with EcoSmart Solution’s Lucas Nagy

The Commercial Property Assessed Clean Energy (C-PACE) financing tool was introduced in California in 2008 through the passage of Assembly Bill 811. Since then, other states have passed their own C-PACE legislation. C-PACE financing is available in 33 states; five more have approved enabling legislation.

Connect CRE recently asked Lucas Nagy, vice president of structure finance with EcoSmart Solution (Taurus Investment Holding’s energy platform), to discuss the connection between C-PACE financing and multifamily construction and improvements.

Connect CRE: How does C-PACE differ from other forms of financing, such as banking, private funds or mezzanine loans?

Lucas Nagy: Unlike other types of property-secured debt, C-PACE is, by statute, property assessment financing. Property assessments run with the land, with principal repayments non-accelerating. These features provide accounting and transactional flexibility for multifamily property owners. In fact, C-PACE is helpful for multifamily projects, as it can provide 100% project financing with amortization and rate terms similar to mortgage financing but without having to refinance a senior mortgage.

Additionally, C-PACE can be used for new construction in most states. The financing can enhance project leverage, while repayment structuring options can improve proforma equity returns. For example, think 10-year interest-only followed by 20-year amortization.

Connect CRE: What are the typical projects that C-PACE financing covers?

Lucas Nagy: In most states, C-PACE is approved for energy efficiency, renewable energy projects, building modernization and climate resiliency. For example, in California, C-PACE can be used for improvements to boost wildfire and earthquake resiliency and sustainability enhancements such as water-use reduction, geothermal exchange for HVAC and onsite solar electricity generation.

Connect CRE: What are the challenges of C-PACE?

Lucas Nagy: The primary barrier is that most states require senior lender consent for voluntary property tax assessments. If the lenders view C-PACE-funded improvements as increasing their collateral value after reviewing the projects, they often approve assessments. Other good news is that the list of C-PACE-approving vendors continues to expand. Additionally, C-PACE financing starts making sense for projects above $2 million.

Connect CRE: What else can you add?

Lucas Nagy: First, property NOI is enhanced for any multifamily energy efficiency and solar project in which the annual cost of the C-PACE assessment is less than the energy savings those improvements provide.  NOI enhancement means potentially higher property value. If the numbers make sense,  don’t wait to implement your improvements; any delay might leave money on the table.

Second, while C-PACE is considered long-term financing, it can be refinanced in most states. One beneficial strategy in high-interest rate environments is negotiating better prepayment terms after 36 months.

An earlier version of this article was published on ApartmentBuildings.com.