Completing CRE projects in times of economic turbulence
Why are the lights turning off?
The lights turn off as you leave the room…the water turns off automatically when you’re done washing your hands…a shade descends as it gets lighter during the day…
These types of energy savings measures in commercial real estate buildings are becoming increasingly important to tenants, as well as those who invest in the properties – both from a cost saving perspective, as well as from a sustainability perspective.
And it’s getting hotter.
Our nation is taking vital steps to prioritize clean energy initiatives, particularly with the recent passage of the IRA (Inflation Reduction Act). The IRA is projected to reduce our nation’s carbon emissions by 40% in 2030. At the state level, more and more sustainability mandates are also being enacted.
But in times of economic turbulence, how do CRE owners pay for these sustainability measures?
According to a recent Bisnow article , “Commercial real estate accounts for about 40% of all greenhouse emissions, and U.S. commercial buildings consume 35% of all electricity and account for 16% of carbon emissions.”
But given the recent economic volatility, looming recession, and skyrocketing interest rates, property owners and developers are being squeezed from all sides – and they may even feel forced to delay their projects.
However, they can access one of the least expensive financing mechanisms available in the form of C-PACE (Commercial Property Assessed Clean Energy) financing. This low-cost, long-term, fixed-rate option is a gamechanger as it allows property owners to save annually by incorporating sustainability measures. It’s a win-win proposition. The demand is also growing for the application of C-PACE as a fixed, low-rate bridge debt in new construction projects, or to refinance existing construction debt and bridge a property to stabilization.
Time is of the essence.
But time is of the essence. Sponsors that delay their projects by shopping around may get burned by rising rates on the other portions of their capital stacks. C-PACE financing can fund 100% of the hard and soft costs of commercial building upgrades and new construction elements that improve energy efficiency. This, combined with the fixed rate, often over a 20+ year span, is a significant opportunity.