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Page 6 — Property Management Quarterly — October 2017
GRIFFIS BLESSING
• Full Service Property Management
• Construction Services
• Due Diligence
• Receivership
• Financial Services
5600 W. Quebec St, Ste 141B, Greenwood VIllage, CO 80111
(303) 804-0123
102 N. Cascade Ave. Ste 550, Colorado Springs, CO 80903
(719) 520-1234
Sustainability
A new financing mecha-
nism is gaining traction in
Colorado’s commercial real
estate community. Com-
mercial Property Assessed
Clean Energy, better known in
the industry under the acro-
nym C-PACE, has the potential to
improve net operating income for
property owners, reduce the cost
of capital for building improve-
ments, and attract and retain ten-
ants by reducing the overall carbon
footprint of properties. In growing
markets like Denver and Boulder,
C-PACE financing will increase the
availability of improvements that
generate energy with solar and cre-
ate energy efficiency in buildings,
without the upfront cost or short
durations of traditional commercial
debt finance.
Although C-PACE recently
launched in Colorado, it is based
off of the decades-old concept of
“improvement
districts.” Through
this voluntary
program, indi-
vidual commercial
property owners
agree to become
“members” of the
district. The dis-
trict then provides
funds from pri-
vate investors to
finance improve-
ments on com-
mercial buildings
in order to reduce
energy or water use or generate
alternative energy.
In return, the district levies a
tax assessment on the property to
repay the private investor, which
the property owner then repays
with his real estate taxes. More
than 17 counties covering 60 per-
cent of the Colorado population are
eligible for this
type of financing
and seven addi-
tional counties are
expected to opt-in
soon.
C-PACE solves a
number of prob-
lems that histori-
cally have prevent-
ed commercial
property owners
from implement-
ing energy-effi-
ciency retrofits
or environmentally minded new
construction projects, including the
following:
• Upfront cost. Given tightening
standards by traditional lenders,
financing for energy-efficiency or
solar improvements often don’t
cover the full cost of the improve-
ments. Even worse, some prop-
erty owners end up paying for the
improvements out of their capital
reserves. With C-PACE, property
owners can receive 100 percent
financing, including soft costs,
without any out-of-pocket expens-
es.
• Split incentives. Under most
triple-net commercial leases, the
tenants typically pay for the utility
expenses. If property owners reduce
utility costs with traditional debt (or
cash), they will see their common
area reimbursements drop, which
ultimately means lower net operat-
ing income. Because C-PACE is struc-
tured as a tax assessment, it can be
passed along to tenants under many
triple-net leases thereby solving the
split incentive.
• Short duration . Most traditional
financing options for solar PV
systems and energy-efficiency
improvements have a duration of
seven to 10 years, leading to annual
debt service payments that exceed
the utility savings. Because C-PACE
financing can be spread out over 20
years, projects typically will show
savings in the first year.
• Creditworthiness . For many prop-
erty owners, debt for these types of
improvements can be hard to come
by, unless the building is occupied
with credit-rated tenants or the
building’s owner puts up a personal
guarantee. Because C-PACE financ-
ing is based on the value of the
property, not on the assets of the
property owner, underwriting for
C-PACE transactions is focused on
income generated by the property,
not the personal financials of the
owner (and, therefore, there are no
personal guarantees).
• Investment. If a property is pur-
chased and held for investment
purposes, it can be hard to justify
taking on additional debt for proj-
ects that show a return on invest-
ment longer than the hold period.
C-PACE financing is nonaccelerating
and is automatically transferred to
the new owners upon the disposi-
tion of the property.
• Interest rate risk. Traditional debt
often carries an adjustable interest
rate, which makes it hard to fore-
cast future debt service payments,
especially for projects where the
property owner is looking to increase
net operating income. C-PACE offers
Joshua Kagan
Vice president,
business
development,
CleanFund
Josh Smith
Senior transaction
counsel, CleanFund
CleanFund