In today's financial environment, sponsors are looking for creative ways to capitalize deals. One such way is CPACE financing.
Peachtree EVP Hotel and CPACE Jared Schlosser sat down with Malcom Davies, host of the On the Edge podcast to discuss how sponsors can utilize CPACE for everything from leveraging development capital stacks to retroactively recapitalizing projects and even as a source of rescue capital.
In this episode, gain a greater understanding of:
For more information on CPACE, visit our CPACE FAQs.
NASHVILLE (June 25, 2024) – Peachtree Group originated its first commercial property assessed clean energy (CPACE) financing in Tennessee with a $10.7 million loan for a Class-A office development in Nashville. This marks one of the first properties in the city of Nashville and Davidson County to utilize CPACE.
The four-story, 75,000 sq. ft. office building at 1621 Ensley Blvd. is situated between Nashville’s central business district and the Wedgewood-Houston district. The CPACE financing, set over a 30-year term, will fund the office’s lighting, building envelope, HVAC, plumbing, and roof using a combination of retroactive and future funding. Division Street Development is developing the project, with a targeted completion date of October 2024.
Office and commercial real estate owners face challenging years ahead, with trillions of dollars in debt maturing and refinancing becoming more difficult due to tightened bank lending standards.
“For eligible projects, CPACE financing remains one of the most attractive options to bring a project to completion. We are pleased to assist Division Street Development in securing the final piece needed to complete the financing puzzle for their office development,” said Jared Schlosser, Peachtree’s executive vice president and head of CPACE.
CPACE programs offer a unique opportunity for property owners to finance the up-front cost of energy or other eligible improvements on a property. This is then repaid over time through a voluntary assessment, as outlined by the U.S. Department of Energy. In Tennessee, property owners can leverage CPACE financing up to 25% loan to value, providing a flexible and sustainable financing option.
In 2021, the Tennessee State legislature passed CPACE enabling legislation, allowing counties or cities to establish CPACE programs.
Peachtree Group Credit is a direct commercial real estate lender offering permanent loans, bridge loans, mezzanine loans, CPACE financing and preferred equity investments across all commercial real estate sectors.
About Peachtree Group
Peachtree Group is a vertically integrated investment management firm specializing in identifying and capitalizing on opportunities in dislocated markets, anchored by commercial real estate. Today, the company manages billions in capital across acquisitions, development and lending, augmented by services designed to protect, support and grow its investments. For more information, visit www.peachtreegroup.com.
Contact:
Charles Talbert
678-823-7683
ATLANTA (June 24, 2024) – With ongoing credit market dislocations, Peachtree Group originated a $40 million retroactive CPACE loan to BLG SAN DIEGO, LLC (BLG) for its recently opened 147-room AC Hotel San Diego Downtown Gaslamp Quarter in Calif. The Commercial Property Assessed Clean Energy (CPACE) financing was amortized over 30 years and required no payment for a year, followed by five years of interest-only payments. Also, the proceeds allowed BLG to pay down its senior loan with California-based Preferred Bank and E. Sun Commercial Bank, Ltd. to under $20 million, there by mitigating the banks’ exposure.
“This innovative capital structure significantly alleviated the immediate financial pressures, enabling the hotel to establish a solid cash flow foundation during its initial years of operation,” said Greg Friedman, Peachtree Group’s managing principal and CEO.
Despite the U.S. hotel industry's strong RevPAR performance, multiple headwinds exacerbate financial stress for owners. These headwinds include the lagging profitability of U.S. hotels, persistently high interest rates and historically high property insurance costs.
“When we opened the AC Hotel San Diego Downtown Gaslamp Quarter in March 2023, there was a sizeable disconnect between hospitality fundamentals, which are strong, particularly in San Diego, while the debt markets were deteriorating meaningfully,” said Brad Honigfeld, founder, chairman and co-CEO of the New Jersey-based Briad Group®.“ The Fed’s tightening process and rising fund rates drove up the cost of debt considerably.”
Hotel and commercial real estate owners face a tough few years as trillions of dollars in debt come due, and refinancing gets harder, compounded by banks' tightened lending standards.
According to JLL Research, by the end of 2024, $5.8 billion worth of U.S. hotel-securitized loans will be due for repayment, requiring full payment, refinancing, extension or sale. However, if these loans were refinanced at current interest rates, most would struggle to generate enough income to cover their debt costs.
In this challenging lending market, Commercial Property Assessed Clean Energy (CPACE) financing has become a vital source of liquidity. This option is growing in importance as owners face impending debt maturities and scarce refinancing opportunities.
CPACE financing has rapidly gained traction in the commercial real estate market, reaching a cumulative $7.2 billion in the U.S. in just over a decade, according to PACENation. This significant milestone underscores the growing acceptance and adoption of CPACE financing as an innovative and effective solution. Peachtree Group, a key player in this market, has demonstrated its commitment to CPACE financing, with over $800 million in CPACE originations.
The AC Hotel San Diego Downtown Gaslamp Quarter is in downtown San Diego's Gaslamp Quarter, known for its restaurants, shops and nightlife.
“Our hotel was benefiting from its location and performing to its original underwriting, but the debt costs were straining cash flows,” Honigfeld said.
Retroactive CPACE funding offers unique advantages for property owners. It operates similarly to normal pre-project funding, with one key difference: 100% of the loan proceeds can be used to reimburse the property owner for costs already incurred. This feature makes retroactive CPACE a valuable resource for property owners seeking better loan terms or improved cash flow for completed projects.
“The financial relief it provides not only ensures the hotel's success but also positions it for long-term stability. By reducing the financial burden in the early years, owners can focus on delivering exceptional guest experiences and achieving operational excellence,” Friedman said.
This strategic approach paves the way for the asset to transition to a more favorable financing market in the future, ensuring its sustained profitability and growth.
About Peachtree Group
Peachtree Group is a vertically integrated investment management firm specializing in identifying and capitalizing on opportunities in dislocated markets, anchored by commercial real estate. Today, the company manages billions in capital across acquisitions, development and lending, 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
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.
