Understanding C-PACE
In principle, C-PACE (Commercial Property Assessed Clean Energy) has everything going for it:
- It involves commercial real estate investment, still one of the best and most stable investments
- It saves owners money, is self-liquidating, and transferable
- It provides ready availability of capital for 100% of retrofits and up to 35% of the capital stack for new construction and gut rehabs or conversions
- It increases building quality, comfort, and asset valuations
- It offers improved economic development opportunities
- And it means reduced carbon emissions from the buildings where we work, shop, and live (in multifamily housing)
It should be wildly successful in New Jersey, one of the most dynamic of the old industrial states, whose buildings are sorely in need of updating. It should be widely used to improve the entire built environment, reduce toxic emissions, and increase resilience.
The challenge is that it’s unfamiliar to most building owners and developers (as well as to their trusted advisers such as architects, engineers, and lawyers). Its innovative approach involves attaching the cost of the improvements to the property itself as a Special Assessment which is repaid through the property tax system. This has multiple advantages:
- It’s not a loan to the owner, and thus does not increase the owner’s liabilities or deplete his/her capital. (It’s sometimes called a “loan,” and C-PACE capital providers are often called “lenders,” but technically it’s a third-party investment in the property.)
- It’s typically off-balance-sheet, and the repayments are treated as operating expenses (like other property taxes). It does not increase the owner’s liability
- The obligation travels with the property if it’s sold or transferred.
- It uses private capital, not government, taxpayer, or ratepayer funds.
- It’s typically available at low market-rate interest, and repayments are spread out over the useful life of the improvements, so it’s a “pay-as-you-go” model.
- For investors, it provides stable, profitable, and low-risk returns.
It essentially uses the model that municipalities have employed over multiple decades to create sidewalks, sewers, libraries, and other public works. Funds are obtained at low rates of interest over long terms, typically up to 30 years, and usually in the form of bonds. The cost of repaying these is then distributed amongst the property owners who benefit from the improvements through a Special Assessment, typically a small charge tied to the benefit received.
The NJEDA is currently rolling out the necessary forms and documents required to make the Garden State C-PACE Program available in municipalities throughout the state. Towns are required to pass an ordinance to opt into the Program and sign a Program Agreement with the Authority for properties within their jurisdiction to be eligible.