While clean energy financing with commercial real estate pricing (C-PACE) is gaining traction across the country, the financing facility still has much more room to grow. However, the sector made headlines this week when the first C-PACE loan in New York – and the largest C-PACE loan in the history of a green finance source – was disbursed at 111 Wall Street.
Randy Eckers, chairman of Akerman LLP’s Real Estate Finance Group, views C-PACE loans as an important option for developers, property owners, investors and operators, given the potential for significant cost savings, but noted that they are held back by lack of awareness. On the market. He set out to educate real estate professionals, especially lenders, why C-PACE should be taken more seriously.
Eckers spoke with the Commercial Observer about the benefits of C-PACE and whether its expansion into New York will boost commercial real estate development.
Commercial Observer: What are the key benefits for developers and property owners with C-PACE financing?
Randy Eckers: From the point of view of a developer or property owner, there are several significant advantages. First, you get pretty cheap fixed rate financing for a fairly long time. So, in general, the time frame is 25 to 30 years. It usually coincides with the duration of the C-PACE loan-financed improvements, and the rate is usually 5 or 6 percent, fixed depending on the asset and market.
Given the current market conditions, which real estate sectors will benefit the most from C-PACE loans?
This is mostly great for any type of property that is about to start a construction or renovation project. Almost every asset class can use a C-PACE commercial loan, especially in New York where we have Climate Mobilization Act and all of these office buildings – and buildings in general – are trying to significantly reduce their carbon emissions over the next few years, and the cost of these improvements will result in lower carbon emissions for each of these properties. Many of them can be financed with a C-PACE loan.
Another type of property that can truly benefit from C-PACE right now is hospitality. If the hotel asset is in a new default scenario or training scenario with their senior lender, if they have completed improvements in the last three years during a typical lookback period, these costs can be refinanced with a C-PACE loan. The proceeds from this loan could be used, at least in the scenario I am talking about, to essentially take this property out of the default scenario with their senior lender.
How has the pandemic affected the C-PACE market as a whole?
Ironically, I think it really helped him because of the lookback period and the ability to use C-PACE essentially as a rescue capital instead of a much more expensive rescue capital.
Where do you see C-PACE moving next year as the economy becomes more open?
We have heard from numerous sources that the first C-PACE loan in New York was closed a few days ago. I think New York alone will cause a surge in sales nationwide; and I also think that as NYC assets start to use C-PACE and mortgage lenders start to get used to it, I really believe it will spread across the country. I think that as a result, significant growth is expected in the next few years.
Your firm was involved in the first C-PACE deal in New York State, which closed in May, to build a luxurious 65-room boutique hotel in the Hudson Valley. How important was this trade in terms of market opening?
It seems to me that C-PACE is currently in its infancy, and I think the real reason for this is because, even though it is approved in 38 states, it is simply not yet a well-known, unconventional funding option. All closing deals will eventually lead to more and more deals being closed in the future.
It is just unawareness right now; it’s a fight. People don’t know about its existence at all. Yesterday I just spoke to two friends who are real estate brokers in New York – and they are always great – and they haven’t even heard of it. So, overall, there just has to be education, and every deal that closes, including the Hudson Valley deal, I think just contributes to more and more product awareness.
What specifically makes New York attractive to some of these deals?
It is quite obvious that active development and renovation work is underway in New York. Depending on your goal, you can have anywhere from 20 to 40 percent of your hard and soft spending. But, if you do not comply with the Climate Mobilization Act, you will face significant fines.
What steps have you taken to educate real estate professionals more about C-PACE?
I’m sure people are already tired of hearing from me. I hosted a webinar for our hospitality group. We held it together with CastleGreen [Finance] – which is the creditor of C-PACE – and it had a New York state administrator, an engineer who works in the C-PACE space, and we also had a CBRE, so it had quite a lot of visitors. The main focus was on the use of C-PACE as rescue capital for hotel assets.
I was also interviewed on a podcast the other day. I mostly represent lenders, so I talk to them all the time about why this isn’t as scary as most mortgage lenders think. I talked to brokers, talked a little to the press. I talked a lot about this without stopping. I’m sure everyone, as I said, is tired of hearing this from me.