Green buildings and initiatives sometimes have a hard time getting off the ground. Many property owners, especially those in the mid-capital commercial market, don’t expect to see the necessary ROI to invest in green building projects, given that the cost savings would typically be passed onto tenants in the form of lower bills.
Enter C-PACE, which stands for Commercial Property Assessed Clean Energy, is an improvement initiative that allows commercial building owners to fund efficiency projects aimed at cutting down on water and electricity use through a property tax assessment. Owners are able to fund the projects with $0 down, and pay back the loan over a period of up to 20 years while seeing the value of their buildings increase almost immediately.
There are over 20 states in the United States with PACE programs, and since 2009, over 1,000 projects have been funded through the initiative. And with the rising popularity of green buildings, commercial real estate brokers would do well to know the basics of C-PACE and similar initiatives so they can advise their clients.
Why should commercial building owners care about C-PACE?
The demand for eco-friendly and “healthy offices” has skyrocketed in recent years, and the commercial real estate industry is scrambling to keep up. Building owners are expected to spend $960 billion globally between now and 2023 to make eco-conscious upgrades to existing structures.
Chris Ihler of Energy Link, an Engineering Procurement and Construction firm which serves as a one-stop-shop facilitator for owners looking to take advantage of C-PACE, said, “The program provides one of the few win-win-win scenarios in the commercial real estate industry.”
According to Energy Link, owners who make the eco-friendly upgrades afforded by C-PACE report:
- A competitive advantage in their market
- Increased building value
- Reduced operating costs
- Shared benefits with tenants
- Higher Energy Star ratings
- More tax credits and utility rebates
What’s in it for commercial tenants?
Previously, many building owners were hesitant to invest in efficiency upgrades because tenants reaped the rewards in the form of drastically reduced utility bills. With the C-PACE program, tenants still benefit but owners win as well.
Chris explained that many owners will offset the note payable with a green lease addendum. Whatever payout is expected of the tenant in the addendum is then offset, usually entirely, by the energy savings.
What are the drawbacks?
With so many obvious benefits, not the least of which being the propagation of Earth-friendly building practices, one might wonder: who wouldn’t want to take advantage of C-PACE?
According to Chris, “Many building owners simply don’t have the resources to take on the process.”
Just to start the application process a building owner would need to hire an engineering firm and pay up to $20,000 just to do an energy audit. And that’s only a preliminary step.
As a result, Chris explained, it’s often the major corporations, like Target, Kohls and Wal-Mart taking advantage of C-PACE.
“Charging up to $20K is a non-starter for most mid-cap companies. It's just too much money to begin the conversation,” said Chris.
But that might be changing. Energy Link has set out to solve that problem.
“Our goal is to make the process as painless and as simple as possible for building owners from start to finish. As an engineering procurement and construction firm, we can really take care of everything,” said Chris.
Chris anticipates that as more and more firms like theirs seek to make this type of program accessible to owners, demand for green upgrades will only continue to grow.
What’s next for C-PACE?
Right now, the majority of C-PACE funded projects are in the energy efficiency category, but Energy Link anticipates renewable energy to gain more traction in the upcoming years and match the percentage of energy efficiency projects funded by C-PACE.
C-PACE is on target to reach $2 billion funding dollars by 2020. “What makes this program so attractive is that it is fully separated from the business balance sheet. With C-PACE being the funding partner, projects are $0 down, making the investment a positive cash system from day one. It's a simple idea: spend more to save more,” said Chris.