Commercial drivers and challenges of financing net zero buildings
A Solution - C-PACE Financing
As the effects of climate change continue to impact the environment, the movement to decarbonize has become increasingly crucial. To address this, state and local governments are enacting clean energy mandates. These mandates, along with ESG directives, are important in the efforts to decarbonize, however, they create challenges for the commercial real estate industry, as developers and owners seek efficient ways to finance the upfront costs of sustainability measures and access capital during times of economic volatility. Fortunately, C-PACE (Commercial Property Assessed Clean Energy) is providing a win-win solution for current market dislocation as well as a path forward for meeting both local government sustainability mandates and investor ESG targets – and could turn the looming perfect storm of both issues into a financially viable opportunity to build a more sustainable future.
For Nuveen Green Capital Co-Founder & CIO, Alexandra (Ali) Cooley, who will be speaking at the Companies for Net Zero Decarb New York event on September 14, and Co-Founder, President & CEO Jessica Bailey, sustainability has long been at the forefront of their mission - to show that “Saving Energy is Smart Business.”
With shared concern that commercial buildings generate ~40% of global carbon emissions, Bailey and Cooley, who met in 2010 at Connecticut Green Bank, were motivated by the discovery that C-PACE financing could be transformative in unlocking and scaling clean energy in the commercial real estate market. The mission-minded pair launched startup Greenworks Lending in 2015, with C-PACE as the core lending solution. Since then, the firm was acquired by $1.1 trillion asset manager, Nuveen, in 2021 and rebranded to Nuveen Green Capital in early 2022. The company has since continued to experience record growth – in large part, due to the increased demand for C-PACE, as well as the lending platform that Ali helped build.
C-PACE is a public-private funding mechanism that allows owners and developers to access fixed-rate, low-cost, long-term financing to support sustainability measures, such as solar, water savings, energy efficiency, and resiliency on their properties. The program, now available in 32 states and Washington, D.C., is growing in popularity as builders, developers and lenders have found the financing can be an efficient source of capital, while also solving other challenges.
C-PACE - providing a solution to two challenges: economic volatility and decarbonization mandates
1. Economic volatility
C-PACE is providing a solution for an increasing number of projects - even in recent times of economic uncertainty. As the commercial industry faces bank failures, repeated rate hikes, and lender pullback, C-PACE, with its long-term, fixed rate, low interest, non-recourse terms, provides one of the least expensive forms of capital for CRE owners and developers – a welcome relief that has caused a surge in demand for the mechanism as an alternative form of debt.
2. Compliance with sustainability mandates
A recent Brookings Institution study discusses the decarbonization efforts of 50 of the largest cities in the U.S. The report explains that there is still progress to be made, but there is encouraging forward momentum – and C-PACE is an important part of that.
An increasing number of cities and states are enforcing clean energy mandates - and access to C-PACE funding is enabling building owners to comply with the regulations as they can source upfront financing to fund the sustainability measures, while aiding in decarbonization efforts.
Four (of the larger) U.S. cities are among those that have enacted ambitious climate targets:
In Boston, BERDO (the Building Emissions Reduction and Disclosure Ordinance) requires large buildings to report their annual energy and water use to the City, and reduce their greenhouse gas emissions over time. 1
As of January, California’s 2022 Title 24 requirements for the California Building Standards Code went into effect, which sets the Building Energy Efficiency Standards for new commercial buildings. In addition, California recently approved two new amendments, which will take effect in 2024, and will dramatically limit/reduce embodied carbon emissions in commercial buildings larger than 100,000 square feet.2
New York City
New York City passed one of the most ambitious plans for reducing greenhouse emissions in the country – Local Law 97. Under this groundbreaking law, most buildings over 25,000 square feet will be required to meet new energy efficiency and greenhouse gas emissions limits by 2024, with stricter limits coming into effect in 2030. The goal is to reduce the emissions produced by the city’s largest buildings 40 percent by 2030 and 80 percent by 2050.3
Commercial Property Assessed Clean Energy (C-PACE) was adopted by the city as Local Law 96 to act as a ‘carrot’ for property owners to have a source of funds available to make the necessary capital improvements to meet these strict new requirements.
While C-PACE was passed as part of the Climate Mobilization Act to help building owners meet strict emissions targets, C-PACE can also finance capital improvements to commercial and multifamily buildings whether or not they are subject to the provisions of Local Law 97. C-PACE can finance energy related capital expenditure projects in buildings of all sizes, helping property owners realize significant savings even if they are not required to comply with the emissions cap.
Sustainability 2.0 (SDC) is the District’s plan to make the District the healthiest, greenest, and most livable city in the nation for all District residents by 2032 – part of its commitment to the district becoming carbon neutral and climate resilient by 2045.4
While the business is growing, and Nuveen Green Capital is providing a solution to the industry through attractive, accessible capital, the firm’s central mission, to reduce carbon in the built space, is also being realized as a key part of the solution to the climate crisis
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