Commercial Property Assessed Clean Energy (C-PACE) loans have come to New York City, giving property owners another tool to boost struggling properties.
Chair of Akerman’s Real Estate Finance practice, Randy Eckers, thinks the program’s arrival in the nation’s largest city will help boost its profile.
“I think just people are just becoming a little bit more aware of it,” Eckers says. “They should be much more aware of it, but New York City is coming online. Once New York City comes online, I imagine that the awareness of the program will increase across the country. At least, I hope it will.”
Generally, these 20- to 30-year fixed-rate C-PACE loans offer interest rates in the 5% to 6% range, usually lower than private equity rescue capital. Additionally, they don’t require personal guarantees. It gets put on the tax rolls of the property.
“It is an excellent product and a really good nontraditional financing option,” Eckers says. “It’s in 38 States at this point. It’s a bit of a head-scratcher as to why it’s not more frequently used.”
Eckers says the most significant challenge with C-PACE loans is borrowers’ lack of understanding, familiarity and comfort level in the marketplace.
“The commercial real estate space needs to become more aware of this tool,” Eckers says.” I just think it would be very helpful for a lot of projects.”
However, two trends, recovery from the pandemic and the environmental, social and corporate governance (ESG) movement, could drive more adoption, according to Eckers.
During the pandemic, sectors like retail and hospitality have suffered.
“Many hospitality properties are obviously struggling right now,” Eckers says. “Lots of those same properties have done pips [property improvement plans] or they’ve done developments in the last number of years.”
Since many of the C-PACE programs throughout the country have a look-back period of around three years, borrowers have flexibility. “If any of those developers or property owners have done any improvement work over the past three years and those improvements would have at the time qualified for C-PACE financing, you could still get the financing on those because of the look-back provisions,” Eckers says.
To qualify for the loan, the property owner needs to get consent from its senior lender.
“You put a C-PACE loan on the property, and you can use the proceeds to partially pay down your troubled loan that you’re in,” Eckers says. “Most of these hospitality owners are in this situation. It’s being used as rescue capital in those scenarios.”
Right now, Eckers says a lot of hospitality owners are going out of pocket to cover their debt service. “They’ve had various reserves held with these lenders that are being used to pay that service,” Eckers says. “A lot of these owners could use C-PACE to get themselves out of trouble with these loans.”