C-PACE financing, also known as Commercial Property Assessed Clean Energy financing, is a financing tool that allows property owners to borrow money for clean energy projects which is then repaid through a special assessment that appears as an addition to one’s property tax bill. It enables lower payments over a longer term to fill a funding gap that allows more projects to be financially feasible. C-PACE may be particularly well-suited for use in housing development, especially in renovations or adaptive re-use.
Allowing a portion of the capital stack in a construction project to be structured as long-term financing, rather than requiring all repayment in the short term, reduces the project’s immediate cash flow burden. By stretching out repayment over a longer horizon, developers can keep early-year operating costs lower, making it easier for the project to achieve stabilized occupancy and generate revenue before heavy debt service obligations kick in. This improved cash flow profile increases the likelihood that the project will remain financially viable. In return, lenders benefit from the financing being secured through the tax assessment, ensuring a greater likelihood of repayment. We won’t go into much greater detail here as we’ve covered it in greater depth here.
As communities across North Carolina struggle with increased demand for housing with only so much supply, every community is searching for tools that can unlock development. We at Sanford Holshouser believe C-PACE is a solution that already exists.
Housing, and specifically adaptive re-use, is particularly attractive for C-PACE financing because so many of the required upgrades qualify as clean energy improvements as defined in the C-PACE statute. One example of this from right here in NC comes from Gastonia. In the first-ever C-PACE financing in NC, a private developer used C-PACE financing within the capital stack to convert the old Trenton Mill into an 85-unit multifamily complex. After sitting abandoned for years, the City of Gastonia paid $495,000 with the plan that a private group would then handle the conversion. With a total cost of around $25 million, $6.5 million in C-PACE funding was utilized for needed energy efficiency upgrades and other soft costs as part of the transformation. For more information on the Trenton Mill project, click here.
As we’ve outlined in the past, the first thing a local government needs to do is authorize/opt-in to C-PACE locally. Once you’ve done this, it’s important to let your housing authority and economic development teams know the program exists and how it works. Outside of that, you have no other financial obligations, other than to pass through the collected property tax assessments that you collect to a lender.
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