The commercial real estate sector continues to be disrupted as bank loans age in a tight credit market. Many owners and developers are looking for financing options for their ongoing or just-finished building projects in the present banking market. CPACE, or Commercial Property Assessed Clean Energy, is one of the most affordable ways to raise finance and is steadily becoming a more alluring financial option.
In addition to CPACE’s many advantages for financing planned new construction and retrofit projects, astute property owners and developers also learn that it can be used to recapitalize projects in the middle of construction or have recently concluded (up to three years in most states).
CPACE: What is it?
CPACE is a public-private commercial real estate financing mechanism (Commercial Property Assessed Clean Energy). It gives property owners and developers access to long-term, fixed-rate financing at a reasonable cost for projects that affect a property’s resilience or energy and water performance. Clean energy improvements may be funded in the same manner as new roads, lighting, and water mains, thanks to a state law that classifies them as public benefits. Put another way, they are paid back as a benefit assessment on the property tax statement and are funded with no down payment. CPACE covers all qualified measures’ hard and soft costs, and these expenses can be refinanced both during and after the project’s completion. This can be a lifesaver for developers and property owners in the current capital-constrained market.
How does recapitalization with CPACE operate?
Owners and developers can use CPACE funds to refinance throughout the middle of a project or for up to three years after it is completed. This allows for flexible recapitalization to carry projects until they reach stability. Since they can recapitalize their project using CPACE proceeds to pay down or restructure existing debt, fund construction cost overruns, and replenish their operating reserves, the generous look-back period appeals to property owners who have encountered difficulties during the construction or lease-up. Additionally, CPACE allows borrowers to postpone repayment for up to 24 months after closing.
Due to these benefits, CPACE has seen a significant increase in use as a recapitalization approach in recent years. It assists in the transition of projects to stability and guarantees their completion.
Additional advantages of recapitalizing fixed rates with CPACE include
- CPACE provides a fixed rate with a lengthy amortization period (20–30 years from the initial payment date).
- Up to 35% of the property value is generated in net proceeds through CPACE.
- After completion, no financial constraints are associated with CPACE financing except the completion guarantee.
- A secure property assessment is used to secure CPACE funding, and this process is non-accelerating.
- Anytime prepayment is possible for CPACE; the only restriction is a decreasing charge.
- Senior lenders are more ready to see how CPACE might benefit their borrowers by providing an alluring funding source and adding value to their projects. Because of its broad acceptability in the loan industry, more than 500 banks have already collaborated with CPACE lenders.
As a recapitalization technique, CPACE lowers the average weighted cost of capital, enhances project revenues, releases liquidity, and lessens lenders’ current commitment to projects.
We Can Help
CPACE loans offer an attractive option for property owners looking to access additional funds for eco-friendly upgrades and renovations to their real estate. To fully leverage this emerging financing avenue, real estate developers should consider engaging legal counsel early to understand the intricacies of CPACE programs in their state, obtain approval from mortgage lenders, and address any concerns.
National Tax Group’s professionals manage each stage of the CPACE process. Schedule a free consultation with our team of experts to learn more!