In tough times, C-PACE funding always offers more potential, experts say
Closed during the pandemic, the historic Strand Theater in Pontiac, Michigan faced an uncertain future. But previous investments in energy efficiency have provided a lifeline.
The Strand was able to use C-PACE – clean energy finance valued by commercial properties – to retroactively fund and refinance these investments, essentially building the cost into their property taxes payable over time and freeing up money. money to wait for the pandemic.
While the pandemic and labor and supply chain shortages made the past two years difficult in countless industries, Michigan’s C-PACE program nonetheless had its best two years ever. in 2020 and 2021, with 28 projects closed, including the Strand.
This year, at least five local Michigan jurisdictions have seen their very first C-PACE project, and four more are expected to do so this year or early 2022. That’s according to Todd Williams, president and general counsel of Lean & Green Michigan , the company that administers C-PACE in the state, and recently winner of the Michigan Energy Innovation Business Council’s Company of the Year award.
“PACE was a form of rescue capital for [the Strand]. This has allowed them to refinance some loans, delay some payments, keep the business going until hopefully the pandemic is over, ”Williams said. “It was like a second mortgage on your house. You’ve already completed the projects, they’ve already been funded, and that’s a method in which they were able to withdraw capital. It wasn’t necessarily a big project, but without it it’s quite possible that an asset in this community would have closed.
As Strand’s experience shows, C-PACE can be a tool not only for installing solar power or making energy efficiency improvements, but also for providing financing in general, as it can immediately free up energy. capital that companies could otherwise have used for investments considered clean. related to energy or resilience. This potential can be even more attractive in uncertain and difficult economic times like the present time.
“Commercial PACE can be your funding tool to close a funding gap and meet energy efficiency goals at the same time,” said Cliff Kellogg, executive director of the C-PACE Alliance, during a panel at the Urban Land Institute’s annual conference in Chicago in October.
Mansoor Ghori, co-founder and CEO of Petros PACE Finance, told the panel that since many companies did not know how long the economic uncertainty and recession caused by the pandemic would last, they “refinanced their equity in using PACE, and have used the money to make sure they had enough capital to get by for as long as it took.
“Covid for the PACE industry was actually an accelerator,” Ghori continued. “When other sources of capital have been seized or withdrawn, [businesses] had to find other ways to carry out the projects. All of a sudden PACE became much clearer to them, they understood what it does, how they can use it. We grew our business by 300% during Covid. ”
Hotels and accommodations
C-PACE is particularly well suited to businesses hit hard by the pandemic, such as hotels and entertainment venues. PACE Nation organization.
During the Chicago panel, Kunal Mody, CEO of Blueprint Hospitality – which works on PACE funding with hotels – noted that during the pandemic, the tool “helped us remove our trapped equity and refinance it.”
Ryan Hoff, project manager at engineering firm Bernhard, highlighted during the panel a number of hospitality projects his company has worked with nationwide, including a 60,000-square-foot hotel in Wisconsin. which mobilized $ 4 million in C-PACE funding. In 2018, a Marriott hotel in Columbus, Ohio worked with Petros to secure $ 16.3 million in C-PACE funding retroactively, a project that was the second-largest C-PACE project in the country this year. that year.
Williams noted that Treetops Resorts, “a classic golf and ski resort,” became northern Michigan’s first C-PACE project, with a renovation that had been underway for several years. The resort has secured $ 2.9 million in funding from C-PACE for a complete energy efficiency overhaul that is expected to significantly reduce its carbon footprint and improve the visitor experience. A Comfort Inn & Suites in Michigan also called on C-PACE for upgrades last year.
Michigan has also seen C-PACE used for new construction, including for The Henry, luxury townhouses near Ann Arbor that have raised nearly $ 2 million in PACE funding for solar panels, lighting LED and other energy efficiency measures, in accordance with the marketing of the complex to respect the environment. young professionals. In September, construction began on a residential and commercial project in the Greek district of Detroit, which, with $ 13 million in C-PACE funding, is the state’s largest C-PACE project. One-fifth of the rental units in the project will be affordable housing, and it is considered essential to revitalize this part of the city.
Williams said senior residences are particularly well suited to funding C-PACE, and Michigan has entered into four such deals this year with one on the way.
“It has become a trend nationwide where senior housing projects are taking advantage of PACE,” he said. “These are usually very long term installations; this fits well with the design of the property and how the property will be used.
In total, Michigan has seen C-PACE support 52 projects totaling $ 115 million since 2015, with 17 projects this year alone. The investments included at least 13 solar installations, three charging stations for electric vehicles and two green roofs, as well as numerous revisions to energy efficiency and energy storage. Williams said he still saw C-PACE as it did when it started, but was growing fast.
“It’s just starting to carry on a bit more. We don’t have to wave the flag so strongly – a lot more flags are being waved, ”he said.
Across the Midwest
At least 38 states have laws authorizing commercial financing of PACE. Once a state has passed such enabling legislation, local jurisdictions must pass their own ordinances to actually deliver the program. In the Midwest, Ohio, Michigan, and Minnesota have strong programs, Illinois has a fledgling program, and Indiana, Iowa, and Kansas currently do not have C-PACE enabling legislation, although efforts are underway in Indiana, according to the C-PACE Alliance.
Wisconsin’s rapidly growing C-PACE program saw at least one major project during the pandemic, as developers at Oscar Mayer’s former headquarters in Madison, Wis., Used $ 7 million in refinancing C-PACE to revise windows, lighting and other efficiency measures in the mixed environment. use OM Station, which now rents to industrial, office and “creative” tenants.
Chicago, Philadelphia and Pittsburgh are among the cities that have launched their programs in recent years. The need for local legislation means that the process of rolling out C-PACE projects is slow, but advocates hope it gains importance and becomes a priority for local leaders, especially given the particular potential it has. supply in today’s economy.
“Funding for C-PACE involves no public money,” Ghori said. “The role of state and local government is simply to approve the availability of this type of funding. “
Business organization PACE Nation says on its website that in total more than $ 2 billion has been invested in 2,560 business projects nationwide, with energy efficiency accounting for 49% of the investment and renewable energy. 23%. Cumulative investment increased from just over $ 100 million in 2014. California leads the cumulative investment rankings with $ 625 million, followed by Ohio with $ 376 million. Minnesota and Michigan were sixth and seventh, and Wisconsin was 11th, although current investment totals are likely higher.
Illinois passed a law authorizing PACE in 2017 and updated it in 2019 to include resilience among the categories eligible for funding. In 2019, before the pandemic took hold, Eric Alini, CEO of Counterpointe Energy administering C-PACE in Chicago, predicted that “2020 will be the year of PACE in Chicago”. In May 2020, a pig slaughterhouse owned by the JBS company in Illinois launched its 2.6 megawatt solar installation made possible by C-PACE funding.
Alini said a dozen capital providers have signed up to provide funding for Chicago’s C-PACE projects, environmental groups have helped raise awareness, and the queue for potential projects is growing.
“Commercial PACE is a strong financing option in any market because of its ability to fill a gap in a development’s capital stack or help turn a capital expense into an operating expense,” Alini said. “However, in this market, it becomes even more true as mortgage lenders take a more conservative approach to their portfolios. “
“We are now at the tipping point,” said Ghori, “where we have enough states and enough live programming – we’re starting to grow this market exponentially. “
Experts on the Urban Land Institute panel said they hope companies see greater potential for C-PACE, considering it for larger operations. Ghori highlighted his company’s $ 90 million C-PACE deal in the upscale 111 Wall Street office building in Lower Manhattan, calling it a “watershed moment for PACE.”
And the investments that C-PACE makes possible may be more valuable than ever given climate-related goals and the difficulty of attracting and retaining commercial tenants in the post-pandemic business landscape, with many people still working on it. residence.
“The good news is we can have our cake and eat it too with PACE trade funding,” Kellogg said. “It is desirable to have energy efficient properties to attract tenants, and also on the regulatory side, it is a request that most of us see as a must. In other words, we are both drawn into this need for energy efficiency and pushed for it at the same time, both as a good business practice and a regulatory requirement.