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With traditional commercial real estate financing sources being cautious in lending during the pandemic, property owners turned to clean energy commercial real estate finance to fund energy efficiency, water conservation, renewable energy projects and new developments.
Several leading C-PACE lenders also saw an increase in retrospective funding, mainly targeted by owners struggling with a pandemic-induced reduction in cash flow. These borrowers have taken out C-PACE loans based on previous energy-related upgrades.
Citing statistics from industry advocacy group PACENation, DBRS Morningstar reported that C-PACE transactions reached $ 536 million in 2020 – a significant decrease from the record volume of $ 677 million two years ago. However, it was enough to grow the commercial projects C-PACE funded over the past decade to more than 2,500 and a value of $ 2.07 billion.
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C-PACE is emerging as an effective mechanism for property owners to obtain low-cost, long-term finance for energy improvements and to repay the loans through a property tax bill assessment.
Currently, 37 states and Washington, DC have passed licensing laws, although programs are not yet active in all countries. New York City, which passed the C-PACE Act in 2019 under the Climate Mobilization Act, which requires owners of large buildings to significantly reduce greenhouse gas emissions from 2030 onwards, is expected to become active within months, while Cook County is , Ill. And other parts of the Chicago metropolitan area became active last year.
Significant uptick
A Los Angeles area hotel that has received a $ 9.6 million retrospective C-PACE loan from Petros PACE Finance. Image courtesy of Petros PACE Finance
Several C-PACE lenders told Commercial Property Executive that their loan volume increased over the past year along with the size of some transactions. They expect this momentum to continue into 2021.
“It was a significant increase from last year,” said Mansoor Ghori, CEO and co-founder of Petros PACE Finance. The Houston-based company’s transaction volume tripled in 2020, and retroactive loans, which were previously “rare and far apart,” rose 30 to 40 percent, he added.
Ghori expects retroactive C-PACE loans to be popular with two main groups in 2021: owners who need to withdraw cash from their homes to keep their businesses going, and investors who seek loan proceeds on distressed properties. One of Petros’ retrospective transactions was a $ 9.6 million C-PACE refinancing transaction for a hotel in the Los Angeles area. Petros also handled funding for many new construction projects, including a $ 7.9 million C-PACE loan for a senior citizen residence in Cincinnati. Petros’ largest deal in 2020 was a $ 29 million loan, but Ghori expects bigger deals this year.
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Jessica Bailey, CEO and co-founder of Greenworks Lending in Darien, Connecticut, said 2020 offers “many growth opportunities” for the company she founded in 2015 with COO Alexandra Cooley.
“Many other types of capital with which we compete had pulled out of the market,” she told CPE, citing mezzanine lenders and debt securities in particular. “We were so well capitalized that we gained market share there.” In April, Greenworks raised $ 150 million in committed capital from Nuveen, TIAA’s investment manager, to increase its lending capacity. It was Nuveen’s third investment in three years.
At the start of the pandemic, Greenworks looked at which states with C-PACE legislation allow retrospective recapitalization and found that most do so, although the rules vary. Retrospective C-PACE loans, which previously accounted for 25 to 35 percent of the company’s business, were a major contributor to growth in 2020.
Bank Street Lofts, a planned multi-family project in Baltimore that received a nearly $ 9 million C-PACE loan, the largest C-PACE loan in Maryland to date. Image courtesy of Greenworks Lending
Greenworks also promoted transactions in new developments and by entering new markets such as Pennsylvania, particularly the Philadelphia area. The company’s deals typically range from $ 2 million to $ 10 million, but some 2020 deals have been bigger, and Bailey added that she expects some deals to hit $ 30 million this year.
One of the company’s first C-PACE deals, which closed in 2021, was a nearly $ 9 million loan in Baltimore – Maryland’s largest to date – to finance energy efficiency and water conservation at Bank Street Lofts, a 149-unit apartment building Residential units.
Expansion amid the pandemic
Both Petros and Greenworks increased their workforce in 2020 due to a combination of increased business and plans to open up new markets. Greenworks hired 12 professionals to lead expansion efforts in the Midwest, New York and Florida. Petros also hired several strategic people to focus on key new markets such as New York City and the Midwest.
Mark Pikus, President of Inland Green Capital, cited the company’s growing presence as evidence of C-PACE’s performance in 2020. When the company started in 2013, much of its business was centered in California, Pikus said. Since then, the Oak Brook, Illinois based company has expanded into numerous markets including Florida, Missouri, Kentucky, Ohio, Wisconsin, Michigan, and Colorado. New York City is also on the radar.
“The Midwest has been a little more active for us last year and where we see it next year,” Pikus told CPE. Illinois and Greater Chicago will get a lot of attention: “It’s our backyard, so it will be a major focus for us going forward.”
The company, which specializes in C-PACE loans in the $ 400,000 to $ 500,000 range, has worked on a number of midsize projects, said Jason Stringer, who recently joined the company as vice president of business development.
Inland Green also saw an increase in retrospective funding, particularly for hotel properties. “All of my recent deals have retrospective components,” noted Stringer.