C-PACE Program Finds Favor with Property Owners, Investors
As most commercial real estate professionals know, occupancy is a major concern for office property managers and owners. After all, high vacancy rates drag down rents, along with the building’s net operating income.
A new state program can help. It’s called Commercial Property Assessed Clean Energy, and it can boost a property’s competitiveness by improving tenant comfort, lowering energy costs and advancing sustainability.
What is Colorado C-PACE? A program of the New Energy Improvement District, Colorado C-PACE makes it possible for commercial building owners and real estate developers to obtain affordable, long-term financing for energy efficiency, renewable energy and water conservation improvements. Anything that saves energy, creates energy or saves water is eligible, as long as it will be permanently affixed to the property.
How does C-PACE benefit property owners? C-PACE funds up to 100 percent of a project’s costs – both hard and soft costs may be included – so there are no upfront, out-of-pocket costs. The terms are commensurate with the weighted average estimated useful life of the improvements, which can span up to 25 years, making it highly affordable. The financing is secured with an assessment on the property – similar to a sewer assessment, except that it’s voluntary – so the owner is not required to sign a personal guarantee, and the assessment, which is billed and repaid along with the property taxes, may be transferred to a new owner in the event of a sale. This latter benefit is particularly attractive to investors, who often won’t hold on to the property long enough to realize a return on investment from the energy cost savings.
Best of all, in many projects, the energy cost savings stemming from the improvements outweigh the C-PACE payments, resulting in a cash-flow-positive project that improves the building’s NOI.
Before committing to a project, property owners will review financial and energy savings projections that have been independently reviewed by a third-party program administrator, so they can confidently determine whether the project will meet their goals.
Who’s using it? To date, 13 projects valued at approximately $15 million have been financed through Colorado C-PACE. Most of those projects were for office properties.
- The Denver offices of W.E. O’Neil used C-PACE to upgrade the building’s lighting, plumbing and electrical systems; install a new heating and cooling system; add a roof-mounted solar photovoltaic system; and a new roof with enhanced insulation. The $519,936 project is expected to reduce the building’s energy use by about 24 percent. Long Building Technologies, in partnership with Lever Energy Finance, developed the renovation project. Twain Financial provided the financing.
- Room 214, a digital marketing agency with offices in Boulder, used C-PACE financing totaling $296,000 to install energy-efficient lighting, a new heating and cooling system, a solar PV system, a new roof to support the system and electrical vehicle charging stations. The improvements boosted the building’s value by an estimated $165,333 and will reduce its greenhouse gas emissions by 1,869 tons – the equivalent of removing 358 passenger cars from the roadways for one year. CleanFund provided the financing for the project, which was developed by Energesco Solutions.
- Coughlin Property Management is using $286,148 in C-PACE financing to install energy-efficient lighting in two adjacent office buildings in Denver. The project will save the property owner more than 313,507 kilowatt hours in electricity each year, which amounts to $42,896 in annual energy cost savings. Next Step Energy Solutions developed the project; the financing was provided by Colorado LED Lighting.
- John Madden Co. will overhaul two of its office properties in Greenwood Village. The comprehensive retrofit will include replacing rooftop units, upgrading controls, revamping lighting, updating water fixtures, installing next-generation metering of tenant spaces, pursing LEED Existing Building certification, and kicking off a three-year Active Energy Management Program. The $7.1 million project is the largest to date for the Colorado C-PACE program. The building owner is projected to save $385,000 in annual energy and maintenance costs – a 30 percent savings. The project is a collaboration between John Madden Company, the owner of both buildings; McKinstry, an energy service company and design builder; Bellco Credit Union, the project financier, and Integro, which sourced and secured the C-PACE financing and managed the C-PACE process for the owners.
- Ogilvie Properties, a commercial real estate investment company, used $2.3 million in C-PACE financing to install energy-efficient equipment at two of its investment properties in Denver. Company president Stu Ogilvie said that C-PACE enabled his team to expand the scope of its retrofit project. “The financing stays with the property, so it increases our ability to make our buildings better,” he said. Integro sourced the projects, secured the C-PACE financing, and managed the C-PACE process for both properties. ANB Bank funded the investments.
- An 80,000-square-foot Class A office building in Denver received $1.1 million in C-PACE financing to install energy-efficient lighting, window tinting, heating and cooling units, and building controls. The project is projected to improve the building’s energy efficiency by 38 percent. Lever Energy Finance developed the project. Greenworks Lending funded the investment.
With another 71 projects valued at more than $80 million in active development with Colorado C-PACE, the program is gaining momentum. Office property owners, managers and investors can learn more and apply for free at copace.com.
Helpful tips when applying for C-PACE financing
- The cost of necessary equipment replacement often can be offset by the energy cost savings of other measures. Ask your contractor or a Commercial Property Assessed Clean Energy project developer (find a directory at copace.com) to model different scenarios.
- You can use Colorado C-PACE to add certain amenities to your building, such as an electric vehicle charging station or green roof.
- If your existing contractor isn’t registered with the program, he can easily apply. Registration requires attending a free, half-day workshop.
- Since Colorado C-PACE enables an open market for financing and has more than 20 participating capital providers, be sure to select the one that offers the best fit for your needs.
- Expect a timeline of approximately 45-60 days for closing from initial engagement, which includes collaboration with the developer/contractor, mortgage holder discussions (as needed) and engagement with a qualified capital provider. Some projects take less time, some take more time – largely based on the complexity of the proposed measures.