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CPACE: An Affordable Solution for Mid-Construction Capital
CPACE financing is an innovative solution offering low-cost, long-term capital that can also be retrofitted.
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
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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.
Low-Cost, Fixed-Rate Capital
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.
Mid-Construction Case Studies
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.
- C-PACE for Cost Overruns. A developer faced roughly $2 million in cost overruns for a five-story, 58-key hotel in Florida that was 65% complete. Peachtree provided the developer $4.5 million in C-PACE financing with a 30-year term of 6.82%.C-PACE.
- Can be Utilized Retroactively. One of the benefits of C-PACE for mid-construction projects is it can be used retroactively. Similar financing was utilized to construct a $32 million multifamily and retail project in Rehoboth, Delaware. Construction on the project began in January 2021 and was 40% completed. Peachtree provided the developer $4.8 million in C-PACE financing with a 25-year term at 7.25%. Most of the funds were used retroactively for the building envelope, HVAC, lighting, plumbing, elevator, seismic and other qualifying soft costs.