Commercial Property Assessed Clean Energy (C-PACE) is an innovative financing program that is gaining popularity across the U.S., as it offers a low-cost, long-term capital solution that doesn't require upfront equity from the property owners. The central appeal for using this program for energy-efficient upgrades and retrofits is that any level of C-PACE used will lower the overall cost of capital compared to mezzanine, third-party equity or even many senior loans. This is impactful for commercial property developers.
In the current market, the cost of capital has increased significantly, along with higher interest rates and wider spreads from lenders. In addition, higher financing costs put pressure on loan-to-value (LTV), loan-to-cost (LTC) ratios, and the amount of capital lenders are willing to provide, reducing liquidity for new developments. Construction costs have also increased significantly with back-to-back years of double-digit increases, with further increases in 2023 as CBRE expects a growth of 5.4% for construction costs.
C-PACE is in heavy demand because it's a fixed-rate product, starting in the mid-single digits. It also can be up to 35% of the capital stack. With a typical senior loan at 65% loan-to-value, providing C-PACE at 30% of the stack, the lender becomes below 40%, lessening its capital risk. As a result, it is helping development projects across all real estate sectors pencil to start construction and those in mid-construction reach get completed.
Today we see more requests for this financing as budgets are blowing out with cost overruns. C-PACE provides the needed capital when the developer cannot offer additional equity or banks are unwilling. The following are examples of mid-construction projects that utilized C-PACE funding from Peachtree to bring projects across the finish line.
En el entorno financiero actual, los patrocinadores buscan formas creativas de capitalizar las operaciones. Una de esas formas es Financiamiento de CPACE.
Jared Schlosser, vicepresidente ejecutivo de Peachtree Hotel y CPACE, conversó con Malcom Davies, presentador del podcast On the Edge, para hablar sobre cómo los patrocinadores pueden utilizar CPACE para todo, desde aprovechar las pilas de capital para el desarrollo hasta la recapitalización retroactiva de proyectos e incluso como fuente de capital de rescate.
En este episodio, comprenda mejor:
Para obtener más información sobre CPACE, visite nuestra Preguntas frecuentes sobre CPACE.
ATLANTA (Jan. 24, 2024) – In December, Peachtree Group achieved a significant milestone by securing $150 million in Commercial PACE (CPACE) financing, approaching $750 million completed since its inception in 2019. For the year, Peachtree Group completed 23 commercial property assessed clean energy financing transactions across the U.S. for a total of approximately $250 million in directly originated and balance-sheet funded CPACE financing.
Commercial real estate faces a tough 2024 as trillions of dollars in debt comes due and refinancing gets harder, compounded by banks tightened lending standards.
“In this challenging lending market, Commercial Property Assessed Clean Energy financing has emerged as a crucial source of liquidity. This financing option is becoming increasingly essential as owners grapple with looming debt maturities and limited refinancing opportunities,” said Jared Schlosser, Peachtree Group’s senior vice president, origination and head of PACE financing.
CPACE has grown relatively quickly and, in just over a decade, has hit a cumulative $5.2 billion in U.S. commercial real estate financings, according to PACENation, confirming the growing market adoption and acceptance of this innovative financing tool.
“CPACE has been a game-changer by offering a unique advantage over other forms of financing with its long-term, fixed-rate financing that lowers the project's cost of capital,” Schlosser said.
Peachtree Group is one of the most active hotel commercial real estate lenders in the U.S., ranking as the eighth-largest U.S. hotel lender by the Mortgage Bankers Association in their most recent rankings. Of the CPACE transactions completed this year, roughly 50% were in hospitality.
“CPACE financing aligns with the financial, environmental and guest experience goals of hotels, making it a popular choice for owners looking to improve energy efficiency, reduce costs and enhance their sustainability initiatives,” Schlosser said.
· The Thompson, Palm Springs, Calif.
· El Caminante, Dana Point, Calif.
· The Marriott Tribute Hotel, St. Augustine, Fla.
· Palihotel, San Francisco, Calif.
· DoubleTree by Hilton Youngstown Downtown, Youngstown, Ohio
· 950 3rd Street, Washington, DC(Multifamily)
· Reserve at Vinedo, Paso Robles, Calif. (Multifamily)
· Old City Hall, Tacoma, Wash. (Mixed-Use)
“This innovative financing mechanism empowers property owners across all sectors to embark on energy-efficient upgrades, renewable energy installations, and water conservation initiatives, all while minimizing their financial burden,” Schlosser said.
Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. We’ve executed hundreds of investments since inception with a focus on real estate acquisition, development, and lending. Today, we manage billions in equity, augmented by services designed to protect, support, and grow our investments.
ATLANTA (Jan. 17, 2024) – Officials of Peachtree Group today announced that the company originated $73 million in a construction loan and CPACE financing for the development of a 263-room dual-brand Home2 Suites (130-key) and Tru by Hilton Hotel (133-key) in San Diego, Calif., on behalf of Baxter Hotel Group, a San Diego‐based, vertically integrated real estate development and management company. Baxter plans to begin construction on its 16-story, dual-branded hotel this month and expects a22-month construction timetable.
The Peachtree Group team originated a $50.4 million floating-rate construction loan over a three-year term and $22.6 million of fixed-rate commercial property clean energy (CPACE) financing amortized over 25 years, which in total represented 64% of the total development cost.
“We were able to execute an innovative capital stack with the addition of CPACE in an otherwise difficult financing market that provided ample capital for the construction to begin while saving the sponsor 200 basis points in interest rate spread,” said Jared Schlosser, Peachtree’s senior vice president, head of hotel origination and CPACE.
The construction budget has CPACE-eligible items, including seismic improvements, lighting, building envelope, HVAC, plumbing and qualifying soft costs.
The hotel will be located at 1357 5th Avenue and will cater to transient and extended-stay guests, offering a new product that has been historically underserved in the market. The high-quality amenities proposed are not typically seen in limited-service hotels, like sustainable designs to achieve Leadership in Energy and Environmental Design (LEED) certification, a ground-floor restaurant and a rooftop pool fully equipped with a restaurant and bar offering panoramic views of Downtown San Diego.
About Peachtree Group
Peachtree Group is an investment firm driving growth with a diverse portfolio of commercial real estate assets and other ventures. The company has executed hundreds of investments since its inception, focusing on real estate acquisition, development and lending valued at almost $9.3 billion in total market capitalization. Today, Peachtree manages over $2.5 billion in equity, augmented by services designed to protect, support and grow its investments. For more information, visit www.peachtreegroup.com.
Contact:
Charles Talbert
678-823-7683
ctalbert@peachtreegroup.com
