September 2019 — Office Properties Quarterly — Page 17 12789 Emerson St Thornton, CO 80241| |303.813.0035 INSPIRING PROJECTS ENSURING LASTING CLIENTS SEPTEMBER 5-18, 2018 Appetite Demand forsingle-tenant,net- leased retail remainsstrongacross theFrontRange INSIDE Bullish Apartnership“bullish”onDenver’s multifamilymarketbuys theSt. MoritzApartments ‘Rock solid’ Anoffice towerwithsomeof the strongestcredit tenancy inDenver trades for$238million 8 12 10 FEATURED byJillJamieson-Nichols One of the largestmultiten- ant net-zero-energy develop- ments in thecountrywillbegin togrowearlynextyearasMor- gan Creek Ventures starts the secondand finalphaseofBoul- derCommons. Inadditiontomoreofficeand retailspace, thenextphasewill include a 45,000-square-foot net-zero apartment building with38units. “We’ve been wanting to develop a highly sustainable multifamilyproject for anum- ber of years, and it seems like a really good fit across from the apartments at S’Park. So, both sides of the street will be resi- dential,” said Andy Bush, Morgan Creek Ventures founder and principal. Boulder Commons is a key piece of the Boulder Junction transit-oriented development at Pearl Parkway and Junc- tion Place, catty-c orner from Google’sBoulder c ampus.The first phase,with 100,000 sf of office space and ground-floor retail in two buildings, repre- sents Colorado’s first private net-zero commercial develop- ment. It is 78 percent leased to tenants including Rocky Mountain Institute, Lathrop Gage,CoreLogicandothers. “Giventhesuccesswe’vehad here,we’re very excited to get started early next year on the secondphase,”saidBush,who anticipates similarusers for the new 50,000-sf office building, which will have ground-floor retail. “We like building long-term assets that we can hold … Office seemed to be aproduct thatwasmissing in thispartof the market, and people were very receptive.” Plus, “There areanumberofcompaniesthat are interested in locating close to Google because they have somekindofbusiness relation- ship,”hesaid. Phase2willbe locateddirect- ly north of the existing build- ings,on the formerAirgas site. In order to acquire the prop- erty,MorganCreekdeveloped a build-to-suit for Airgas in Dacono. Boulder Commons’ new buildingswillemploythesame methods of achieving zero net energy consumption as Phase 1,withsomeupdates. “The thing that’s consistent in all of the buildings thatwe dototrytoachievehighperfor- Boulder Commons to add office, apts. Pleasesee Boulder, Page8 AndyBush The next phase of Boulder Commonswill include a 50,000-square-foot office buildingwith ground- floor retailanda large, two-storydeck,plusa45,000-sfapartmentbuilding. The three-buildingportfolio saw significant leasing activitywithin thepast 90dayswithmore than 76,000 square feetof renewals and SUBSCRIBE TODAY! Jolene Wollett | 303-623-1148 x103 | Delivered to you twice a month:  80+ pages of the latest news on Colorado’s vibrant commercial real estate market  Local News Sections: Metro Denver, Colorado Springs; Boulder County/U.S. 36 Corridor; Larimer & Weld Counties; Western Slope  Professional Sections : Finance & Appraisal; Law & Accounting; Property Mgmt.; Construction/Design/Engineering and Green Building  6 Quarterlies and a host of Special Spotlights  Subscriber-Only Access: E-Edition & Archives 2 YEARS 48 ISSUES $170 1 YEAR 24 ISSUES $95 OR SUBSCRIBE to Colorado’s only commercial real estate newspaper T he Colorado Commercial Property Assessed Clean Energy program has created a great way to finance energy efficient improvements to commercial buildings. C-PACE allows commercial property owners to finance energy efficient improve- ments and related costs through an additional voluntary special assess- ment on the property tax bill. An owner needs a participating lender to provide funding through a loan, which is then repaid from the annual property taxes. Eligible properties are commercial, including retail, office, industrial and multi- family, as well as nonprofits. As of August, 26 counties in Colo- rado have opted into the program, representing about 73% of the com- mercial building stock in the state. While still relatively new after being launched in 2016, C-PACE Director Tracy Phillips reports that 52 projects already have made use of the pro- gram, representing approximately $50.8 million in project financing. With a current pipeline of about 50 projects representing another $100 million in financing, it seems that the word is out on this useful financ- ing tool. It’s fair to say that the pro- gram was designed with the renova- tion of existing buildings in mind. However, the lesser-known function of the program is its ability to be used for new construction. Of the 52 projects, 43 have been for existing buildings, with nine new construc- tion projects financed to date. Lenders are embracing the use of C-PACE as part of the capital stack for new construction projects. With new construction representing only 12% of C-PACE projects closed to date, it appears that developers are starting to embrace C-PACE for new construction, which has numerous ben- efits. It can result in reduced equity requirements or reduce the first mortgage amount. From the loan side, the debt service for the loan has the added benefit of being considered an expense by most lenders. This is true because the loan is through the property taxes, rather than an additional debt payment, which can slightly boost debt service coverage ratios. Sizing of the C-PACE loan can be significant as well with a loan amount up to 15-20% of total eligible construction costs. Loan terms for C-PACE financing are favorable compared to alternate funding sources, which include equi- ty, mezzanine debt, preferred equity and, potentially – it pains me to say – mortgage or construction financ- ing. Loan terms are 20 to 25 years, with fixed rates to match. Margins have been around 3% over the 20- or 25-year swap rate. With base rates where they are right now, an all-in rate of around 4.5-4.75% is appeal- ing for 20- to 25-year fixed rates. An additional benefit in managing contingent liabilities is that only a completion guaranty is required. Denver-based developer Palisade Partners cites C-PACE as a contribut- ing factor in the feasibility of its lat- est mixed-use project about to break ground in Five Points, The Hooper, at 2600 Welton St. TimWelland, Palisade Partners development manager, cites three important advantages that C-PACE financing can provide: 1. Developers often are faced with decisions to achieve long-term energy efficiency, but require upfront investments. C-PACE helps finance these upfront investments, allowing the development to achieve better long-term energy efficiency. Adding energy-efficient measures also can increase Xcel EDA credits and can provide discounts to interest rates on agency loans. 2. C-PACE can help developers increase their loan-to-cost ratios as a secondary loan in addition to a con- ventional construction loan. C-PACE loans are generally at lower, fixed rates for 20-25 years, which can help to lock in lower borrowing costs dur- ing a time of low interest rates. 3. As C-PACE loans are repaid through tax assessments; these often can be passed through to com- mercial tenants as part of their com- mon area maintenance charges. This helps to offset the cost of servicing the C-PACE debt, something that is not generally available with tradi- tional financing. Potential developers should be sure to incorporate lease language allowing this. “For the Hooper project, Palisade will utilize all of these advantages of C-PACE, which has helped Palisade to develop a high-quality, energy-effi- cient building which will contribute to the revitalization of the historic Five Points neighborhood,” said Paul Brooks, Palisade Partners president. The benefits of the C-PACE pro- gram are numerous. Improving the building’s operating performance reduces operating costs in addi- tion to the potential of qualifying for utility incentives. By not value- engineering out the energy-efficiency improvements, the building is more valuable, more competitive and can drive higher lease rates. With the increasing competitiveness in the current employment market, a healthier and more comfort- able building attracts and retains tenants. ▲ C-PACE for financing new construction projects C-PACE Jarrod Schleiger Executive vice president, FirstBank Lenders are embracing the use of C-PACE as part of the capital stack for new construction projects.