CREJ - Healthcare Properties - JANUARY 2017
Colorado has gained a well deserved reputation for its commitment to green buildings. Business owners who are motivated by corporate responsibility have invested in green buildings and enjoyed marketing, recruiting and other reputational benefits. LEED certification has been the hallmark of the most environmentally friendly buildings. For these owners, the reputational benefits can outweigh the lack of an immediate financial return of investing in energy upgrades. Yet there are real, quantifiable returns for energy upgrade investments as part of the bottom line of operational costs. Many commercial building owners are unable to self-fund capital-intensive energy improvements. Health care providers might rank energy improvements as lower priority over other pressing facility needs, especially when facing the barrier of the perception that the upgrades will require an upfront investment, potentially taking money away from another project or require financing. Many typical bank loans require a down payment of 10 to 20 percent of the project cost and may also require a personal guarantee. Loan repayment terms are usually five to seven years. These typical bank loan terms generally result in negative cash flow, which leads building owners to postpone projects until equipment fails and/or ongoing maintenance and repairs are no longer feasible. Colorado’s Commercial Property Assessed Clean Energy program, known as C-PACE, solves this vexing problem by offering building owners “no down payment,” longterm, 100 percent project financing. The financing is secured by an assessment on the property (similar to a sewer assessment) and the repayment obligation transfers to a new owner when a property is sold. The building owner has no personal liability. While C-PACE is a statewide initiative, projects can be implemented only after the county in which the property is located has opted into the program. Launched last year, eight counties already have opted in to C-PACE. These include Adams, Arapahoe, Boulder, Broomfield, Denver, Eagle, Jefferson and Pitkin counties. Ten other counties are actively reviewing the benefits of C-PACE and are expected to join the program in the coming months. For more information, visit www.copace.com. • Existing buildings. C-PACE will finance up to 100 percent of energyefficiency, renewable energy and water conservation-eligible projects. Financing is provided by private capital providers at competitive rates with repayment terms up to 20 years. The program also provides financing for new construction. For health care providers operating facilities that consume energy 24/7 and require redundancy to ensure uninterrupted operations, the great news is that they can utilize C-PACE to fund facility upgrades that will vastly improve performance, reduce operating costs and increase immediate cash flow by leveraging programs such as the federal PATH bonus depreciation option. What can be most exciting for a health care facility manager is that there is no upfront out-of-pocket expense! Eligible energy projects include HVAC and plumbing upgrades, new energy-efficient lighting and building envelope efficiency upgrades, including solar and roofing upgrades. Water saving measures such the installation of permanent low-flow fixtures are also eligible. A complete list of eligible projects is available on the Colorado C-PACE’s website (copace.com/resources/#eligible_prop). The financing approval process requires the mortgage holder’s consent (if applicable) and involves submitting a prequalification report, which can be facilitated by a C-PACE registered contractor or by the program administrator. A contractor experienced in sustainable construction and who understands the demands and operations of a health care campus environment adds value to a project team embarking on energy upgrades because he can test out how the proposed improvements rank on constructability and cost. This ensures better decision-making for the right equipment or systems, and proper phasing or bundling that will provide the most optimal energy efficiency or renewable energy measures. The C-PACE program administrator will work with the owner, designer and contractor team as appropriate to confirm a final project scope and cost. The owner can use a preferred capital provider or, alternatively, the program administrator can request quotes from multiple capital providers that have been prequalified to finance C-PACE projects. • New construction. New construction project financing is also available. C-PACE guidelines require new construction projects be designed to exceed a county’s existing building energy code. Projects deemed eligible can finance up to 20 percent of the total new construction cost via C-PACE. This unique application of the C-PACE financing mechanism will open the door for innovative design features that are typically “value engineered” out of a project due to construction budget constraints. Renewable energy projects can be key component of new construction projects, which may include solar photovoltaic panels, energy storage, ground-coupled systems and small wind systems, among others. Energy efficiency and renewable energy projects have long been accepted as providing significant tenant/facility benefits. C-PACE provides a financing tool that not only achieves these goals but also improves the financial health of the business by creating positive building cash flow.