Clean Energy Financing Can Help Fill In CRE Capital Gaps, Even In Uncertain Times

Steel, wood, glass and concrete are the key ingredients in commercial building construction, but the glue that holds it all together is capital.

Without it, nothing gets built, and capital has been in scarce supply recently as the commercial real estate industry reckons with pandemic-related disruptions and worries about a looming recession that always seems to be just around the corner.

In this environment, more project sponsors are turning to Commercial Property Assessed Clean Energy Financing, commonly known as C-PACE. Available in 32 states and the District of Columbia, the public-private funding mechanism allows owners and developers to access fixed-rate, low-cost and long-term financing to support sustainability improvements to their properties.

Nuveen Green Capital Chief Operating Officer Andrew Zech said C-PACE allows CRE owners to capitalize or recapitalize a portion of their projects through a tax assessment, as long as the project meets certain energy and water performance standards. C-PACE also allows them to finance at a “dramatically better” interest rate than other market capital structures that might exceed 10%, he added.

“For Nuveen Green Capital, 2022 was our best year ever for helping clients secure C-PACE construction financing,” Zech said. “Our deal volume doubled for the eighth year in a row, and 2023 looks to be even busier.”

He said C-PACE has evolved from being viewed as a “nice to have” addition to a developer’s capital stack to something that allows projects to move forward even in the face of economic challenges.

“C-PACE is proving to be a countercyclical finance tool,” Zech said. “Even though construction starts are down significantly from their highs, the supply of construction capital into the market is down even more.”

Those trends drive demand for capital structures that allow developers to make projects pencil, and C-PACE is becoming a “cornerstone” of that strategy, he said.

Zech said the main financing challenge facing CRE in 2023 was perhaps best expressed by Vornado CEO Steven Roth during his REIT’s Q4 2022 earnings call.  

“He said that steel, concrete and curtain wall are important, but in our business, capital is the essential raw material,” Zech said. “I thought that was very well put and it is certainly what we're seeing in the industry, where a whole slew of developers are making daily decisions about whether to sit on the sidelines and wait through this economic cycle or break ground on their projects.”

In this difficult environment, Zech said Nuveen Green Capital is “right there in the fight,” helping clients keep their sustainability-related construction projects moving forward or providing recently completed construction projects with access to attractive, fixed-rate capital to recapitalize projects and bridge them to stabilization. The 7.5% financing available through C-PACE is attractive to developers across all asset classes, he added.

This is a sea change for the CRE industry and for Nuveen Green Capital, which has been helping project sponsors obtain C-PACE financing since 2015, when it was known as Greenworks Lending. Initially, the company’s customer base was dominated by smaller retrofit projects and larger hospitality construction deals, but Zech said his clients today run the CRE gamut.

“The value proposition that we've historically had for hospitality is now just as true for the construction or bridge financing of all standard asset types,” he said.

Zech said the popularity of C-PACE is also driven by the growing realization that sustainability can be good for an organization’s bottom line.

“With tools like C-PACE, environmental, social and corporate governance frameworks are able to drive better business outcomes,” he said. “In fact, a JLL report said that there's no getting away from the fact that sustainability objectives are aligned with cost-saving efforts.”

Somerset Station, a planned 220-unit multifamily development in Philadelphia, recently received $18M in C-PACE financing, allowing the 12-building residential complex to incorporate energy- and water-saving features. With this deal, Nuveen Green Capital Originations Director Shelah Wallace said her organization became the first C-PACE capital provider to finance a multifamily project in Pennsylvania.

Zech said ownership by trillion-dollar asset manager Nuveen gives Nuveen Green Capital the institutional backing it needs to help projects like Somerset Station and others receive C-PACE financing while it works with borrowers through every step of the process.

“Our relationship has allowed us to continue to grow at a rapid pace while vertically integrating our offerings,” he said. “From the moment a customer is introduced to C-PACE financing, to 30 years down the road when they make their last payment, they are working with dedicated Nuveen Green Capital team members.”

To learn more about C-PACE financing, visit Nuveen Green Capital.

This article was produced in collaboration between Nuveen Green Capital and Studio B. Bisnow news staff was not involved in the production of this content.

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